resources (primarily the time of legal, engineering, and economic
consultants) .18 Auctions, however, involve primarily a transfer of
resources (to the government in the form of the winning bid). Hence the
use of auctions to award licenses could substantially reduce the total
private and public resources expended in the process. :

. Consider the case of identical risk-neutral buyers.19 Here the
total spent by the private sector applying for a license would, on average,
be equal to the value of the license under all assignment methods.20 But
with an auction, part of the private cost is the payment to the government
for the license. So in this particular case an auction would reduce the
real resources used up in "rent-seeking" by the amount of the payment to

the government.21

18 Note that much of these resources are not "wasted" for successful
applicants, because presumably the contribution of these consultants would
be valuable in formulating a business. For unsuccessful applicants,
however, all these expenditures are truly wasted, and represent a waste to
society as well.

19 A risk-neutral buyer would be indifferent about accepting an
actuarially fair bet (one with a zero expected value, j.e., an equal chance
of winning or losing) and would take a bet whose expected value is
positive. A risk averse buyer would not accept an actuarially fair bet.

20 The total expenditures by the private sector could be less than the
value of the license if firme differ in their cost of applying for a —
license. For example, suppose the value of a license were $1,000 and it
cost firm "A" $100 to enter a comparative hearing application, firm "B" $400
to enter, and firm "C" $750 to enter an equivalent application. Assume
further that each firm has an equal chance of winning a comparative hearing.
Firms "A" and "B" would enter, but firm "C" would not. Firm "A's expected
return would be 0.5 x $1000 - $100 = $400; firm "B'’s expected return would
be $100. The total private expenditure would be $500, only half the value
of the license.

21 In this case, rent-seeking is the private pursuit of valuable
government licenses. The term "rent-seeking" was coined by Krueger (1974).
For a more general discussion of such "directly unproductive, profit-seeking
activities," see Bhagwati (1982).

-13-


ACKNOWLEDGEMENTS

The authors are grateful for the comments and suggestions made
by many individuals. We wish to thank Donald J. Bieniewicz and Marshall
Rose of the Department of the Interior and Douglas W. Webbink of the Federal
Trade Commission for providing useful suggestions and factual information
on auctions. We also received many helpful comments from the following FCC
employees: Peter Pitsch, Tom Spavins, Gerald Brock, Kenneth Gordon, - John
Haring, Jonathan Levy, and Florence Setzer (Office of Plane and Policy);
Michael D. Sullivan (Common Carrier Bureau); and Brent Weingardt (Office of
Managing Director). None of these individuals are responsible, of course,

for any remaining errors.

E.R.

A.D.F.

- 32-


APPENDIX

A Description of the Assumptions Used to Estimate Costs in Table IT

Number of Applicants

To develop a rationale for our assumptions about the number of
applicants we begin by examining the behavior of a typical applicant. For
this analysis we assume that a license ultimately has the same value to all
applicants, but that this value (V) is not perfectly known until after the
service has begun. Each applicant starts with the same beliefs about the
value of a license and then conducts a market survey to improve hie estimate
of the license’s value. After the surveys, applicants will differ in their
beliefs about the value of a license. Additional risk neutral applicants
will continue applying for a license provided the expected revenues from
obtaining a license exceeds the cost of applying (C). In equilibrium the
expected revenue will equal the expected cost of applying. The expected
revenue can be expressed as the probability of winning (P) times the
assignment’s anticipated revenue. Given that all individuals are identical
and sampled from the same population, each would expect to have the same
probability of winning. With N applicants that probability would be 1/N.

In the case of a lottery, the typical applicant’s estimate of the
expected revenue if he wins is V. Thus in equilibrium (P)(vV) = Cc, or
(1/s)(V) = C, so N= V/C. That is, the equilibrium number of applicants in
a lottery equals the value of holding the license divided by.the cost per

firm of entering the lottery. Note also, that in equilibrium, total

- 28 -


that oil exploration is an extremely risky enterprise and royalties provide
for a sharing of this risk between the government and private parties.
Discussions with DOL officials indicate that the sealed bid auctions have
been relatively simple to administer and free of any charges of corruption.

Sealed bid auctions are also used to award Federal coal leases .9
The DOI estimates the value of the tracts before the auction. These
estimates are used to determine whether or not to accept a high bid.
Although the DOI does not disclose its estimate of a tract’s value before
the auction, it does set a minimum bid of $100 per acre.

Other examples of federal auctions are: Treasury Bill auctions
(31 U.S.C. Section 3121(a)); leases of geothermal steam land (Geothermal
Steam Act of 1970, 30 U.S.C. Section 1003); auctions of seized and unclaimed
property (Tariff Act of 1930, 19 U.S.C. Sections 1491, 1609, 1612);
disposing of surplus equipment by the General Services Administration (40
U.S.C. Section 484(e)); and, disposing of dead seamen’s effects (46 U.S.C.

Section 621).

III. Comparison of Selection Procedures ~

In this section comparative hearings, lotteries, and auctions are
compared with respect to their ownership effects, processing speeds, private
costs, and government costs. Other considerations in choosing among

selection methods are also discussed.

9 See, Mineral Leasing Act of 1920, as amended, 30 U.S.C. Section 181
gt. seq.






TABLE OF CONTENTS

TL. Imtroduction. sesscscccccccccccccccccccccccevessssccscscsscscscsesvvel

II. Description of Alternative
Procedures for Selecting FCC Licensees....e0.

ee eeeeeeseeceeeeld

A Comparative Hearings.....
Be Lotteries ..cscevcceee
Cc. AUCCLONS .cccececcecvcevcccseccaves

LIL. Comparison of Selection Proceduress.sescsscscccccccccsescsccssseveel

A. Effect on Ownership..ssccscccccsccceccvees
Be Delay in Making Assignments. :
Cc. Private Application Costs....
De Cost of Administering Selections..
E. Other Considerations in Choosing Among Selection Methods.....14
F. Illustrative Comparison of Selection Schemes...sssseesseeseoeel6

IV. Auction Implementation..cecsscccccccccccrccccsnescsevevesesecsseee20

A. Legal Issues.. Peer reereerer reese ree eree rere ere reer ey. a
Be Auction Design. cccecsccsccccccvccccevccevessessscesssescoeseecl

l. Bidding Method: Sealed vs. Oral Biddings.eccccccsecseeee22
2. Multiple Channel Sales..
3. Minimum Bid RequirementsS...eeessooe
4, Payment Method. rcccccccevccccevccensccsecssccseee

Ve. Summary and Conclusions..csccccsccrcccssvccscsccsscecsccccsesccess20

Appendix A Description of the Assumptions Used
to Estimate Costs in Table [Lssesessesssscccceceveces

Processing Delay.
Private Cost.....

