Summary: Revenues in the 700 MHz Spectrum Auction

• Verizon and AT&T earn substantial scarcity rents from holding nearly all of the original low-frequency Cellular licenses, which gives them operational and quality advantages reflected in their prices and profits. • The 700 MHz spectrum has high " foreclosure value " to Verizon and AT&T, separate from the true " economic value " of building and operating a network. Market entry by new 700 MHz bidders threatens their incumbent position. Verizon and AT&T will defend their position and they have the capital to do so. • The high foreclosure value to Verizon and AT&T deters new entrants from participating in the auction, reducing bidder competition and driving down auction revenues. New entrants rationally stay away from an auction when the costs of participating outweigh the expected profits. In this case, the incumbent advantage reduces the chance the entrant will win and reduces the entrant's profits if it does enter and win. Moreover, the FCC's auction format makes it especially easy for Verizon and AT&T to prevent entry of a nationwide player. Participation is discouraged and the absence of new competitors allows incumbents to win licenses at very low prices. • An open access, wholesale E Block, combined with bidding credits, will increase auction revenues. These rules draw new entrants into the auction to compete with the incumbent