CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

A

PAPER

OCTOBER 2005

Small Bidders 

in License 

Auctions for 

Wireless Personal 

Communications 

Services

CBO

© BananaStock Ltd.

The Congress of the United States O Congressional Budget Office

CBO

Small Bidders in License Auctions for 

Wireless Personal

Communications Services

October 2005

A

PAPER
Note

Numbers in the text and tables may not add up to totals because of rounding.
Preface

Since the mid-1990s, the Federal Communications Commission (FCC) has assigned 

licenses for providing wireless communications services through competitive auctions. In carrying out the auctions, the FCC has a statutory obligation to ensure that small businesses are 

able to participate in the provision of those services. The FCC complies with that obligation 

in part by offering auction preferences to small bidders on licenses that account for one-third 

of the radio spectrum allocated to broadband personal communications services (PCS), which 

include both mobile telephony and wireless data exchange.

This Congressional Budget Office (CBO) paper, prepared at the request of the Senate Budget 

Committee, examines whether the FCC’s small-bidder preferences imposed costs on PCS 

users and whether those preferences reduced federal revenues. First, because small firms may 

not establish and operate wireless networks as quickly or as successfully as larger firms, businesses and individuals may have less access to wireless communications and may pay more for 

them. In some cases, lengthy delays have occurred between the cancellation of a license for 

failure to satisfy financial and operational requirements and the reauction of that license. Second, partly because of their potentially less favorable commercial prospects, small bidders may 

not pay as much at auction for their licenses as larger bidders pay. As a result, by offering preferences at auction, the government may forgo auction receipts otherwise available to it. Consistent with CBO’s mandate to provide objective, impartial analysis, this paper makes no 

recommendations.

Nathan Musick prepared the paper under the supervision of Roger Hitchner, Joseph Kile, and 

David Moore. (Roger Hitchner has since left CBO.) The paper benefited from the comments 

of Carla Tighe Murray of CBO; Peter Cramton of the University of Maryland; Coleman 

Bazelon of Analysis Group, Inc.; and Evan Kwerel of the FCC. (The assistance of external 

reviewers implies no responsibility for the final product, which rests solely with CBO.) 

Janey Cohen edited the manuscript, and Leah Mazade proofread it. Maureen Costantino prepared the paper for publication and designed the cover, Lenny Skutnik produced the printed 

copies, and Annette Kalicki and Simone Thomas produced the electronic version for CBO’s 

Web site (www.cbo.gov).

Douglas Holtz-Eakin

Director

October 2005

Summary and Introduction 1

The PCS Allocation, Auctions, and Preferences for Small Businesses 2

Measuring the Cost of PCS Preferences 5

Current Ownership of the Set-Aside Licenses 6

Small-Bidder Preferences 7

Background 7

Eligibility Rules and Types of Preferences 7

Constraints 8

Provision of Personal

Communications Services by Small License Winners 9

Cancellation and Termination of PCS Licenses Won by

Small Bidders 10

Reauction of Returned and Contested PCS Licenses from

Auctions 5, 10, and 11 16

Transfer of PCS Licenses from Small Bidders to Larger Entities 19

Estimating Revenues Forgone to the Government from

Small-Bidder Preferences 24

Auction 11 28

Auctions 35 and 58 30

Tables

1. Schedule of PCS Auctions by the Federal Communications

Commission 3

2. Disposition of PCS Licenses and Associated Wireless

Spectrum Won in the Initial C-Block Auctions

(FCC Auctions 5 and 10) as of Fall 2004 12

3. Disposition of PCS Licenses and Associated Wireless

Spectrum Won in the Initial D-, E-, and F-Block

Auction (FCC Auction 11) as of Fall 2004 14

4. Disposition of PCS Licenses and Associated Wireless

Spectrum Won in the First PCS Reauction

(FCC Auction 22) as of Fall 2004 16

5. Share of Potential PCS Coverage in Frequency

Blocks C and F from Returned or Contested

Licenses Reauctioned in the First, Second, and

Third PCS Reauctions (FCC Auctions 22, 35, and 58) 18

CONTENTS
vi SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES

6. Concentration in Ownership of Currently Active,

Unpartitioned PCS Licenses from the Initial C-Block

Auctions (FCC Auctions 5 and 10) 20

7. Concentration in Ownership of Currently Active,

Unpartitioned F-Block PCS Licenses from the Initial

D-, E-, and F-Block Auction (FCC Auction 11) 22

8. Concentration in Ownership of Currently Active,

Unpartitioned C-Block PCS Licenses from the First

PCS Reauction (FCC Auction 22) 24

9. Comparison of Winning Bids for Comparable Licenses in

FCC Auction 11 28

10. Comparison of Winning Bids for Comparable Licenses in

FCC Auctions 35 and 58 30

11. Impact of Bidding Credits on Winning-Bid Differences in

Open Bidding in FCC Auctions 35 and 58 32

Figures

1. The Federal Communications Commission’s Broadband

PCS Band Plan 2

2. Reauction History of Available and Disputed PCS

Licenses in the Federal Communications Commission’s

C Block 4

Tables (Continued)
Small Bidders in License Auctions for

Wireless Personal Communications Services

Summary and Introduction

This paper examines the costs of the specific mechanisms 

the Federal Communications Commission (FCC) has 

used to meet its statutory obligation to ensure that small 

businesses have the opportunity to participate in the market for personal communications services (PCS), the 

most economically significant allocation of spectrum 

made since that for television in the 1950s. The FCC is 

responsible for allocating and regulating the use of the radio spectrum. That responsibility includes allocating 

parts of the spectrum for specific uses (such as television 

broadcasting) and assigning licenses to particular parties 

(for example, the owner of a local television station) authorizing them to use that allocation to provide service in 

specific geographic areas. Traditionally, licenses were assigned through a process in which competing applicants 

could argue why they deserved a particular license, and 

later by lottery. But as the value of the radio spectrum became more and more apparent—for example, as the market for mobile telephone service grew rapidly—policymakers turned to competitive bidding to assign licenses. 

Auctioning licenses can be more efficient than the alternatives—because licenses are thereby placed in the hands 

of those businesses that value them most—and also provide federal revenues. The Omnibus Budget Reconciliation Act of 1993 permitted the FCC to auction licenses 

in certain circumstances. The law, however, set limits on 

market-based licensing by requiring the commission to 

devise methods that would allow small businesses to participate in markets for emerging telecommunications

services. 

The costs of ensuring that small businesses can participate in the provision of personal communications services 

are properly viewed in the context of the benefits that also 

may result. In proceedings on the auctions it would use to 

assign PCS licenses, the FCC discussed the benefits that 

might accrue from ensuring that small businesses won licenses.1

 Those benefits included both equity and efficiency gains. On equity grounds, the FCC indicated that 

preferences might be necessary to compensate for unequal access to capital markets and other potential obstacles confronting small businesses.2 Concerning efficiency, 

the commission noted that, according to some observers, 

small businesses could be an independent competitive 

factor forcing all providers to offer better service at lower 

prices and that small businesses also could be more innovative than their larger counterparts. Analysis of either 

type of benefit is beyond the scope of this paper.

This analysis shows that the preferences adopted by the 

FCC in the PCS auctions, particularly those used in the 

auction for the first large block of spectrum set aside for 

small businesses, the C block, did not ultimately result in 

widespread or long-term participation by small businesses 

in the PCS market. As of 2005, it was a common occurrence that control of a large portion of the PCS spectrum 

authorized by licenses set aside for small businesses had 

been sold to large providers; thus, many of the expected 

benefits of small-business participation were not realized. 

Nevertheless, the preferences had economic and budgetary impacts. First, a part of the economically valuable radio spectrum that could have been in service lay fallow 

for almost a decade in some geographic markets. 

1. Federal Communications Commission, Fifth Report and Order, PP 

Docket No. 93-253, FCC 94-178 (July 15, 1994), pp. 40-49. 

2. Federal Communications Commission, “FCC Seeks Comment 

on Changes in the C Block Auction Rules for Broadband PCS: 

Auction Date Set for August 29” (FCC 95-263, news release, June 

23, 1995). The original plan for assigning broadband PCS licenses 

featured set-aside licenses for minority- and women-owned businesses as well as small businesses. The FCC dropped the special 

incentives for minority- and women-owned businesses in the Cblock auction because of the Supreme Court’s decision in Adarand 

Constructors, Inc. v. Peña, 515 U.S. 200 (1995). 
2 SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES

Figure 1.