FCC COBtSecssesscececrccccccscccccssccscccsccccscecessccseseecee se 30

References. +.cessccesseoecs
AcknowledgementS.eseccccsee

cence cece ce cceeeceereceeseeeserscersseeseedl

Dee e eee e een nese eee eeeseseeeseseeeeesee ede



original reservation price will be lese effective in bringing forth the
highest possible bids. On the other hand, waiting to reoffer the license
would delay the onset of the benefits of using the spectrum.

The benefits of setting a reservation price are likely to be
greatest when there are very few bidders. The primary cost of setting a
refusal price would be estimating the value of the license. When
competition is intense the benefits of setting a reservation price may not

be worth the cost.

4, Payment Method

Finally, the FCC should examine various methods of receiving
payment from winning bidders. The winner may be required to pay the entire
amount of his bid in one payment or may be allowed to pay in installments.
Allowing installment payments is equivalent to extending credit to the

winner.

Vv. Summary and Conclusions

This paper has examined three possible methods of selecting among
mutually exclusive radio license applicants. The method used for selecting
an initial licensee does not appear to determine license ownership over the
long term given the relative ease of reselling licenses. On the other hand,
the costs of selection do vary depending upon the method employed. We
considered private application costs, delay costs, and FCC costs. Our
analysis suggests that auctions are superior to lotteries and comparative
hearings in all three respects. The reason for this is that requiring the
winner to pay for a license is an efficient way to reduce the number of

parties seeking to obtain a valuable resource. In a cost comparison of the

- 2% -


D. Cost of Administering Selections
There are two components to the cost incurred by the FCC in

selecting among mutually exclusive applicants. One is "professional" cost.
This includes the money spent on salary and support for professionals to
review and analyze applicant documentation, and select a licensee. For
example, professional costs are the major component of the FCC expenditures
for a comparative hearing before an administrative law judge. We refer to
the other cost category as "administrative." It includes money spent on
space to house applications, as well as salary and support for the staff
who records applicant information and maintains the documents. For
lotteries and auctions, FCC costs are primarily administrative. Auctions
would have lower administrative costs than lotteries because they would

attract fewer applicants.

E. Other Considerations in Choosing Among Select Methods

Auctions could prove attractive to taxpayers not just because
they would reduce FCC costs but because they would provide a return for the
valuable consideration granted licensees. The revenues raised through
auctions would also help reduce the budget deficit.

Auctions could also provide the Commission with useful
information on the value of spectrum in alternative uses. The amount
bidders are willing to pay for a license reflects their estimates of the
value customers place on the service they propose to provide. The
Commission should consider reallocating spectrum to the higher valued use

if it were to find that the bids on licenses for one use greatly exceeded

-14-


the expected value of the resource in equilibrium.24 Moreover, an
equilibrium may not prevail if the procedure used to award licenses is not
used repeatedly in similar markets. Without such repetition, applicants may
not have a good estimate of how many others will apply. Despite these
qualifications, the assumption that total private expenditures equals the
value of the license is a useful benchmark case for illustrating the
differences among selection methods.

This assumption along with information about the results of the
lottery held for cellular licenses in markets 91 - 120 was used to derive
the value of a license. There were approximately 170 applicants (on
average) for each non-wireline license in markets 91 - 120, and we estimated
that the average cost of preparing and pursuing an application for a lottery
was $3,500. Multiplying these two numbers together gave the total
expenditures of lottery applicants in a typical market. This number,
$595,000, was used as the value of a license to a typical applicant. The
value would have been greater if the license were awarded immediately
instead of at the end of a long selection process. We assumed that the
processing delay in using a lottery would be approximately 12 months.
Absent this delay a license would be worth $657,304, assuming a 10% annual
interest rate (compounded monthly).

The number of applicants in a comparative hearing was calculated
by dividing the estimated private cost per applicant, $130,000, into
$566,099, the value of a license awarded after an 18 month comparative

hearing process. We rounded down because if more than 4 applicants entered,

24 See footnote 20 for an illustration of this for the case of variation
in application costs across firms.

- 18 -


There is no offsetting efficiency gain to be achieved by either
levying a fee on current licensees or conducting an auction as part of the
license renewal process. Neither of these things would do anything to
reduce the delay in getting a license to the user who values it the most.
Given that licensees are free to resell stations, the license has already
been assigned to the party willing to pay the most for it. Moreover,
neither spectrum fees nor renewal auctions can recover the transactions
costs expended by the private sector and the FCC in making the initial
assignment. Finally requiring existing licensees to pay the imputed value
of their assignment through fees or auctions would be inequitable to the
parties whe already implicitly paid for their spectrum either when they
bought a station or when they incurred the expenses of a comparative

hearing.

F. Illustrative Comparison of Selection Schemes

In this section we develop estimates of the costs incurred in
selecting non-wireline cellular licensees in a "typical" Round IV market
(ive., 91 -120) under a comparative hearing, a lottery, or an auction.
Table II summarizes our results. The assumptions used to construct these
cost estimates are detailed in the appendix, but will be briefly discussed
here. The central assumption in constructing the illustration is that in
equilibrium the total expenditures made by private parties in obtaining a
valuable resource will on average equal the value of that resource. If
total expenditures were less than the expected value of the resource, it
would pay another party to apply since the expected gain would exceed the
expected cost of applying, assuming all applicants are identical and risk
neutral. If, however, applicants differ in their cost of applying: or are

risk averse, the total expenditures by private parties would be less than

- 16 -


three methods for a hypothetical cellular license, we estimate that auctions
would roughly cost only 15% of either hearings or lotteries.

Auctions also have two other features to recommend them. First,
they provide a return to taxpayers for the valuable consideration granted to
licensees. Auctions also provide useful information about the relative
value of services which could aid the FCC in its allocations proceedings.

