[Satellite News 04-06-11] Navigant Analyst Jeffrey Eisenach sharply criticized a research estimate submitted Feb. 15 by the CTIA Wireless Association (CTIA) and the Consumer Electronics Association (CEA) to the U.S. Federal Communications Commission (FCC) that claimed incentive auctions for 120 MHz of broadcast spectrum would generate gross revenues of at least $36 billion and net revenues of $33 billion to $34 billion.
    Eisenach called the CTIA and CEA “highly speculative and ultimately unreliable,” due to the lack of available data necessary to calculate revenue returns on spectrum auctions. “The revenues that might be produced by such an auction are, at present, unknowable with any degree of precision. No one has proposed a specific design for an incentive auction, nor prescribed the nature or magnitude of the incentives that would be offered to current spectrum licensees to cause them to voluntarily proffer their spectrum,” Eisenach wrote in a response report issued April 1.
    In the CTIA/CEA report, the two associations said their estimates were based on a spectrum supply estimate. According to Eisenach, the CTIA and CEA’s supply forecast also is based on assumptions. “Even if the precise design of the auction were known, and the ‘split’ between the government and current licensees had been decided, the history of spectrum auctions teaches one primary lesson — that history is a poor guide when it comes to spectrum auctions. Thus, the hedonic price regression model employed by CTIA/CEA, which is based on data from prior auctions, is imprecise,” Eisenach said.
    The CTIA/CEA paper produced spectrum incentive arguments that mostly were in line with FCC talking points — that broadcasters and other licensees would be motivated to offer their spectrum voluntarily, as licensees would be permitted to retain a portion of the auction proceeds.
    In a March 16 public form, FCC Chairman Julius Genachowski said the FCC would auction spectrum for wireless broadband services, and the spectrum in the auction would be voluntarily contributed by current licensees like TV broadcasters or mobile satellite operators, which would in return receive a portion of the proceeds of the auction.
    “The strength of the incentive auction proposal is that it provides an incentive-based, market-driven path to tackle the spectrum crunch while also effectively accommodating existing businesses. It brings market forces to bear on spectrum licenses that — by virtue of their decades-old allocations — have been shielded from market dynamics. It provides a mechanism where the market — a voluntary buyer and a voluntary seller — can determine the price and the use of spectrum,” said Genachowski.
    Despite the FCC’s enthusiasm, Eisenach said that the analyst community has yet to see any solid ground for placing dollar values on spectrum auction proceeds.
    “The auction dates are undetermined, the amount and nature of the spectrum to be auctioned is unclear, and the incentives that will need to be offered to the current licensees to secure that spectrum are unknown,’ Eisenach said. “The CTIA, CEA and FCC have been trying to resolve these uncertainties and unknowns by making assumptions, many of which are plainly implausible. Moreover, even if the spectrum to be auctioned had been identified with perfect specificity and complete finality, the methods used by CTIA/CEA to estimate its value are imprecise and, in many respects, tend to bias the results upwards.”
Both the CTIA and the CEA declined to comment on the Navigant report.