The Federal Communications Commission’s Broadband PCS Band Plan

Source: Congressional Budget Office.

Notes: PCS = personal communications services; MHz = megahertz.

The numbers in bold (for example, 1.85 and 1.86) represent frequency bands in gigahertz.

Second, as the spectrum was put into use, the ownership 

of the licenses set aside in the PCS auctions migrated 

from small-business ownership to large-business ownership, revealing that personal communications services 

may be more efficiently provided by large network providers. Third, the federal government probably lost receipts as a consequence of the preferences policy.

The PCS Allocation, Auctions, and Preferences for 

Small Businesses

Since the mid-1990s, the FCC has run seven auctions to 

assign licenses to use the radio spectrum for providing 

broadband personal communications services. Those auctions comprised the four initial PCS auctions (FCC Auctions 4, 5, 10, and 11) and three PCS reauctions (FCC 

Auctions 22, 35, and 58). The personal communications 

services authorized by licenses assigned in those auctions 

include a wide range of digital voice and data applications, most prominently mobile telephony, and are allocated six radio frequency blocks (A through F) that

occupy 120 megahertz of radio spectrum in the 1.9 gigahertz area, a particularly desirable part of the radio spectrum (see Figure 1).3 PCS licenses are granted for renewable 10-year terms, but as with other FCC licenses, 

licensees have a high expectation of renewal.4

Licenses in two-thirds of the radio spectrum allocated to 

personal communications services were initially assigned 

through competitive bidding in which auction preferences played little role (an exception being for favored 

bidders on the basis of technological innovativeness). Licenses in frequency blocks C and F made up the remaining portion and were initially assigned through auctions 

that were closed to all but small bidders (see Table 1). 

The initial C-block auctions (FCC Auctions 5 and 10) 

made available a single license of 30 megahertz of frequency in each of 493 geographically defined markets 

(called basic trading areas, or BTAs) of the United States 

and its territories. In the initial F-block auction (FCC 

Auction 11), F-block licenses covered 10 megahertz of 

1.85 1.87 1.89 1.91 1.93 1.95 1.97 1.99

1.86 1.88 1.90 1.92 1.94 1.96 1.98

A

15

MHz

D

5

MHz

B

15

MHz

E

5

MHz

F

5

MHz

C

15

MHz

Unlicensed

20 MHz 

A

15

MHz

D

5

MHz

B

15

MHz

E

5

MHz

F

5

MHz

C

15

MHz

3. In contrast, narrowband personal communications services are 

confined to more limited types of information exchange, such as 

voice-message paging. Although the auctions that awarded 

licenses for those services (FCC Auctions 1 and 3) offered smallbidder preferences, the performance of those license winners is not 

considered by this paper. Thus, the term “personal communications services” and its abbreviation “PCS” will henceforth refer 

only to broadband personal communications services.

4. Renewal simply requires that licensees meet basic performance criteria; see 47 C.F.R. §§24.15, 24.16.
SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES 3

Table 1.

Schedule of PCS Auctions by the Federal Communications Commission

Source: Congressional Budget Office based on Federal Communications Commission Auction Factsheets, available for each auction at

wireless.fcc.gov/auctions.

Note: PCS = personal communications services; MHz = megahertz.

a. In each of the initial PCS auctions (FCC Auctions 4, 5, 10, and 11), licenses were offered for geographically defined markets that together 

covered the entire United States and its territories. In Auction 4, there were 51 such markets corresponding to major trading areas 

(MTAs); in Auctions 5, 10, and 11, there were 493 such markets corresponding to basic trading areas (BTAs). The number of licenses 

offered in the reauctions that followed (Auctions 22, 35, and 58) may vary because of availability and license disaggregation—that is, 

splitting a license’s original spectrum bandwidth into smaller parts.

b. Preferences offered to eligible small bidders include license set-asides, bidding credits, and installment payment plans. All of those preferences were applicable to bids on C- and F-block licenses in Auctions 5, 10, 11, and 22. In Auctions 35 and 58, only a portion of licenses 

in those frequency blocks could be won through small-bidder preferences, which were also limited to license set-asides and bidding credits.

c. Three licenses in frequency block A were awarded outside of the auction through the FCC’s Pioneer Preference Program, which distributed PCS licenses to businesses applying innovative technologies to those wireless services. That preference program was eliminated in 

1997.

d. Includes a handful of licenses of fewer than 10 megahertz. 

Date

Frequency 

Block

Number of

Licensesa MHz

Small-Bidder

Preferences?b

Initial Auctions

Auction 4 December 1994 through

March 1995

A 51 30 Noc

B 51 30 No

Auction 5 December 1995 through

May 1996

C 493 30 Yes

Auction 10 July 1996 C 18 30 Yes

Auction 11 August 1996 through

January 1997

D 493 10 No

E 493 10 No

F 493 10 Yes

Reauctions

Auction 22 March 1999 through

April 1999

C 133 15 Yes

206 30 Yes

E 6 10 No

F 2 10 Yes

Auction 35 December 2000 through

January 2001

C 312 10 Yes

43 15 Yes

F 67 10 Yes

Auction 58 January 2005 through

February 2005

A 2 30 No

C 168 10 Yes

20 15 Yes

D 11 10d No

E 20 10d No

F 21 10 Yes
4 SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES

Figure 2.

Reauction History of Available and Disputed PCS Licenses in the Federal

Communications Commission’s C Block 

(Percentage of cumulative potential PCS coverage from activated, available licenses)

Source: Congressional Budget Office.

Note: PCS = personal communications services.

a. Licenses still activated after Auctions 5 and 10 closed.

b. Licenses reclaimed by or returned to the Federal Communications Commission for reauction in Auction 22.

c. Licenses retained or sold by auction winners contesting them in bankruptcy.

d. Licenses returned to the FCC by NextWave and reauctioned in Auction 58.

spectrum in each of the same geographically defined markets, were available only to small bidders, and were auctioned off simultaneously with the D- and E-block licenses, which were also 10 megahertz licenses available in 

each BTA but available to all bidders. The smallest bidders in the C- and F-block auctions could also take advantage of bidding credits (government subsidies of a 

fixed percentage of small bidders’ winning bids), and 

winners of licenses set aside for closed bidding (the C and 

F licenses) could pay for those licenses through installment payment plans at subsidized rates of interest.

Many of the small businesses that were winning bidders 

in the initial PCS license auctions, particularly in the initial C-block auctions (FCC Auctions 5 and 10), were unable to make payments on the licenses they had won and 

returned—in whole or in part—their licenses to the FCC 

for reauction.5 (See Figure 2 for a timeline of the PCS 

auctions.) Among successful bidders in Auctions 5 and 

10 that subsequently defaulted, however, a handful (most 

prominently NextWave Personal Communications) were 

able to retain a large number of licenses in bankruptcy 

through a lengthy process of litigation with the Federal 

Communications Commission. As a result, several reauc-

 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 

0

20

40

60

80

100

Licenses in Dispute or Otherwise

Unavailable for Use

Licenses Available for Use

Auctions

5 and 10

Auction

22

Contested in

Bankruptcy

Auction

58 a b c d

5. Auctions 5 and 10 are considered together, since Auction 10 followed very quickly after Auction 5 as a reauction of 18 licenses on 

which the winning bidders defaulted.
SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES 5

tions were required to assign licenses for all of the PCS 

spectrum initially set aside for smaller concerns.

As recently as the third PCS reauction (FCC Auction 58, 

which took place from January to February 2005), several 

small-bidder preferences, such as license set-asides and 

bidding credits, have been available for reauctioned licenses. However, the extent of license set-asides has been 

narrowed, particularly for licenses in markets with large 

populations (that is, of at least 2.5 million people).6

Additionally, in part to make PCS licenses more accessible to smaller bidders, reauctioned licenses have regularly 

been divided into smaller frequency bands. For example, 

a 30 megahertz C-block license that was initially assigned 

through Auctions 5 and 10 and that was subsequently returned to or reclaimed by the FCC might be reauctioned 

as two 15 megahertz licenses or three 10 megahertz licenses in the first, second, and third PCS reauctions. 