It appears, however, that enabling legislation is needed prior to
Commission use of auctions. Moreover, there will be some significant
start-up costs to establish auctions. Nonetheless, the advantages of
auctions far outweigh these disadvantages. -

Assuming such authority is forthcoming, we recommend the
Commission consider using auctions only in awarding licenses for currently
unassigned channels. We do not recommend using auctions for license
renewals because they would tend to diminish licensees” investment incentive
without providing any offsetting efficiency gains, and they would also be
inequitable. We also suggest that restrictions on trafficking of radio
authorizations continue to be relaxed to assure that as circumstances change
a license can be easily transferred to the party who values it the most.

Auctions should be seriously considered for making cellular radio
assignments for markets beyond 120, assignments made following allocation of
the land mobile reserve bands, and future satellite assignments. Auctions
might also prove an efficient selection mechanism for common carrier paging
assignments, and for assignments in the private and common carrier digital

electronic message services (DEMS).

-27-


spectrum. We believe that this is unlikely for at least four reasons. If
such firms were willing and able to monopolize spectrum under auctions, they
could also do so under the current selection schemes by purchasing licenses
from parties that won the initial assignment. Yet monopolization has not
been observed in spectrum, nor has it been observed for other resources such
as land that are also fixed in supply. Moreover, apparently no firm has
sufficient wealth to buy up all the spectrum. Thirdly, since much of the
usable radio spectrum has already been assigned, monopolizing the spectrum
is unlikely to be a profitable strategy unless it could be accomplished
without alerting the present holders of licenses. Otherwise existing
licensees would hold out for high prices so as to reap much of the potential
gains from monopolizing the market. Finally, any move to "corner the

spectrum market" would presumably violate existing antitrust laws.

B. Delay in Making Assignments

Each assignment mechanism imposes a delay cost upon both the
licensee and the public. The public’s cost due to loss of service is
difficult to estimate. But the cost imposed upon the successful applicant
can be estimated by calculating the difference between the present value of
the assignment under both delayed and non-delayed scenarios. With a nominal

annual interest rate of 10%, a one year delay imposes a cost equal to 9% of

-ll-


loses an income stream; the public is without an additional service. But
because delay favors existing licensees, they have strong incentives to
file petitions to deny or otherwise utilize the administrative process as a

means of retarding competitors” entry.

EB. Lotteries

In recognition of these and other problems, the Congress in 1982
gave the Commission permissive authority to award licenses by random
selection.? The FCC’s initial experience with lotteries suggests that
this method has its own significant difficulties. Once it became known that
the lottery entry requirements were reasonably low, many individuals elected
to participate. In the Low Power Television Service (LPTV) alone there are
about 20,000 applications awaiting lottery. As Table I illustrates, the
Commission now has nearly 30,000 mutually exclusive applications in services
other than LPTV, most of which will probably be processed through a lottery.
The Commission has temporarily suspended accepting applications for many of
these services. Once this freeze is lifted, however, it is expected that
many tens of thousands of new applications will be filed.

To some extent the Commission anticipated the flood of lottery
applications. It has attempted to reduce its administrative burden by
creating narrow filing "windows" and encouraging settlements among

applicants. These techniques have enjoyed some success. But applicants

7 See, 47 U.S.C. Section 309(i). For a discussion of when lotteries
may be used and how they should be structured, see, Communications

Amendments Act of 1982, Conference Report, 97th Congress, Report No.

97-705, August 19, 1982.


channels one holds (Riley and Samuelson, 1981, p. 389). For example,
suppose mobile licenses were auctioned off in 5 channel blocks, and an
efficient trunking system required 20 channels. A new firm might wish to
set up a mobile radio system only if it could acquire 20 channels. Such a
firm would not know how much to bid in the first round of the auction if it
was unsure how much it would cost to acquire the additional 15 channels in
later rounds. It would not want to find itself owning only 15 channels at
the end of the auction. This would be less serious a problem for the firm
if it could resell the 15 channels after the auction or acquire 5 more
channels from another firm. This would be. like having additional rounds of
the auction.

Sealed bid auctions could either be held sequentially like oral
auctions, or parties could be allowed to bid simltaneously on all licenses.
If applicants could simltaneously bid for as many channels as they wished,
they could take account of the fact that the value of a channel may depend ,
on what other channels one owns. If all channels to be auctioned were
identical, each bidder could submit a “demand schedule" indicating the
amount he would be willing to pay for each number of channels. A simplified
variant would be to have each bidder indicate only a single desired quantity
and his bid for that quantity. This is essentially the current method use
for auctioning Treasury bills. The Treasury Department chooses the highest :
set of sealed bids that exhausts the total number of securities for sale.
The FCC could use a similar procedure for auctioning identical channels.

Simultaneous bidding could also be used when each channel was not
identical. Ideally, each buyer would submit bids for each subset of
channels. Such an auction would require the FCC to develop a complex rule
for determining who wins which items and at what price. In practice, such &

system would surely be too complex to administer. Thus, it would appear

- 24-


of application and processing requirements through rule making, the creation
of selection procedures, and the assembling and training of the staff
necessary to make the random selection.

Auctions, likewise, will incur start-up costs. First, we believe
the Commission must obtain explicit legislative authority to establish
auctions. Application, processing and selection details must also
be resolved. These are likely to be much more complex for auctions than
lotteries. In this section we briefly review the Commission’s legal
authority to conduct auctions and suggest some issues the Commission should

use to frame an analysis of various auction designs.

A. Legal Issues

There exists considerable.uncertainty as to whether the Commission
Presently possesses the necessary legal authority to conduct auctions of
unassigned radio channels.26 This fact suggests that should they be employed
absent new legislation, litigation is likely. The magnitude of the costs
associated with litigation is difficult to estimate, but it is likely to
be substantial. Since we see auctions as a way of reducing social cost, we
recommend the Commission obtain requisite enabling legislation prior to

using them. 27

B. Auction Design

A number of subtle issues regarding the form of an auction must

26 See, e.g., Report and Order, Cellular Lottery Selection, 55 RR 2d 8
(1984).

27 FCC Chairman Mark Fowler recently submitted draft auction legislation

to Congress. See, Communications Daily (1985).

