YOU ARE AT:Archived ArticlesGAMING PROFESSOR SAYS NEXTWAVE BIDS SKEWED C-BLOCK AUCTION

GAMING PROFESSOR SAYS NEXTWAVE BIDS SKEWED C-BLOCK AUCTION

WASHINGTON-A University of Maryland economics professor who assisted the Federal Communications Commission in setting up parameters for simultaneous, multiple-round spectrum auctions, such as that conducted for C-block personal communications services licenses, has determined that NextWave Telecom Inc.’s bidding strategy affected all bidders, not just second-ranked winners in a NextWave-won market.

This opinion, written on behalf of Antigone Communications L.P. and PCS Devco-which participated in the C-block auction but were not successful-flies in the face of the Jan. 3 Wireless Telecommunications Bureau order that conditionally awarded PCS licenses to NextWave. In that order, the WTB determined that NextWave’s foreign-ownership violations-which had allowed the company to raise cash used in its down payment-“had not skewed the auction or affected other bidders.”

Using first-hand bidding knowledge, publicly available bidding data and other public information, Dr. Peter Cramton of University Park, Md., concluded that:

NextWave’s bidding “had a substantial effect on prices, and if the company had not participated, prices could have been 25 percent lower.

If prices were 25 percent lower, Antigone and PCS Devco would have finished the auction successfully, with Antigone gaining at least 2 million pops and Devco winning 0.4 million pops.

If NextWave’s bidding level had been reduced by one-third (or the amount of foreign capital used to finance its down payment), “prices would have been about 8 percent lower.” In that event, Antigone still would have won 1.6 million pops.

“I find the argument that Antigone and Devco were not harmed by NextWave’s participation, because they were not the second-highest bidder in any of the markets that NextWave won, to be totally without merit,” Cramton wrote. “Such an argument only applies in an ascending-bid auction for a single item. The C-block was not a single-item auction. Rather, I find that [both] were substantially injured by the high auction prices that resulted from NextWave’s high level of participation-funded by its unlawful foreign equity.”

Cramton’s findings were included in an application for review filed March 17 by Antigone/Devco regarding NextWave’s license award. “Contrary to the bureau’s decision, NextWave’s unlawful foreign equity materially skewed the auction, not only undermining the integrity of the process but specifically injuring petitioners, who otherwise almost certainly would have become high bidders … Also the bureau had no evidence to conclude that NextWave’s false certification respecting its foreign ownership was a good-faith mistake; the record indicated the opposite, that NextWave knew it was in violation but tried to cover up.”

What Antigone/Devco want is, at best, a takeback and re-auction of NextWave’s licenses; at the very least, the two want a full evidentiary hearing to look into both NextWave’s foreign-equity structure and its documented ex parte communications with high FCC officials, including the chairman.

Antigone/Devco took the bureau to task for its decision to grant NextWave’s licenses despite finding that some $75 million in capital the company used for its down payment was unlawful foreign funds.

“Having found these numerous, serious violations of law and commission rules, the bureau was bound by well-established precedents and fundamental principals of due process and fairness to afford petitioners meaningful relief. But the bureau blinked,” they wrote.

“Having done the requisite analytical work to find these violations, the bureau, in a flight from reality, inexplicably concluded that they were all harmless errors with no prejudice to petitioners.”

Antigone/Devco also pointed out that NextWave ascertained in its Form 175 prior to the auction that it was in compliance with all foreign-ownership rules; however, “although NextWave repeatedly filed ownership amendments during the course of the auction, at no time did NextWave report any change respecting its foreign-ownership certification.”

Instead of filing its application for review with the WTB, as would happen in most circumstances, Antigone/Devco chose to file it with the entire commission, due to what it considers the poor judgment shown by the bureau in the license-award order.

NextWave Co-chairman Janice Obuchowski said the filing was “some nice rhetoric but there was nothing new,” adding that she believes no evidentiary hearing will be ordered by the commission.

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