Measuring the Cost of PCS Preferences

The Congressional Budget Office (CBO) used the FCC’s 

Universal Licensing System (ULS) to track the performance of small bidders that won PCS licenses through 

preferences. ULS data have also been used to ascertain the 

extent to which control over the personal communications services authorized by those licenses has been transferred to larger firms. Both are novel ways of applying the 

ULS database. Although this study cannot be directly 

compared with previous studies, its findings are consistent with those of other sources using less detailed data 

on licensee performance.

Delays and Their Cost. The preferences for small businesses that the FCC used in the PCS auctions proved 

costly in two ways: a sizable portion of the radio spectrum was underutilized, and receipts to the government 

from PCS auctions were reduced. First, a valuable resource was allowed to lie fallow as a series of financial 

problems and legal disputes prevented the allocated airwaves from being used to provide telecommunications 

services. Potential PCS coverage is a measure of spectrum 

usage that puts on the same footing licenses that provide 

for different amounts of spectrum or that authorize service to different numbers of people. For any given allocation of spectrum, 100 percent potential PCS coverage 

means that all of the bandwidth allocated and assigned is 

available to serve all of the covered population. For the 

PCS license auctions covering frequency blocks A and 

B—in which preferences for small businesses were not a 

factor—potential PCS coverage registered 100 percent 

within months after the auction closed, as winning bidders paid what they bid and began to build out their networks and provide service.

The availability to users of spectrum auctioned in frequency block C and, to a lesser extent, frequency block F 

was substantially delayed. Winning bidders in the initial 

C-block auctions (FCC Auctions 5 and 10) returned to 

the FCC for reauction licenses that—in whole or in 

part—accounted for one-third of the potential PCS coverage available at those two auctions. Additionally, many 

other licenses assigned through those two auctions as well 

as through the initial D-, E-, and F-block auction (FCC 

Auction 11) have, until very recently, been contested in 

court between the FCC and the small bidders—most 

prominently, NextWave Personal Communications—

that went into bankruptcy soon after winning them. The 

contested licenses cover some of the most densely populated PCS markets and account for more than one-third 

of the total potential PCS coverage available from licenses 

initially set aside for small bidders and 12.5 percent of all 

potential PCS coverage (see Figure 2, which tracks potential PCS coverage available for use under the original

C-block licenses for several auctions and over 10 years). 

Those delays in deploying wireless networks resulted in 

reduced access to—and probably higher prices for—personal communications services for a sizable share of the 

U.S. population.

The performance of small winning bidders on PCS licenses in the first PCS reauction (FCC Auction 22)—

which was a reauction of PCS licenses won in FCC Auctions 5 and 10 and subsequently returned to the FCC by 

successful bidders that could not make payments on 

them—has changed dramatically compared with their 

performance following prior auctions. No license winner 

benefiting from preferences at that auction has failed to 

meet its operational or financial obligations. That probably was the result, at least in part, of the FCC’s reconfiguration of licenses, which reduced the wireless spectrum 

being offered on average per license and made PCS li6. In such markets, “the demand for spectrum by existing carriers 

(was considered to be) the greatest and the prospects of a spectrum 

shortage for these carriers... the most acute.” See Federal Communications Commission, “In the Matter of Amendment of the 

Commission’s Rules Regarding Installment Payment Financing 

for Personal Communication Services,” WT-Docket No. 97-82, 

Sixth Report and Order on Reconsideration (August 29, 2000), 

pp. 10-17.
6 SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES

censes more affordable to small bidders. For Auction 22, 

the FCC also restructured preferences by eliminating the 

availability of installment payments for small bidders that 

won licenses. That may have reduced the riskiness of 

some bids by reducing bidders’ incentive to make high 

bids and then hope for eventually favorable circumstances 

that would enable them to meet their financial obligations. Nonetheless, economic efficiency in the provision 

of personal communications services may have continued 

to be compromised by making it easier for small firms to 

obtain PCS licenses even when economies of scale in operating such wireless networks often favored their larger 

competitors.

The value of the spectrum that was not put into use cannot be precisely estimated. Using prices and quantities 

observed from actual transactions for wireless services, 

some analysts have estimated that consumer surplus losses 

due to license dormancy in the C block are quite large, 

approaching $40 billion. Essentially, that is the value to 

society from the spectrum set aside for small bidders had 

it reached the market in a timely way, fostering lower service prices and a larger amount of consumer purchases.

Loss of Revenue for the Federal Government. A second 

way in which small-bidder preferences at auction can be 

costly is by depriving the federal government of revenues 

it otherwise would have received. CBO explored that 

possibility for the PCS auctions by comparing, where 

possible, the winning bids on licenses to which bidder 

preferences could be applied with the winning bids on 

other, comparable licenses. Both small and large bidders 

could take part in the initial D-, E-, and F-block auction 

(FCC Auction 11) and in the second and third PCS 

reauctions (FCC Auctions 35 and 58), with open and 

closed bidding taking place simultaneously on distinct—

but comparable—licenses in the same market. (In open 

bidding, all auction participants may bid; in closed bidding, only entrepreneurs may bid on licenses set aside for 

them.) Qualified small bidders (designated entities) could 

also avail themselves of bidding credits at those auctions.

With the exception of license set-asides in Auction 58, 

small bidders appear to have used auction preferences to 

pay less than they otherwise would have in competition 

with larger bidders. For example, in Auction 11, small 

bidders paid—net of bidding credits and after incorporating a range of estimates of the value of governmentfinanced installment payment plans—on average between 

31 percent and 61 percent less for licenses set aside for 

them than bidders that won comparable licenses in open 

bidding. The corresponding figure for Auction 35 (which 

did not offer installment payments to small bidders and 

in which the number of set-aside licenses varied largely 

according to the population of the market for which a license authorized service) was between 14 percent and 15 

percent, depending upon the market population. Where 

the impact of bidding credits can be measured separately 

from the impact of license set-asides (FCC Auctions 35 

and 58), small bidders eligible for bidding credits placed 

winning bids that were on average 20 percent and 19 percent less, respectively, than the next-highest bid of bidders that did not qualify for bidding credits. However, an 

outcome where small bidders used bidding credits to outbid larger competitors that did not qualify for those credits was infrequent, and the overall impact of bidding 

credits was small. In terms of total net auction receipts, 

bidding credits reduced revenues by a bit over 2 percent, 

on average, in affected auctions.

The diversity of estimates across Auctions 11, 35, and 58 

and the different circumstances surrounding each auction 

make it difficult to reach a general conclusion about the 

extent to which preferences reduced auction receipts. The 

relative demand for and supply of licenses, the degree to 

which entrepreneurs and designated entities that benefit 

from preferences also receive financing from larger concerns, the extent of cooperation or rivalry between particular bidders, and other factors probably determine 

whether auction preferences reduce government revenues, 

and if they do, by how much.

Current Ownership of the Set-Aside Licenses

Small bidders that have won PCS licenses through preferences are constrained in how they may subsequently dispose of them. In particular, within the first five years after 

such licenses have been granted, their sale or transfer to 

an entity that would not also qualify for preferences obligates the small license winner to pay a penalty. At the 

time the ULS data for this study were obtained (in fall 

2004), the sale or transfer of most licenses assigned 

through Auctions 5, 10, 11, and 22 was exempt from 

penalty. And it appears that many bidders that won PCS 

licenses through preferences have sold or transferred those 

licenses to larger entities. Well over one-half of the total 

potential PCS coverage from licenses set aside for small 

bidders at Auction 11, and more than 40 percent of the 

corresponding figure for Auction 22, have been transferred from small bidders to larger entities. Although the 

corresponding figure for licenses won by small bidders in 

Auctions 5 and 10 is relatively low—approximately 25 

percent—many licenses assigned through that auction 

were reauctioned in Auction 22.
SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES 7

Small-Bidder Preferences

To comply with its statutory obligation to ensure that 

small concerns have the opportunity to participate in the 

provision of spectrum-based services, the FCC has given 

small bidders in PCS auctions a number of preferences, 

including license set-asides, bidding credits (government 

subsidization of a fixed percentage of small bidders’ winning bids), and installment payment plans at subsidized 

rates of interest. Over time, however, the FCC has narrowed the extent of preferences offered to small bidders. 