-21-


USING AUCTIONS TO. SELECT FCC LICENSEES

I. Introduction

As part of its duties under the Communications Act of 1934, as
amended, the Federal Communications Commission (FCC) is charged with
managing the radio frequency spectrum.1 Traditionally, the Commission has
performed this duty by first allocating a portion of spectrum in a given
area to a particular purpose. Then the Commission assigns channels within
an allocation to j-dividual licensees. Both allocations and assignments
have important implications for consumer welfare and have been the subject
of many public policy analyses.2 This paper examines only the assignment
Process and.assumes no changes are made in either the current eligibility
criteria for holding a license or the terms, conditions or rights of a
license. The basic approach used here is the same as that used by Carson
Agnew (1983) in his study of alternative licensing arrangements for
multipoint distribution service (MDS).3 We conclude that in most cases
auctioning previously unassigned channels is likely to result in the same
ultimate assignment as present mechanisms. But because they require
winning bidders to make substantial payments in return for being licensed,

auctions are an efficient way of reducing the number of applicants. Thus,

1 See, 47 U.S.C. Section 301.

2 See, e.g., Coase (1959), DeVaney et. al. (1969), Mathtech, Inc.
(1979) and Webbink (1980).

3 Agnew (1983) builds upon an earlier analysis by Robinson (1979).




the assignment’s value, a two year delay imposes a 17% penalty, and a three
year delay a 25% penalty.16

Comparative hearings are generally lengthy proceedings. Broadcast
cases often go on for two years or longer. Even the especially
streamlined hearings used to grant cellular radio licenses in the top 30
markets averaged 18 months in length.17

Lotteries have proven to be slower than expected. Most of the
delay is created by huge numbers of applications, each of which met be
logged, filed and prescreened prior to selection. Over 5000 applications
were filed for cellular radio markets.91 - 120 (Round IV), and it is our
best guess that the processing delay in these cases will average at least
12 months.

Auctioned assignments will probably attract far fewer applicants
than lotteries because under an auction the winner must pay for the license.

Thus, administrative delays will likewise be much shorter.

C. Private Application Costs

Comparative hearings and lotteries use up a great deal of real

16 This assumes delay is of the form of pushing back in time all costs
and revenues by the amount of the initial delay. The delay costs would be
greater if some benefits are reduced in addition to being postponed, or
smaller if the delay in getting a license only marginally delays: the
beginning of the benefit stream. These calculations use the fact that the
present discounted value of I dollars received T years from now, with a
nominal interest rate of x per year, is I/(1+r)T. :

7 Source: Personal Communications Magazine (1985). Not all cellular
licenses in these markets were awarded following 8 hearing. In some markets
all applicants reached mutually beneficial "settlements" prior to hearing.
Eighteen months is the expected delay between application date and date of
construction permit grant for all non-wireline licenses in the 30 markets
regardless of whether a hearing was actually held.

-~12-


currently employed by the FCC. In this section all three systems are

described.

A. Comparative Hearings

Until recently the Commission’s primary way of selecting among
competing applicants was to hold an administrative hearing. Depending on
the level of review, either an administrative law judge, the Review Board or
the full Commission would evaluate applicants under comparative criteria
established through precedent or rule making, or in the particalar
proceeding.

In practice, comparative hearings have proven to be a costly and
generally ineffective means of selection.6 There are two main problems crith
this process. First, there is substantial disagreement about what the
comparative criteria should be and how they should be, weighted, and it is
not unusual for disagreement to exi-t as to which applicant is, in fact, the
most socially worthy. There is considerable doubt, therefore, as to how
effective comparative hearings are in furthering social goals.

A second problem concerns the cost of these hearings (including
delay). It is not uncommon for litigation to’ drag on for years, with
participants incurring huge legal bills. These long litigation periods harm.

both the applicant ultimately selected and the public. The new licensee

6 Comparative hearings have been criticized many times. Former
Commissioner Glen 0. Robinson characterized the comparative process af "the
FCC’s equivalent of the Medieval trial by ordeal." See, Dissenting
Statement of Commissioner Glen 0. Robinson in Re: Cowles Florida
Broadcasting, Inc. et. al., 60 FCC 2d 372 (1976). Even the FCC has
officially questioned the value of the comparative hearing process. See,
e.g-, Notice of Inquiry and Proposed Rulemaking in Docket 80-116, 45 Fed.
Reg. 29,335 (May 2, 1980); and Notice of Proposed Rulemaking in Docket
81-768, 46 Fed. Reg. 58,110 (November 30, 1981).


TABLE II

Comparison of Methods of Selecting Non-Wireline

Cellular Licensees in a Hypothetical Market

(Typical of Markets 91 -120)

Comparative

Hearings Lotteties | Auctions
ASSUMPTIONS.
Value of a License w/o Delay| $657,304 $657 ,304 $657 ,304
Value of a License w/ Delay $566,099 | $595,000 $641,142
Private Cost per Application| $130,000 $3,500 $10,000
Number of Applicants 4 170 8
Processing Time Mths. 18 12 3
Annual Interest Rate 0.1 0.1 0.1
COSTS
Private Application Costs $520,000 $595,000 $80 ,000
Delay Costs $91,205 $62,304 $16,162
FCC Costs $20,000 $5,000 $1,000
Total Costs $631,205 $662,304 $97 ,162
REVENUES
Government Revenue 0 0 $561,142







TABLE I

SUMMARY OF SERVICES WITH PENDING MUTUALLY

Service E enc:
Common Carrier Low/High VHF

Paging, 2-way UHF & 900 MHz
Common Carrier Cellular 806 - 890 MHz
Private Multiple Address 952 - 960 MHz
ITFS 2500 - 2690 MHz
OFS 2500 - 2690 MHz
MDS : 2150 - 2156 MBz
MDS 2500 - 2690 MHz
Common Carrier DEMS 10 & 18 GHz
Private DEMS 10 & 18 GHz
LPTV VHF /UHF-TV

Total Number of Applications

Notes:

a/ As of September 30, 1984.

EXCLUSIVE APPLICATIONS
No. of Applications

3,000 a/
5,000 b/
270 ¢/
580 d/
2,200 e/
276 £/
16,239 g/
1,754 b/
600 i/
20,000 4/

49,919

b/ Figure is approximate and is for markets 91 - 120.

c/ Figure is approximate as of October 1, 1984.

d/ Instructional Television Fixed Service.
e/ Operational Fixed Service. Approximate

f/ As of September 30, 1984,

As of December 31, 1984,

as of October 1, 1984.

g/ Multichannel Multipoint Distribution Service.

As of September 30, 1984,

h/ Digital Electronic Message Service. As of September 30, 1984.

ai/ Figure is approximate as of October 1, 1984,

i/ Figure is approximate.




the other hand, in a sealed bid auction, a party cannot be sure he is the
only bidder, so he would submit a bid closer to the value he places on the
item.

