Introduction and Assignment |
The FCC Spectrum Auction 
On July 2007, the Federal Communications Commission (FCC) announced that in January 2008 it would auction off a significant segment of the electromagnetic spectrum, to be available in February 2009 when U.S. television stations complete the transition to digital broadcasting. This portion of the spectrum would allow wireless telephone providers to send more powerful signals and move more data at greater distances than was possible under their current allocation. It also opened possibilities for new uses and new players.
The FCC held proceedings in 2007 to develop the rules and restrictions on bidding in the auction. Determining access to this final significant piece of new capacity and the rules under which the capacity will operate captured the attention of competitors in wireless telephone service and brought new entrants into the discussion - and possibly the market.
Readings
Read “Industry Analysis and Oligopoly Models,” by Thomas Hubbard (under “concepts” in the case web page) especially pp 7-9, pp 10-13, and pp 17-22. On page 7 you can think of the prices as follows: a cartel chooses the monopoly price, firms playing Cournot choose an oligopoly price, and firms playing Bertrand set perfectly competitive prices. The Hubbard reading is challenging, but we will use it for the rest of the course, so please take some time to read it, ask the TAs questions, and discuss it with your classmates.
There is a great deal of material in this case. In order to keep each student’s assignment to a manageable level, I suggest you specialize within your study group. For example, one person could study the auction rules and FCC regulations; another could learn about the technologies and costs of each incumbent and the new spectrum; a third could compile information on the business strategies, market shares, and financial positions of potential and actual bidders; a fourth could learn about the European and Japanese markets as well as next generation technologies and regulations arriving in those regions (parallels/lessons for the US?).
The “complete FCC report” under Industry Research is excellent and you should certainly read the parts relevant to your sub-area of research. When your study group meets to discuss the questions below, combine your specialized knowledge to consider how the Hubbard reading relates to the case.
Preparation Questions
- Categorize the likely entrants in the spectrum auction into groups by business strategy, technology, and size/share. (Include a short description of the business strategy for each group/type you identify.)
- How many competitors are there currently in the US mobile market? How many will there be after the new spectrum comes into use? Could you have predicted this? Why?
- Think about how the Hubbard discussion of fixed costs applies here. What determines fixed costs in the old US market, the post-auction US market, and the current European market?
- How, if at all, do the actions of one mobile provider affect the profits of any other?
Be prepared to discuss these issues in class.
Website written & compiled by: Jean W. Rosenthal, case writer, Case Study Research Team, Yale School of Management; Fiona Scott Morton, Professor of Economics & Senior Associate Dean for Faculty Development, Yale School of Management; and Joel Podolny, William S. Beinecke Professor of Management & Dean, Yale School of Management.