Additionally, to be eligible for preferences at auction, 

small bidders have been constrained with respect to both 

the amount of equity that large firms may hold in them 

and how they dispose of the licenses won through the use 

of the preferences.

Background

In establishing competitive bidding procedures for FCC 

licenses, the Omnibus Budget Reconciliation Act of 1993 

required the FCC to consider a variety of measures, including preferential bidder treatment at auction and financial assistance to winning bidders, to “ensure that 

small businesses, rural telephone companies, and businesses owned by members of minority groups and 

women are given the opportunity to participate in the 

provision of spectrum-based services.”7 In response to the 

Supreme Court’s ruling in Adarand Constructors, Inc. v. 

Peña that “strict scrutiny”—that is, a new, higher standard of the evidence of discrimination, based on a showing of past discrimination—be satisfied to justify genderor race-based preferences in federal programs, the FCC 

has offered preferences in PCS spectrum auctions to small 

businesses irrespective of gender or race.8

Eligibility Rules and Types of Preferences

Title 47 of the Code of Federal Regulations (CFR) contains the rules that govern the Federal Communications 

Commission. Preferential treatment of small businesses is 

considered both in a general context in Part 1 (“Practice 

and Procedure”) and with respect to small businesses’ 

provision of personal communications services in particular in Part 24.

The FCC uses a variety of terms to designate the small 

concerns targeted by its preference schemes in PCS auctions. Generally, designated entities are “small businesses, 

businesses owned by members of minority groups and/or 

women, and rural telephone companies,” with “small” 

defined in terms of revenues or assets (or both).9 However, the FCC also uses the terms “very small business” 

and “entrepreneur.” Both the precise definition of those 

terms and the provisions made to support bidders that 

qualify in any of those categories are made on a servicespecific basis.

In PCS auctions, the FCC typically refers to the small 

concerns that qualify for closed bidding—that is, for license set-asides at auction—as entrepreneurs (see, for example, the factsheets for each PCS auction, available at 

wireless.fcc.gov/auctions/). However, not all entities that 

qualify for closed bidding are also eligible for bidding 

credits. The FCC reserves bidding credits for small and 

very small businesses, with the smallest bidders typically 

receiving the most generous credits. This paper will follow FCC convention by referring to small concerns that 

qualify for license set-asides as entrepreneurs and will refer to bidders that receive bidding credits of any amount 

as designated entities. By definition, then, all designated 

entities are also entrepreneurs, but not all entrepreneurs 

qualify as designated entities.

The criteria for qualifying as an entrepreneur or a designated entity have not changed throughout the PCS auctions. A small concern has been eligible to participate as 

an entrepreneur in a broadband PCS license auction if, 

“together with its affiliates and persons or entities that 

hold interests in the [concern] and their affiliates,” it has 

earned less than $125 million in gross revenues during 

each of the two years prior to the auction and has assets of 

less than $500 million when filing its application to participate.10 Similarly, designated entities have been small 

or very small businesses whose average annual gross reve7. 47 U.S.C. §309(j)(4).

8. 515 U.S. 200 (1995). In the first PCS auctions in which preferences were offered (FCC Auctions 5 and 10), three tiers of bidding credits were initially planned: 10 percent for small 

businesses, 15 percent for businesses owned by women or minorities, and 25 percent for small businesses owned by women and 

minorities. As a result of the Supreme Court’s ruling in Adarand 

Constructors, Inc. v. Peña, the FCC collapsed the three bidding 

credit tiers to one of 25 percent that applied to virtually all small 

businesses. See Federal Communications Commission, Sixth 

Report and Order, PP Docket No. 93-253, FCC 95-301 (July 18, 

1995), pp. 109-111. 

9. 47 C.F.R. §1.2110(a)-(b).

10. 47 C.F.R. §24.709(a). 
8 SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES

nues during the three-year period preceding the auction 

do not exceed $40 million or $15 million, respectively.11

Although the FCC has offered preferences in almost all of 

its PCS auctions, the particular preferences available in 

any auction have varied. At the PCS auctions in which 

small-bidder preferences were first offered (FCC Auctions 

5, 10, and 11), the Federal Communications Commission auctioned all C- and F-block licenses to entrepreneurs in closed bidding. Installment payment plans at 

subsidized rates of interest were also available to winners 

of those set-aside licenses.12 At the ensuing reauctions of 

returned and canceled licenses (Auctions 22, 35, and 58), 

the FCC maintained license set-asides but discontinued 

installment payment plans. C- and F-block license setasides for entrepreneur bidders have also become less generous. For example, starting with Auction 35, some Cblock licenses have been offered in open bidding, and Fblock license set-asides have been discontinued.13

Designated entities have benefited from bidding credits 

on C- and F-block licenses in all PCS auctions, although 

certain aspects of that preference have also evolved over 

time. In Auctions 5 and 10, for example, a 25 percent 

bidding credit was available to all bidders that qualified as 

small businesses. Beginning with Auction 11, small businesses have received a 15 percent bidding credit, and very 

small businesses have received a 25 percent bidding 

credit.14 Through Auction 22, bidding credits were applicable only to C- and F-block licenses, which were offered entirely in closed bidding. In subsequent PCS auctions, in which bidding on some C-block and all F-block 

licenses has been opened to all auction participants, bidding credits have been applicable only to C- and F-block 

licenses won in open bidding.15

Constraints

Several constraints are placed on small concerns that wish 

to qualify and retain their status as entrepreneurs or designated entities. First, the amount of equity contributed 

from larger firms or investors is capped. There are, however, doubts about how effectively that cap insulates competition among small bidders from the influence of larger 

concerns. Second, there is an obligatory holding period 

before a license that has been won through a set-aside or 

bidding credit may be sold or transferred to a larger entity 

without incurring a penalty.

To qualify as an entrepreneur and be eligible for closed 

bidding on a PCS license, a bidder’s revenues must not 

have exceeded $125 million in each of the two years before the auction, and the bidder must have total assets of 

less than $500 million at the time it applies to participate. 

To avoid hindering winning entrepreneurs in their efforts 

to obtain external financing for establishing wireless PCS 

networks, however, the FCC has allowed entrepreneurs to 

enter into several types of equity agreements with larger 

firms. In particular, small concerns can create a “control 

group” for the entity bidding as an entrepreneur (that is, 

the eventual PCS license applicant); as long as a sufficient 

amount of that entity’s total assets is held by members of 

the control group that qualify as entrepreneurs (this can 

be as little as 15 percent), then additional equity can 

come from larger firms.16 As a result, an entrepreneur 

may obtain as much as 85 percent of its equity from 

larger concerns, including larger PCS providers. For several reasons, the equity participation rules have been controversial. First, as noted in footnote 15, they may be very 

difficult to enforce. Second, they may have permitted 

larger PCS providers to have undue influence.17

11. 47 C.F.R. §24.720(b)(1)-(2).

12. 47 C.F.R. §§24.711, 24.716.

13. 47 C.F.R. §24.709(a)(3)-(4).

14. 47 C.F.R. §§24.712(a)-(b), 24.717(a)-(b). Beginning with Auction 35, bidding credits have also been available to winning bidders for PCS licenses that have received authorization to provide 

those wireless services on qualifying Indian tribal lands. See 47 

C.F.R. §1.2110(f)(3).

15. See Federal Communications Commission, “In the Matter of 

Amendment of the Commission’s Rules Regarding Installment 

Payment Financing for Personal Communication Services,” p. 23. 

The FCC endorsed the argument of a petitioner who claimed that 

retaining bidding credits in closed bidding would “simply skew 

these auctions in favor of well-capitalized applicants” who nonetheless would qualify for set-aside licenses because they “are carefully structured to shield deep-pocketed investors from 

attribution.”

16. 47 C.F.R. §24.709(b).