Oral bidding, on the other hand, has several advantages over the
standard sealed bid auction. First, oral bidding may be more likely to
assign a license to the party who values it the most. Assuming bidders do
not collude, the party with the highest willingness to pay would ultimately
outbid all other parties in an oral auction. The price he would pay would
be approximately the value placed on the item by the bidder with the second
highest willingness to pay. In a standard sealed bid auction, the price
paid is the high bid. Parties would shade their bids below the maximum
amount they are willing to pay in order to avoid paying more than necessary
to win the auction. In other words, the winner would like his bid to have
been only slightly more than the next highest bid. Since in a sealed bid
auction, bidders do not know precisely how much other parties will bid, it
is possible that the bidder with the highest willingness to pay may not
submit the highest bid. If this occurred, either the license would remain
with a party who does not value it the most or additional transactions costs
would be incurred in reselling the license. The second advantage of oral
bidding is that it may have lower private costs than sealed bidding because

it does not require estimation of the value other bidders place on the item.

2. Multiple Channel Sales
The Commission should also examine how to best structure an
auction when applicants are bidding for multiple channels. If oral auctions
were used, channels would be offered sequentially. Sequential auctions do
not necessarily assure that groups of channels are assigned to their highest

valued use when the value of one channel depends on how many and which other

-23-


be resolved within the context of the service and spectrum in question.
Thus, we recommend that enabling legislation be permissive, and that it
give the FCC flexibility to tailor auctions to the service and spectrum
involved. In this way, the Commission can make its final decisions after
public comment. This section suggests some items the Commission may wish to

explore in a rule making.

1. Biddi Me d: S d_vs Bi

Under the standard sealed bid procedure the high bidder wins and
pays the amount bid. Sealed bidding is simple to administer and less
subject to manipulation by bidders than an oral auction. The most serious
form of manipulation takes place when parties get together before the
auction and agree on who will win. Such collusion reduces the return to the
seller since the party designated to win could submit a bid well below the’
value of the item without fearing that he would be outbid.

Collusion is more difficult under sealed bidding for two reasons.
First, under sealed bidding colluding parties run a greater risk of an
unknown competitor entering the auction and outbidding them. If such a
party were to show up at an oral auction, the colluding parties would be
able to respond by raising their bids and thereby avoid losing the auction.
Second, the colluders run the risk of losing the auction to a firm reneging
on its agreement. The breach of agreement would not be discovered until the
bidding was closed. Any punishment of such a firm would need to either take
place outside of the auction process or wait until the next auction. ©

Another advantage of sealed bidding is that it will generally
provide a greater return to the Government if there is only a single bidder.
In an oral auction, a party will know whether he is the only bidder and if

so, he could win the auction by submitting the minimm permitted bid. On

- 22.-


auctions are likely to impose lower costs on the Commission and society than
the other methods considered.

The plan of the paper is as follows: Section II reviews three
possible assignment methods, of which two are currently used by the FCC.
Section III compares these schemes in cost/benefit terms. Section IV
discusses various auction designs and implementation options. Section V

summarizes our results and presents conclusions.

Il. Description of Alternative Procedures for Selecting FCC Licensees

A radio channel that is assigned to only one party is said to be
exclusive. If more than one party applies for a given exclusive channel,
these applications are said to be mutually exclusive. Because of both
statute and court precedent, the Commission is required to consider certain
applications as mutually exclusive even if they are not submitted at
precisely the same instant.4

There are three methods that could be used to select among
mutually exclusive applications: comparative hearings, lotteries, and a

system of competitive bids (auctions).5 The first two processes are

4 See, 47 U.S.C. Section 309(e), United States v. Storer Broadcasting,
351 U.S. 192 (1955), Ashbacker Radio Corp. v. FCC, 326 U.S. 327 (1945), and,

Johnston Broadcasting v. FCC, 175 F.2d 351 (D.C. Cir. 1949).

5 A fourth system, "first-come first-served," has recently been adopted
by the Commission for FM broadcast allotments. This procedure has two
steps. First, applications will be accepted for specific allotments for a
specified time period (a so-called filing “yindow"). Mutually exclusive
applications filed during the window will be processed normally, i-e., by
either lottery or comparative hearing. If no applications for a particular
channel are filed during the window, subsequently filed applications will be
processed on a first-come first-served basis. See, Report and Order in
Docket 84-750, 50 Fed. Reg. 19,936 (May 13, 1985).


the bids on licenses for similar spectrum allocated ‘to another use.22
These findings of efficiency gains from auctions only apply in the
case of selecting licensees for unassigned channels. Allowing auctions for
vacant assignments is not a first step toward establishing license fees for
current users or conducting an auction as part of the license renewal
process.23 Establishing license fees based on annual revenues or
auctioning licenses already assigned would, in effect, change the terms of
licenses. Either policy might reduce economic efficiency. A license fee
that was some percentage of the revenues of the firm holding the license
would be equivalent to an excise tax and thus tend to reduce the output of
the firm. To the extent that investment is tied to a particular channel,
auctioning licenses at renewal appears to be analogous to having the
government own all the land in a city and auction off parcels for five year
terms. Such a system would tend to discourage investors from building long
lasting structures. Such a system might allow the government to appropriate
part of the gain in property value resulting from the lessee’s investment.
Similarly, under auctions of licenses at renewal, licensees would tend to be
" discouraged from investing in equipment, training, and marketing that would

have little value without a license.

22 It is important to understand the limited nature of the proposal
discussed here. We are proposing that auctions be used only to choose among
potential users. The use of the spectrum would continue to be determined by
an administrative process. Even greater public benefits could be achieved,
however, by allowing winning biddere increased flexibility in what they do
with their assignments.

23 One must distinguish between license fees based purely on revenues and
those based on the cost the licensee imposes on others, including the
government. To the extent that the "cost of regulation fees" the FCC
recently proposed to Congress reflect the social marginal costs caused by a
licensee, these fees would be efficiency enhancing.

-15-


Using the expression developed in footnote 16 above, these delays translate
into $91,205 for comparative hearings, $62,304 for lotteries, and

$16,162 for auctions.

Private Costs

Based on discussions with cellular industry officials, we estimate
that the average cost of preparing and pursuing an application is on the
order of $130,000 for a comparative hearing and $3,500 for a lottery. We
estimate that the cost of preparing an application and bidding strategy for
an auction would be about three times greater than a lottery, or about

$10,000.

FCC Costs

FCC officials suggest that the cost of logging, filing, storing
and prescreening the 5000+ Round IV lottery applications is about
$140,000.28 This figure translate into about $5,000 for an average market
(170 applications). Because an auction will attract fewer applicants, we
estimate FCC costs to be about 20% ($1,000) of those- incurred in a lottery.
With respect to the professional costs for comparative hearings, we observed
that 13 professionals (estimated average annual salary $40,000) worked full
time for two years to dispose of the 60 Round I cellular comparative
hearings. This is an average of about $20,000 per mutually exclusive case.

This average was used in constructing Table II.

28 This assumes about 800 square feet of storage space at $25/s8q
ft/year, and 4 full time staff positions at $30 ,000/year.

- 30 -


References

Agnew, Carson E. "Alternative Radio Licensing Arrangements: A Case Study

of the Multipoint Distribution Service," Telecommunications Policy, (June

1983).

Bhagwati, Jagdish. "Directly Unproductive, Profit-seeking (DUP)

Activities," Journal of Political Economy (October 1982).

Coase, R. "The Federal Communications Commission," Journal of Law and
Economics, vol. II (October 1959), pp. 1-40. .

"Fowler Asks Congress for Auction Legislation," Communications Daily,
May 3, 1985.

DeVany, A.S., R.D. Eckert, C.D. Mayers, D.J. O’Hara and R.C. Scott. "A
Property System for Market Allocation in the Electromagnetic Spectrum: A

Legal-Economic-Engineering Study," Stanford Law Review, vol. 21 (1969), pp.
1499-1561.

Englebrecht-Wiggans, Richard. “Auctions and Bidding Models: A Survey,"
Management Science, (February 1980), pp. 119-142.

Krueger, Anne. "The Political Economy of the Rent-seeking Society,"

American Economic Review (June 1974).

Mathtech Inc. and Telecommunications Systems. Economic T, igui a
Spectrum Management: Final Report, (December 20, 1979).

"Cellular Checklist," Personal Communications Magazine, January/February
1985.

Riley, John G. and William F. Samuelson. “Optimal Auctions," American
Economic Review, (June 1981), pp. 381-392. :

Robinson, John 0. “Assignment of Radio Channels in the Multipoint

Distribution Service by Auction," Proceedings of the Sixth Annual
Telecommunications Policy Research C (Lexington: Lexington. Books,

D.C. Heath and Co., 1979).

"SMR Database," Telocator vol. 9, no. 1, January 1985.

Webbink, D.W. Frequency Spectrum Deregulation Alternatives, Office of Plans

and Policy Working Paper No. 2, Federal Commmnications Commission, (October
1980).

Wilson, Robert. "A Bidding Model of Perfect Competition," Review of
Economic Studies, (October 1977), pp. 511-518.

-31-


the total private expenditures would exceed the value of the license.25 For
auctions the private expenditures include the amount of the bid paid by the
winner, as well as the application costs incurred by all applicants. Under
these circumstances the number of applicants will clearly be less than the
number obtained by dividing the assumed average application cost of $10,000
into $641,142 the value of a license awarded after a three month delay.

A theoretical bidding model developed by Wilson (1977) suggests that the
equilibrium number of applicants in an auction will approximately equal

the square root of the value of a license divided by the cost of making

a bid. Thus, for our hypothetical example we estimate that there would be
eight auction applicants. The intuition behind this result is discussed in
the appendix.

In our hypothetical example, auctions are clearly superior to
either comparative hearings or lotteries in all respects. First, private
application costs (which do not include the winning bid since it is a
transfer) would be only $80,000 in a typical market if auctions were used as
opposed to over $500,000 if either comparative hearings or lotteries were
used. In other words, adopting auctions would release over $400,000 in
legal, economic, administrative, and other resources which would otherwise
be used in applying for licenses. Second, the cost of delay under an
auction would be only about $16,000 per market as opposed to approximately
$62,000 under lotteries and $91,000 under comparative hearings. Auctions
would have the least delay because they would generate fewer applicants

than lotteries and not require the extensive judgmental decisions necessary

25 We note that when the FCC used comparative hearings to make the 30
Round I non-wireline cellular assignments, it received an average of about
4 applications per market.

-19-




A. Effect on Ownership
The initial method of selecting a license may have little effect
on who ultimately holds it because FCC licensees have considerable freedom

to trade their authorizations.10 , 11 There is some evidence to support this

10 It was obviously Congress” intent to allow licensees to trade
authorizations when it is in their economic interest to do so. Even though
the Act requires Commission epproval prior to license transferral or
assignment, it prohibits the Commission from considering the possible
effects of transferring or assigning a license to any entity other than the
one proposed. See, 47 U.S.C. Section 310(d).

Between 1962 and 1982 broadcasters were required to hold their
station licenses at least three years. On the grounds that the competitive
broadcast environment would prevent significant service deterioration in
the absence of this restriction, the FCC relaxed the antitrafficking rules
in 1982. At present, most broadcast authorizations may be reassigned at any
time. However, licenses won in a comparative hearing or due to lottery
preferences are still subject to a one year holding period. Furthermore,
for-profit sale of construction permits is generally prohibited. See,
Report and Order in Docket 81-897, 47 Fed. Reg. 55,924 (December 14, 1982).
Common carrier microwave licenses are also subject to a one year holding
period if they are awarded through a comparative hearing. See, 47 CFR
Section 21.40, In the Public Mobile Services, 35, 43, and 900 MHz paging
construction permits and licenses are freely transferable, while other
authorizations may be transferred for profit only after systems have been
constructed. See, 47 CFR Section 22.40. Private radio licenses may be
assigned directly to a new entity, or they may be assigned indirectly via
a transfer of control of the firm which holds the licenses. See, 47 CFR
Section 1.924.

ll Two qualifications to this statement come to mind. First, if all
applicants are equivalent, the initial selection method will determine the
final user because by assumption no other party would be willing to offer to
pay the initial licensee more than it is worth to him. Of course, in this
case it doesn’t matter, from the viewpoint of economic efficiency, which
applicant receives the license. Second, high transactions costs may prevent
resale even if applicants differ in their valuations of the license. For
example, suppose there are only two parties who put a positive value on the
license and that party A values it $100 more than party B. If the
government held an oral auction party A would bid the highest and receive
the license. If, however, the government used a comparative hearing or
lottery to assign the license, party B might receive it. If reselling the
license cost more than $100, party B would be the ultimate holder of the
license because the cost of reselling it would exceed the additional value
party A placed on it. This just illustrates the inefficiency of not using
an auction initially.