17. FCC equity participation rules are in particular criticized for 

allowing some entrepreneur bidders to serve as “fronts” for larger 

companies, which as a result can benefit from preferences 

intended for smaller firms. The presence of fronts in closed bidding for set-aside licenses raises the price that small bidders must 

pay. See, for example, Peter Cramton, Allan T. Ingraham, and 

Hal J. Singer, “The Impact of Incumbent Bidding in Set-Aside 

Auctions: An Analysis of Prices in the Closed and Open Segments 

of FCC Auction 35” (mimeo, May 2002).
SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES 9

A second constraint placed on bidders that benefit from 

auction preferences is the five-year holding period during 

which they may not—without incurring a penalty—sell 

or transfer their license, in whole or in part, unless the 

purchaser would also qualify for the same preference(s) at 

auction.18 Known as an “unjust enrichment” payment, 

that penalty varies depending upon the type of preference 

through which the license was won at auction and, for 

bidding credits, upon the amount of time that the winning small bidder has held the license. For example, the 

unjust enrichment payment for licenses won in closed 

bidding should reflect “the estimated value of the setaside benefit,” calculated as the difference in the freemarket price between a set-aside license and a comparable 

license won in open bidding.19 For PCS licenses won 

through bidding credits, the unjust enrichment penalty 

equals the value of the bidding credit multiplied by a 

fraction that decreases from 1.0 to 0.25 during the fiveyear holding period.20

Provision of Personal

Communications Services by

Small License Winners 

How successfully FCC auctions have enabled small concerns to provide personal communications services may 

be judged by the failure of those bidders to use their licenses at all. That is, one can examine the frequency of license cancellation or termination and the degree to which 

PCS licenses won at auction by small bidders have been 

sold or transferred to larger entities. On that basis, the 

performance of small bidders that have won PCS licenses 

through license set-asides and bidding credits has been 

mixed. The initial PCS auctions (FCC Auctions 5, 10, 

and 11) were marred by the inability of many small license winners to make good on their winning bids. As a 

consequence, many of the licenses assigned through those 

auctions were returned—in whole or in part—to the 

FCC for reauction, whereas a large number of the others 

have, until very recently, been contested in court between 

the FCC and the small concerns that went into bankruptcy soon after winning them. The contested licenses 

cover some of the most densely populated PCS markets. 

As a result, during the delay before they were put into the 

hands of viable wireless providers, a sizable share of the 

U.S. population had access to fewer personal communications services—most likely at higher prices—than they 

would have had if the spectrum had been in use. 

The performance of small winning bidders in subsequent 

PCS license auctions has changed dramatically, owing, 

perhaps, to smaller license sizes and a restructuring of 

small-bidder preferences. For example, before reauctioning many of the 30 megahertz licenses returned to it from 

defaulted auction winners, the FCC split them into several licenses of 15 megahertz and 10 megahertz each, in 

an attempt to make the new licenses better suited to the 

financial and operational capabilities of small concerns. 

Beginning with Auction 22, small license winners have 

no longer been able to pay off their winning bids through 

installment payments at subsidized rates of interest. That 

preference has been associated with encouraging inflated 

bidding, particularly in the initial C-block auctions (FCC 

Auctions 5 and 10) and the initial D-, E-, and F-block 

auction (FCC Auction 11).

The difficulties encountered in the early auctions have 

continued to affect the provision of personal communications services by small concerns. In particular, an agreement reached in 2004 between the FCC and NextWave 

Personal Communications, Inc., in the wake of the Supreme Court’s ruling against the government has allowed 

larger wireless providers to obtain PCS licenses in significant markets.21 In addition to that reallocation of PCS 

market share from small to large entities, rules have allowed small bidders benefiting from auction preferences 

to sell their licenses to larger concerns after five years 

without incurring a penalty.

18. More specifically, the new licensee must either already be in possession of licenses that it won through preferences, or be of a size 

that would qualify it for preferences were an auction to be held at 

the time of the license transfer or sale. The FCC does not, however, require a small bidder that wins a license through preferences 

to remain that size for five years. See 47 C.F.R. §24.709(c).

19. 47 C.F.R. §1.2111(b). Note that additional considerations for 

unjust enrichment penalties assessed on the sale or transfer of PCS 

licenses won through closed bidding are also found in 47 C.F.R. 

§24.839 and, in cases where the winning entrepreneur benefited 

from installment payments (Auctions 5, 10, and 11), in 47 C.F.R. 

§1.2211(c). 

20. 47 C.F.R. §12111(d). Bidding-credit-based unjust enrichment 

penalties are not, however, assessed on the sale or transfer of 

licenses won in Auctions 5 or 10. See 47 C.F.R. §24.712(c). 21. 537 U.S. 293.
10 SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES

Cancellation and Termination of PCS Licenses Won 

by Small Bidders

The winner of a PCS license in an FCC auction must satisfy several requirements both to become a licensee and to 

retain the license over time. A winning bidder must submit on time the necessary down payment and thereafter 

make timely payments on the remaining amount of the 

winning auction bid. A wireless network must also be 

“built out” within an appropriate period. At regular intervals, licensees need to verify that sufficient network facilities exist to provide service to the population served by 

their license.22 Failure to satisfy financial or build-out requirements can bring about a license’s cancellation or termination, respectively.23

Although a common set of requirements applies to PCS 

license winners, the licenses themselves are not identical. 

They differ in the amount of wireless spectrum that the 

operator can use to provide service (in practical terms, the 

amount of data or information that can be exchanged) 

and the geographic area in which the service can be offered and hence, the number of people that may be covered by that service. Those factors determine the likely 

net revenues from the auction of a license. All other 

things being equal, a license that conveys the right to provide personal communications services within a narrow 

frequency range and over a geographic area with a small 

number of individuals or households, for example, represents much less potential PCS coverage—and therefore 

fewer revenues—than does a license for wireless operations across a broad frequency range and over a geographic area with a large population.24 A measure that is 

useful in putting licenses on a common footing is potential PCS coverage: license bandwidth measured in megahertz multiplied by the total population in the area covered by the license. Potential PCS coverage is useful for 

evaluating in quantitative terms the benefits lost to society from licensing delays and cancellations.

Licenses can differ in spectrum allocation and geographic 

coverage both initially, when they are auctioned, as well 

as afterwards. For example, subject to FCC approval, a license can be modified after it is initially granted by splitting up either the associated spectrum or the geographic 

area serviced in order to lease or sell some or all of the resulting pieces of the license. License spectrum is “disaggregated” when the original bandwidth for which wireless 

operations are authorized by the license is divided into 

smaller segments, and the geographic service area of a license is “partitioned” when that area is divided into 

smaller sections that together make up the original geographically defined market. In principle, the potential 

PCS coverage of either disaggregated or partitioned licenses can be calculated as described above, as the product of spectrum bandwidth multiplied by population.25

However, the limitations of the data available to this 

study make it difficult to determine the population 

served by partitioned licenses. As a result, partitioned licenses are treated separately in CBO’s results for the incidence of license cancellation and termination.

Of the six PCS auctions for which the FCC has made 

small-bidder preferences available, FCC Auctions 5, 10, 

11, and 22—which took place between 1995 and 

1999—represent a significant number of licenses and 

provide a sufficient time period for evaluating the ability 

of small license winners to meet financial and operational 

requirements. The remaining two PCS auctions do not 

allow for such assessments. About 80 percent of the 133 

licenses won by entrepreneurs in Auction 35, which took 

place between 2000 and 2001, were invalidated as a result 

of a ruling by the Court of Appeals for the D.C. Circuit—subsequently upheld by the Supreme Court—that 

PCS licenses held by certain bankrupt bidders (in particular, NextWave Personal Communications) could not be 

reclaimed by the FCC for auction. Auction 58 just concluded in February 2005.

22. For PCS licenses of 30 megahertz and 10 megahertz, see, respectively, 47 C.F.R. §§24.203(a) and 24.203(b). 

23. For FCC rules applying to cancellation resulting from nonpayment generally, see 47 C.F.R. §1.2109(a)-(c), and for installment 

payments on licenses won in Auctions 5, 10, and 11, 47 C.F.R. 

§1.2110(g)(4)(iii)-(iv). For rules governing termination resulting 

from failure to satisfy build-out requirements by all license winners, see 47 C.F.R. §1.946(c) and §1.955(a)(2).

24. Reflecting that, to determine the amount of money that bidders 

must pay “up front” to qualify to bid on a given license, the FCC 

typically begins by multiplying the amount of wireless spectrum 

available from the license by the population of the market covered 

by it. The FCC then applies a fixed monetary rate to that figure to 

obtain the dollar amount of the up-front payment. For a recent 

example, see Federal Communications Commission, “Revised 

Inventory for PCS Spectrum Auction—Comment Sought on 

Reserve Prices or Minimum Opening Bids and Other Auction 

Procedures,” Report No. AUC-04-58-C (Auction 58), Public 

Notice DA 04-2451 (August 3, 2004), pp. 2-3. 