December 1984, for example, the FCC approved over 100 license reassignments.
This represents roughly 5% of the total number of SMRS licenses granted to
date.14 The satellite aftermarket has also been quite active, although here
activity has been in the sale and lease of individual transponders rather’
than complete satellites.15

Lotteries have been in use too short a time for there to be much
evidence of trading of licenses awarded in this manner. But there is every
reason to expect that such trading will occur. In fact, because the
Commission was concerned that post grant trading could thwart the goals of
its minority and ownership preferences used in the LPTV lottery, it -
prohibits reassignment of these licenses for a minimum of one year after
grant.

Since the assignment method has little effect on who holde a
license in the long run, we conclude that ownership distributions would not
be significantly changed if initial authorizations were awarded by auction.
But, as will be argued in the following section, auctions would reduce the
delays and transactions costs involved in initial assignments and avoid the
need for resale.

This conclusion about the ultimate ownership distribution should -

lay to rest any concerns that under an auction large firms would monopolize

14 Source: official FCC records. In spite of this active trading,

the SMRS market is in no sense concentrated. The top 20 operators control
less than 35% of all the systems and only about 12% of all the mobiles
currently in use. [Source: Telocator (1985)].

15 Of the 750 authorized satellite transponders, 128 have been sold for
use by non-common carriers. See, The Western Union Tel raph Co., mimeo no.
5049, June 26, 1984; and, letter from James R. Keegan, Chief, Domestic
Facilities Division, Common Carrier Bureau, FCC, to Philip Walker, GTE,
dated January 30, 1985.

-10-


USING AUCTIONS TO SELECT FCC LICENSEES

Evan Kwerel
Alex Felker */

May 1985

Office of Plans and Policy
Federal Communications Commission
Washington, D.C. 20554

ee

*/ The opinions and conclusions in this paper are those of the authors. They

do not necessarily reflect the views of the Federal Communications Commission
or any other organization or individual.


expenditures, (C)(N), equal the value of a license, V.

In the case of an auction the winner must pay for the license.
Let B be the expected value of the winning bid. The expected revenue given
that a bidder wins is (V-B). We assume as suggested by Wilson’s (1977, p.
517) theoretical analysis, that the expected "profit" percentage given that
the bidder wins, (V-B)/V, is proportional to 1/N. This says that the
greater the number of bidders the smaller the percentage difference between
the winning bid and the value of the item. Assume for simplicity that the
Proportionality factor is unity so (V-B) = V/N. In equilibrium, (P)(v-B)
= c, or (1/N)(V-B) = c, where c is the cost of entering an auction.
Substituting in the expression for (V-B) gives the equilibrium condition
(1/N)(V/N) = c, or (N)(N) = V/c. Thus, under these assumptions, the number
of applicants in an auction equals the square root of the value of a license
divided by the cost of making a bid. Note too that the equilibrium
conditions for an individual bidder, (1/N)(V-B) = c, imply that expected
total private expenditures on obtaining a license, Nc + B, will equal the

expected value of the license, V.

Processing Delay

We have assumed an average delay of 18 months for comparative
hearings and 12 months for lotteries. These figures are consistent with
the Commission’s experience in cellular selections. Because far fewer
applications are expected, auctions are assumed to impose a much shorter
processing delay than lotteries. Some processing delays are probably not
sensitive to the number of applications filed. Therefore, it is estimated
that it will take roughly 25% as long to conclude an auction as it does a

lottery (3 months) even though we expect only 5% as many applications.

- 29 -




The FCC Office of Plans and Policy's Working Paper Series presents
staff analysis and research in various states. These papers are intended to
stimulate discussion and critical comment within the FCC, as well as outside
the agency, on issues in telecommunications policy. Titles may include
preliminary work and progress reports, as well as completed research. The
analyses and conclusions in the Working Paper Series are those of the authors
and do not necessarily reflect the views of other members of the Office of
Plans and Policy, other Commission staff, or the Commission itself. Given the
preliminary character of some titles, it is advisable to check with authors
before quoting or referencing these Working Paper in other publications.

Copies may be purchased from the International Transcription Services, Inc.,
FCC, 2100 M Street, N.W., Room 140, Washington, D.C. 20037, (202) 857-3800.
Copies are also available from the National Technical Information Service,
5285 Port Royal Road, Springfield, VA 22161 (703) 487-4650). The inside back
cover contains a list of previous titles.

For information on the Series, contact the Office of Plans and Policy, Federal
Communications Commission, Room 822, 1919 M Street, N.W., Washington, D.C.
20554, (202) 653-5940.


that for non identical channels, a simplified system of simltaneous bidding
or sequential auctions would be preferable. One simple form of simultaneous
bidding would be to allow parties to simltaneously place independent bide
on several channels. More study is necessary to determine the best system

to use in this situation.

3. Minimum Bid Requirements

The FCC should also consider establishing a minimum bid level.
Certain theoretical studies of bidding suggest that the seller can increase
his expected return by setting a "reservation" price below which it will not
sell the item. (See Riley and Samuelson, 1981). For example, in a sealed
bid auction the government’s return might be greater because a reservation
price could induce some buyers to raise their bids.

If it is decided to set a reservation price several additional
questions must be addressed. First, should the reservation price be
announced prior to the bidding? Currently, the Department of the Interior
does not announce its reservation prices for oil or coal lease auctions.

A second issue is how should the reservation price be determined? If the
reservation price is not announced prior to the auction, should the FCC
combine information provided by the bids with its own independent estimate
of the license’s value? In setting a reservation price should the FCC
consider the value of the spectrum in other uses? For example, suppose the
FCC does not know the value of a license to use 10 MHz for use A but it
knows that the spectrum is worth approximately $5 million in use B. Should
it set a reservation price of $5 million when auctioning the license for use
A? A third question is how long should the Commission wait before
reoffering the license if no bid exceeds the reservation price? If the FCC

reoffers the license immediately and lowers its reservation price, the

-25-


Recent Working Papers & Staff Reports
Office of Plans and Policy
Federal Communications Commission

Promoting Competition Between International Telecommunication
Cables and Satellites

by Evan R. Kwerel and James E. McNally, Jr.; Working Paper #19
January 1986

Telephone Pricing to Promote Universal Service and Economic Freedom
by Gerald W. Brock; Working Paper #18, January 1986.

The FCC, The OCCs and the Exploitation of Affection
by John Haring; Working Paper #17, June 1985.
NTIS # PB85 234250/AS; $7.00 pp 16

Using Auctions to Select FCC Licensees
by Evan Kwerel and Alex D. Felker; Working Paper #16, May 1985.
NTIS # PB85 214484/AS; $8.50 pp. 33

Spectrum Management Policy in the United States: An Historical Account
by John 0. Robinson, Working Paper #15, April 1985.
NTIS # PB85 204550/AS; $14.50 pp. 72

Implications of Asymmetric Regulation for Competition Policy Analysis
by John Haring; Working Paper #14, December 1984.
NTIS # PB85 147254/AS; $8.50; pp. 40

Promoting Competition Piecemeal in International Telecommunications
by Evan Kwerel; Working Paper #13, December 1984.
NTIS # PB85 151223/AS; $10.00; pp. 54 :

Bypass of the Local Exchange: A Quantitative Assessment
by Gerald W. Brock; Working Paper #12, September 1984.
NTIS # PB85 107811; $11.50; pp- 93.

Divestiture and the Separate Subsidiary Requirement
by Florence 0. Setzer; Working Paper #11, March 1984.
NTIS # PB84 186824; $4.50; pp. 42.

The Effects of Higher Telephone Prices on Universal Service
by Kenneth Gordon and John Haring; Working Paper #10, March 1984.
NTIS # PB84 186790; $4.50; pp. 45.

A Framework For a Decentralized Radio Service
by Alex Felker and Kenneth Gordon; September 1983.
NTIS # PB84 101609, $10.00; pp. 55.

A COMPLETE LIST OF OPP PAPERS IS AVAILABLE UPON REQUEST.

ABOVE PUBLICATIONS MAY BE ORDERED FROM NTIS BY MAIL OR TELEPHONE. PLEASE
INCLUDE NTIS NUMBER (SEE ABOVE) WHEN ORDERING.

National Technical Information Service
5285 Port Royal Road

Springfield, VA 22161

703/487-4650


under comparative hearings. For the same reason, auctions would also
impose the least costs on the FCC.

Adding up the three cost categories, the total cost of assigning a
license using an auction would be under $100,000 per market, while the cost
would be over $600,000 per market using comparative hearings or lotteries.
The reason auctions have lower social costs is that making the winner pay
for the license is an economical way to reduce the number of applicants,
while generally assuring that the license is awarded to the applicant who
values it the most. In our illustrative example, the expected value of the
winning bid is $561,142, the difference between the private application
costs and the value of the license. This bid goes to the government. Thus,
under our assumptions, auctions would have generated almost $17 million in
government revenue if they had been used to award all 30 non-wireline
cellular licenses in markets 91 - 120.

Auctions were predicted to have significantly lower costs than
other assignment mechanisms in a similar study by Carson Agnew. Agnew
(1983) estimated that the cost of assigning a license in the Multipoint,
Distribution Service using auctions would be only 25% the cost of

comparative hearings and 27% the cost of using lotteries.

IV. Auction Im e!

Regardless of the selection mechanism employed, there are start-up
costs that must be considered. For example, the comparative hearings that -
were used to award many Round I cellular licenses required the development
of comparative criteria, the assembling and training of professional staff,
and the establishment of acceptance and filing procedures for applications.

Lotteries required the acquisition of enabling legislation, the development

- 20-


have, in turn, adjusted their filing strategies. Hence, with each new call

for lottery applications, larger numbers of applications are received.

C. Auctions

A third possible selection method is a competitive bidding system
where licenses are awarded to those users willing to pay the most for them.
Although they have never been used to award radio licenses, federal
government experience with auctions is longstanding and extensive.

The U.S. Department of the Interior (DOI), for example, has been
successfully auctioning leases on tracts in the Outer Continental Shelf
(OCS) for 31 years. The OCS is a major source of domestic oil and gas
production, and between 1954 and 1983 total revenues from the auctions
program were approximately $68 billion. Under the OCS Lands Act of 1953,
private parties submit sealed bids for the right to explore and develop a
specified tract on the OCS.8 The DOI has used a number of different
systems for auctioning leases. Currently, a tract is leased to the Party
offering the highest up front "cash bonus" provided there are at least three
bids. If there are fewer than three bids, the high bid is not accepted
unless it exceeds the U.S. Geological Surveys estimate of the tract’s
value. In addition to paying a cash bonus for a tract, the lessee must also
pay the government a fixed share of the revenues produced on the tract. The
"royalty rate" is typically 16 2/3 percent of the market price of the oil
and gas at the wellhead. About 30 percent of the total government revenues
from OCS leasing have come from royalty payments. The primary economic

reason for relying on a royalty system in addition to cash bonus bids is

8 See, 43 U.S.C. Sections 1331 - 1356.


view. For example, in 1983 sixty-five percent of commercial television
licenses were held by someone other than the initial licensee.l2 Thus, the
qualifications of most Present-day broadcasters were never considered in a
comparative context.

Transfers and assignments are also common in the Public Mobile
Services (PMS). In recent years, for example, the FCC has annually
processed over 600 applications for reassignment or transfer of licenses.13
Although many of the major radio common carriers” first radio licenses were
initial grants, many of their subsequent licenses were acquired from other
parties. In the cellular service many applicants have elected to reach
Settlements amongst themselves rather than face the uncertainties of either.

comparative hearings or lotteries. The Commission has generally honored

these agreements and in those cases where all mutually exclusive applicants
have settled, the agency has issued an authorization without utilizing any
selection procedure. Although the item being traded is an expectation of an

authorization rather than an actual license, these settlements may amount to

de facto trafficking and add additional support to the Proposition that the

type of selection mechanism employed by the FCC is irrelevant to the public.
Even though the private carrier Special Mobile Radio Service .
(SMRS) is much younger than either broadcasting or PMS, there has been some

activity in the license aftermarket in this service, too. Between May and

12 A study of ownership of radio and television stations (licenses and
construction permits) was conducted by FCC staff in July 1983. Records for
995 commercial television stations were examined. Of these, 650 (65%)
licenses were assignments rather than original grants. Records of a sample
of 823 commercial radio stations (roughly 10% of the total) were also
examined. Of these, 615 (75%) were assignments rather than original grants.

13 Source: discussions with FCC officials. This total includes
applications for cellular settlements.