25. Following current FCC practice, population data come from the 

1990 census (see the entry for “Pop” at wireless.fcc.gov/auctions/

default.htm?job=glossary).
SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES 11

The Initial C-Block Auctions (FCC Auctions 5 and 10).

Auction 5 took place from December 18, 1995, to May 

6, 1996. It offered 30 megahertz C-block licenses in 493 

basic trading areas covering the United States and its territories. Eighty-nine bidders won licenses, with total bids 

(net of bidding credits) amounting to slightly more than 

$10 billion at the close of the auction. However, two bidders (BDPCS, Inc., and National Telecom PCS, Inc.) 

failed to make timely down payments on the 18 licenses 

they won. Those licenses were reauctioned quickly thereafter in Auction 10, which ran from July 3 to July 16, 

1996. At the close of Auction 10, seven bidders had 

placed more than $900 million in winning bids. Because 

Auction 10 followed almost immediately after Auction 5 

and took place under the same terms for entrepreneurs 

and designated entities, Auctions 5 and 10 are considered 

together.

The initial C-block auctions were open only to entrepreneurs. To pay off their winning bids, those small bidders 

could avail themselves of 10-year installment payment 

plans at government-subsidized borrowing rates. Bidding 

credits were also available to designated entities. Auctions 

5 and 10 were only the second time that the FCC had 

put broadband PCS licenses on the market.26 Bidders 

faced difficulties in projecting revenues from the new 

wireless services made possible by those licenses: inexperience with auctions of such complexity and generous financing from the federal government probably combined 

to inflate winning bids by entrepreneurs to untenable levels. As a result, the initial C-block auctions put relatively 

few licenses into the hands of bidders that could actually 

pay for them.27

The C-block licenses won in Auctions 5 and 10 can be 

placed into two categories: those licenses that were retained by the winning bidders and activated (or put into 

operation) after Auction 10 and those licenses that remained dormant until their eventual reauction by the 

FCC (see Table 2). Licenses in the second category are by 

far the most important in terms of both the number of licenses and their share of potential PCS coverage. They 

accounted for 423 (or 88 percent) of licenses available in 

Auctions 5 and 10 and 79 percent of the potential PCS 

coverage from the entire C block. Dormant licenses comprised licenses that remained unissued or that were reclaimed by the FCC; licenses that were returned to the 

FCC in whole or in part within a few years of the close of 

Auction 10 by winning bidders that could not pay for 

them and that responded to incentives offered by the 

FCC to return those licenses (those returns are also 

known as the “C-Block Settlement Elections”); and licenses that were contested between the FCC and the winning bidders that declared bankruptcy.28 Among licenses 

in the latter group were ones that allowed the winning 

bidder to provide service in major metropolitan areas, including Boston, Los Angeles, and New York City. Because licenses remaining dormant after the close of Auction 10 account for such a large share of potential PCS 

coverage and while inactive represent considerable forgone benefits to society (as well as lost auction revenues 

to the government), the disposition over time of those licenses, as well as of licenses remaining dormant after the 

close of Auction 11, is considered in detail in a later section of this chapter.29

Among PCS licenses that were retained by winning bidders and activated after Auction 10, 22 percent had been 

canceled by fall 2004. Those canceled licenses accounted 

for 15 percent of potential PCS coverage available from 

the C-block licenses activated after Auctions 5 and 10. 

More than two-thirds of those licenses were canceled because of nonpayment, while the remainder were canceled 

for reasons that have not been determined from available 

data. For example, the FCC’s Universal Licensing System 

database does not always note the reason for which a licensee voluntarily cancels its license. License terminations 

26. Auction 5 followed soon after Auction 4, which took place 

between December 5, 1994, and March 13, 1994. Auction 4 was 

open to all bidders and was the first FCC auction of PCS licenses 

(for frequency blocks A and B). In contrast to the outcome of 

Auctions 5 and 10, only a few winning bidders in Auction 4 

defaulted. 

27. For an analysis of the difficulties encountered in Auctions 5 and 

10, see Gwenell Bass, Electromagnetic Spectrum Auction: An Economic Analysis of the C-Block Auctions, CRS Report for Congress 

RL30119 (Congressional Research Service, February 9, 2000).

28. The options available to entrepreneurs for returning the licenses 

they won in Auctions 5 and 10 because they could not meet the 

financial obligations of the licenses are described in Federal Communications Commission, “Amendment of the Commission’s 

Rules Regarding Installment Payment Financing for Personal 

Communications Services (PCS) Licenses,” Second Report and 

Order and Further Notice of Proposed Rule Making, WT Docket 

97-82 (released October 16, 1997).

29. Before declaring bankruptcy, winners of contested licenses in Auctions 5 and 10 (NextWave Personal Communications, Airadigm, 

and Urban Comm) also won licenses in Auction 11, which ended 

in mid-January 1997.
12 SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES

Table 2.

Disposition of PCS Licenses and Associated Wireless Spectrum Won in the Initial 

C-Block Auctions (FCC Auctions 5 and 10) as of Fall 2004

Source: Congressional Budget Office based on the Federal Communications Commission’s Universal Licensing System database, available at 

wireless.fcc.gov/uls/, and Public Notices for FCC Auctions 5 and 10, available at wireless.fcc.gov/auctions/.

Note: PCS = personal communications services; n.a. = not applicable.

a. Because of license disaggregation, for any geographically defined PCS market there may be multiple licenses occupying the 30 megahertz 

originally conveyed by the corresponding license offered in FCC Auctions 5 and 10. Hence, the sum of all licenses deriving from Auctions 

5 and 10 may be greater than the 493 licenses originally offered.

b. This paper defines the potential PCS coverage of a license as the product of a license’s bandwidth multiplied by the population of the geographic area it covers (as measured by the 1990 census).

c. Included in this group are licenses won by GWI (MetroPCS), which was able to retain those licenses in bankruptcy.

d. See 47 C.F.R. 1.2110(g)(4)(iii)-(iv).

e. See 47 C.F.R. 1.946(c) and 1.955(a)(2).

f. The winning bidders for these licenses (CHPCS and Mountain Solutions) failed to make the required down payments for them.

Share of Potential PCS Coverageb (Percent)

Number of

Licensesa

Licenses Activated

After Auction 10 All Licenses

Licenses Activated After Auction 10

Still Active (Including disaggregated licenses)c 178 81.3 17.6

Canceled

Installment payments not made on a timely basisd 38 10.3 2.2

Undetermined from available data 17 4.4 1.0

Terminated

Build-out requirements not mete 2 0.2 0

Undetermined from available data 1 0.1 0

Partitioned 11 3.7 0.8

Licenses Remaining Dormant After Auction 10

Reclaimed or not granted by the FCCf 20 n.a. 1.9

Returned to the FCC as C-Block Settlement Elections 305 n.a. 32.9

Contested in Bankruptcy

NextWave 63 n.a. 41.2

Airadigm and Urban Comm 23 n.a. 2.5

All Licenses After Auction 10

Total Licenses 658 100.0 100.0
SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES 13

for failure to meet build-out requirements or for other 

reasons not specified by the ULS data have been rare, 

amounting to less than one-half percent of potential PCS 

coverage from activated licenses.

The Initial D-, E-, and F-Block Auction (FCC Auction 11). 

Auction 11 ran from August 26, 1996, to January 14, 

1997. It put up for auction 10 megahertz PCS licenses in 

frequency blocks D, E, and F. In all blocks, one license 

was available for each of 493 geographic areas covering 

the United States and its territories. Some 125 bidders 

won 1,472 licenses; seven were held by the FCC. Total 

bids (net of bidding credits) exceeded $2.5 billion.

All bidders that qualified for Auction 11 could bid on Dand E-block licenses; only entrepreneurs could bid on licenses in frequency block F. As in the initial C-block auctions (FCC Auctions 5 and 10), entrepreneur winners of 

licenses in block F could avail themselves of installment 

payment plans, and designated entities benefited from 

bidding credits on their bids for F-block licenses.

As with the initial C-block auctions, licenses won in Auction 11 can be categorized by those that were activated after the auction and those that remained dormant (see 

Table 3). In contrast to the earlier auctions, the FCC did 

not offer incentives for defaulted license winners to return licenses won in Auction 11. Hence, dormant licenses 

comprise licenses retained by the FCC (that is, not 

awarded to any bidder) and those contested between the 

FCC and their bankrupt winners (the same firms—

NextWave, Airadigm, and Urban Comm—as in Auctions 

5 and 10). Almost all dormant licenses come from the F 

block, where NextWave in particular captured more than 

17 percent of potential PCS coverage from frequency 

block F. Licenses won in the F block by Airadigm and Urban Comm make up close to 2 percent, bringing to 

roughly 20 percent the potential PCS coverage from 

block F that remained dormant because of contested

licenses.

At 3 percent of potential PCS coverage available from all 

of the F-block licenses activated after Auction 11, the incidence of license cancellation because of nonpayment is 

slightly higher among the entrepreneur license winners in 

block F than it is for all winning bidders in frequency 

blocks D and E (where it is zero). However, license cancellation for entrepreneurs because of nonpayment is 

much less important in Auction 11 than in Auctions 5 

and 10, where it represented over 10 percent of potential 

PCS coverage among licenses activated at the end of Auction 10. That is also true for the incidence of license termination because of failure to meet build-out requirements, which does not occur at all among Auction 11 

licenses in any frequency block. The greater success of 

winning bidders in meeting their financial commitments 

from the initial D, E, and F blocks may be the result of 

two factors: greater experience in license pricing and auction participation after the initial C-block auctions and a 

smaller amount of spectrum (10 megahertz)—hence 

more-accurate revenue expectations—from licenses in 

Auction 11. Finally, as with Auctions 5 and 10, a number 

of licenses from Auction 11 in all frequency blocks appear 

to have been either canceled or terminated for reasons not 

specified by the ULS data. 

The First PCS Reauction (FCC Auction 22). Auction 22 

began on March 23, 1999, and ended on April 15 of that 

year. Some 347 licenses were offered, almost all of them 

C-block licenses from Auctions 5 and 10 that had been 

returned to the FCC by winning bidders that could not 

make payments on them. Six E-block licenses and two

F-block licenses also were offered. At the close of the auction, 57 bidders had won 302 licenses—the remainder 

being held by the FCC—for $412.8 million in total bids 

(net of bidding credits).

More than one-third of the C-block licenses in the first 

PCS reauction were for 15 megahertz of PCS spectrum, 

reflecting disaggregation of the wireless spectrum from 

many of the 30 megahertz licenses in the C block that 

were returned after Auctions 5 and 10. C- and F-block

 licenses were set aside for entrepreneurs in Auction 22, 

and designated entities also benefited from bidding credits on licenses in those frequency blocks. In contrast to 

the previous PCS auctions, installment payment plans 

were not available to entrepreneurs who won licenses in 

Auction 22.

As in previous auctions, some licenses won in Auction 22 

remained dormant afterwards; however, none was returned or contested (see Table 4 on page 16). Moreover, 

compared with previous auctions, those licenses represent 

a smaller share of potential PCS coverage from all licenses 

at auction (less than 6 percent). Among licenses activated 

after Auction 22 and won by any bidder, none had been 

canceled or terminated as of fall 2004.
14 SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES

Table 3.

Disposition of PCS Licenses and Associated Wireless Spectrum Won in the Initial 

D-, E-, and F-Block Auction (FCC Auction 11) as of Fall 2004

Continued

Share of Potential PCS Coverageb

(Percent)

Number of Licencesa

Licenses Activated

After Auction 11 Block Total

Block D

Licenses Activated After Auction 11

Currently active 437 88.1 86.4

Canceled

Installment payments not made on timely basisc 0 00

Undetermined from available data 1 0 0

Terminated

Build-out requirements not metd 0 00

Undetermined from available data 3 0.1 0.1

Partitioned 51 11.8 11.6

Licenses Remaining Dormant After Auction 11

Held by the FCC 0 n.a. 0

Contested in bankruptcy

NextWave 3 n.a. 2.0

Airadigm and Urban Comm 0 n.a. 0

Total 495 100.0 100.0

Block E

Licenses Activated After Auction 11

Currently active 417 75.4 74.4

Canceled

Installment payments not made on timely basisc 0 00

Undetermined from available data 2 0.2 0.2

Terminated

Build-out requirements not metd 0 00

Undetermined from available data 9 0.2 0.2

Partitioned 59 24.1 23.8

Licenses Remaining Dormant After Auction 11

Held by the FCC 5 n.a. 0.9

Contested in bankruptcy

NextWave 2 n.a. 0.5

Airadigm and Urban Comm 0 n.a. 0

Total 494 100.0 100.0
SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES 15

Table 3.

Continued

Sources: Congressional Budget Office based on the Federal Communications Commission’s Universal Licensing System database, available at 

wireless.fcc.gov/uls/, and Public Notices for FCC Auction 11, available at wireless.fcc.gov/auctions/.

Note: PCS = personal communications services; n.a. = not applicable.

a. Several factors can cause the number of licenses in each frequency block to differ from the 493 originally offered at auction. First, 

because of license disaggregation, for any geographically defined PCS market there may be multiple licenses currently occupying the 10 

megahertz initially conveyed by licenses from FCC Auction 11, and as a result, there may be more than 493 licenses in each frequency 

block. That does not, however, appear to be very common among Auction 11 licenses, perhaps because of their relatively narrow frequency range. Second, four licenses with apparently erroneous data records in frequency block F (that is, active or terminated licenses 

canceled for nonpayment) have been dropped, leaving the total below the original number of auctioned licenses.

b. This paper defines the potential PCS coverage of a license as the product of a license’s bandwidth multiplied by the population of the geographic area it covers (as measured by the 1990 census).

c. See 47 C.F.R. 1.2110(g)(4)(iii)-(iv).

d. See 47 C.F.R. 1.946(c) and 1.955(a)(2).

Share of Potential PCS Coverageb

(Percent)

Number of Licensesa

Licenses Activated

After Auction 11 Block Total

Block F

Licenses Activated After Auction 11

Currently active 369 90.8 73.6

Canceled

Installment payments not made on timely basisc 19 3.0 2.4

Undetermined from available data 15 0.9 0.8

Terminated

Build-out requirements not metd 0 00

Undetermined from available data 8 0.6 0.5

Partitioned 34 4.7 3.8

Licenses Remaining Dormant After Auction 11

Held by the FCC 2 n.a. 0.1

Contested in bankruptcy

NextWave 27 n.a. 17.1

Airadigm and Urban Comm 15 n.a. 1.7

Total 489 100.0 100.0
16 SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES

Table 4.

Disposition of PCS Licenses and Associated Wireless Spectrum Won in the First 

PCS Reauction (FCC Auction 22) as of Fall 2004

Source: Congressional Budget Office based on the Federal Communications Commission’s Universal Licensing System database, available at 

wireless.fcc.gov/uls/, and Public Notices for FCC Auction 22, available at wireless.fcc.gov/auctions/.

Note: PCS = personal communications services; n.a. = not applicable.

a. Because of license disaggregation, for any geographically defined PCS market there may be multiple licenses currently occupying the frequency range originally conveyed by the corresponding license reauctioned in FCC Auction 22. Hence, the sum of all licenses deriving 

from Auction 22 may be greater than the 341 licenses reauctioned in it in blocks C and F.

b. This paper defines the potential PCS coverage of a license as the product of a license’s bandwidth multiplied by the population of the geographic area it covers (as measured by the 1990 census).

c. See 47 C.F.R. 1.2110(g)(4)(iii)-(iv).

d. See 47 C.F.R. 1.946(c) and 1.955(a)(2).

Despite improvements over time by small firms in meeting the financial and operational requirements for retaining the licenses they won at auction, earlier difficulties—

especially leading to dormancy of many licenses from 

Auctions 5, 10, and 11—delayed the use of a sizable 

amount of PCS spectrum for a number of years. The next 

section of this paper investigates the length of time during which those returned and contested licenses lay fallow 

and how that affected the economic efficiency and equity 

of those auction outcomes.

Reauction of Returned and Contested PCS Licenses 

from Auctions 5, 10, and 11

The amount of time required to reauction the dormant 

licenses from Auctions 5, 10, and 11 varied among licenses.30 In Auction 22, which took place from March 

23 to April 19, 1999, the FCC successfully reauctioned 

almost all of the licenses in the C block that were reShare of Potential PCS Coverageb

(Percent)

Number of Licensesa

Licenses Activated

After Auction 22 All Licenses

Licenses Activated After Auction 22

Currently Active 335 90.1 85.3

Canceled

Installment payments not made on timely basisc 0 00

Undetermined from available data 0 0 0

Terminated

Build-out requirements not metd 0 00

Undetermined from available data 0 0 0

Partitioned 19 9.9 9.4

Licenses Remaining Dormant After Auction 22

Held by the FCC 45 n.a. 5.3

All Licenses After Auction 22

Total Licenses 399 100.0 100.0

30. FCC rules currently allow for allocating licenses of defaulted 

license winners to “the other highest bidders (in descending 

order).” See 47 C.F.R. 1.2209(b)-(c).
SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES 17

turned after Auction 10, which concluded on July 19, 

1996. In contrast, PCS licenses from Auctions 5, 10, and 

11 that were contested between the FCC and their winners in bankruptcy were finally put into the hands of new 

wireless providers more than eight years after those auctions. The extended dormancy of many of the licenses 

and much of the associated potential PCS coverage available in Auctions 5 and 10, and, to a lesser extent, in Auction 11 constitute a loss to society from having to forgo 

the benefits of the wireless services authorized by those licenses.

For example, all of the licenses—many of them disaggregated—that were returned to the FCC after Auction 10 

were offered again in Auction 22 (see the second column 

of Table 5). Almost all of those licenses were successfully 

reauctioned in Auction 22; only a few, representing 3 percent of potential PCS coverage in the C block, were held 

over by the FCC to Auction 35.

For contested licenses in frequency blocks C and F, however, the story is quite different. In January 2000, after 

several years of litigation, the FCC announced the reauction of contested licenses. Auction 35 was begun on December 12, 2000, and concluded on January 26, 2001. 

That reauction of contested licenses in Auction 35 was 

nullified, however, after the Supreme Court held that the 

FCC had violated section 525 of the Bankruptcy Code in 

canceling licenses held in bankruptcy by winning bidders 

in Auctions 5, 10, and 11. Finally, in 2004, the FCC 

reached an agreement with the most important owner

of the contested licenses—NextWave Personal Communications—whereby NextWave would return 60 of its

C-block licenses and two F-block licenses (out of 95 total) to the FCC to retire the company’s outstanding debt 

obligations. Those licenses that the FCC was able to reclaim under that agreement were reauctioned in Auction 

58, which ran between January 26 and February 15, 

2005. The potential PCS coverage that those licenses represent in the C and F frequency blocks amounts to 22.5 

percent and 1.8 percent, respectively (see the fourth column of Table 5). NextWave was able to retain the remainder of the licenses that it won in Auctions 5, 10, and 

11. It obtained the FCC’s consent to sell some of those licenses to subsidiaries of Cingular Wireless for $1.4 billion in spring 2004 (the FCC received $714 million of 

those proceeds) and began the sale of the remaining licenses to Verizon Wireless for $3 billion in fall 2004.31

The potential PCS coverage available from those NextWave licenses accounts for 18.6 percent and 15.3 percent 

of the total available in frequency blocks C and F, respectively (see the last column of Table 5). The disposition of 

contested licenses returned to other bidders as a result of 

the Supreme Court’s decision is unclear as of this writing.

Even after the Supreme Court’s ruling returned the PCS 

licenses to NextWave in late January 2003, NextWave apparently maintained its networks only to the extent necessary to satisfy FCC requirements and did not provide 

phone or text messages or other types of data transfer.32

The lengthy delay before many PCS licenses (especially in 

frequency block C) were finally put into use severely 

compromised the efficiency of the early PCS auctions. 

Efficiency requires that society make the most of its endowments (such as natural resources and technology), 

given the demands for various goods and services that require the use of such capacity. Auctions 5, 10, and 11 together left dormant PCS licenses that, as a weighted average across frequency blocks C and F, accounted for more 

than 63 percent of potential PCS coverage from those 

two frequency blocks. That situation thereby imposed a 

large efficiency loss to society throughout the period prior 

to those licenses’ reauction. Mobile wireless customers in 

markets where C- and F-block licenses were contested 

could obtain those new services from wireless providers 

that had previously won 30 megahertz licenses in frequency blocks A and B in Auction 4 or that won uncontested licenses at other PCS auctions. However, in any 

market where a license was contested, the supply of personal communications services was reduced and prices for 

those services probably higher than would have been the 

case if that spectrum had been in use. 33

31. See Federal Communications Commission, “In the Matter of 

Applications for Consent to the Assignment of Licenses Pursuant 

to Section 310(d) of the Communications Act from NextWave 

Personal Communications, Inc., Debtor-in-Possession, and NextWave Power Partners, Debtor-in-Possession, to subsidiaries of 

Cingular Wireless L.L.C.,” Memorandum Opinion and Order, WT 

Docket No. 03-217, FCC 04-26 (released February 12, 2004); 

and Lousia Hearn, “Verizon Pays $3bn for NextWave Spectrum,” 

Financial Times, November 5, 2004. 

32. See Christopher Stern, “There’s Gold in That There Dead Air,” 

Washington Post, September 2, 2004.

33. Forgone as well are tax revenues to the government from the wireless business that would have taken place under a contested 

license.
18 SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES

Table 5.

Share of Potential PCS Coverage in Frequency Blocks C and F from Returned or 

Contested Licenses Reauctioned in the First, Second, and Third PCS Reauctions 

(FCC Auctions 22, 35, and 58)

Source: Congressional Budget Office based on the Federal Communications Commission’s Universal Licensing System database, available at

wireless.fcc.gov/uls/.

Note: PCS = personal communications services.

a. This paper defines the potential PCS coverage of a license as the product of a license’s bandwidth multiplied by the population of the geographic area it covers (as measured by the 1990 census).

b. Auction 5 took place from December 18, 1995, to May 6, 1996; Auction 10 followed shortly thereafter (July 3 to July 16) as a reauction of 

18 PCS licenses won by BDPCS, Inc., and National Telecom PCS, Inc.

c. Auction 35 results for contested licenses were invalidated by the Supreme Court’s holding in favor of NextWave Personal Communications.

d. Licenses retained, sold, or transferred by their winners in bankruptcy. Includes, for example, NextWave Personal Communications’ license 

sales to Cingular and Verizon.

e. A weighted average of C-block and F-block shares of potential PCS coverage. There were 493 licenses (one for each geographic area of 

the United States and its territories) put up for auction in each block. C-block licenses originally conveyed 30 megahertz of wireless spectrum, while F-block licenses conveyed 10 megahertz. Hence, shares of potential PCS coverage from C-block licenses receive a weight of 

0.75, while F-block licenses receive a weight of 0.25.

Share of Potential PCS Coveragea (Percent)

Original

Auctionb Auction 22 Auction 35c Auction 58

Non-Auction

Allocationd

(1995–1996) (1999) (2000–2001) (2005) (2004–2005)

Block C

Reclaimed by or Returned to the FCC 34.8 34.8 3.0 0.7 0

Contested in Bankruptcy

NextWave 41.2 0 41.2 22.5 18.6

Airadigm and Urban Comm 2.5 0 1.2 0 2.5

Block Total 78.5 34.8 45.4 23.2 21.1

Block F

Contested in Bankruptcy

NextWave 17.1 0 17.1 1.8 15.3

Airadigm and Urban Comm 1.7 0 1.7 0.0 1.7

Block Total 18.8 0 18.8 1.8 17.0

Blocks C and F Combinede

Reclaimed by or Returned to the FCC 24.6 26.1 2.3 0.5 0

Contested in Bankruptcy

NextWave 35.2 0 35.2 17.4 17.8

Airadigm and Urban Comm 2.3 0 1.3 0 2.3

Combined Total 62.1 26.1 38.8 17.9 20.1
SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES 19

The efficiency loss brought about by dormant PCS licenses can be divided into demand and supply components, designated as consumer and producer surplus. 

Roughly defined, those reflect the consumption benefits 

(net of purchase price) and the revenues (net of cost) that 

could have been obtained by consumers and producers, 

respectively, had those licenses been put into operation 

after the auction. Quantifying either of those components with precision is very difficult, and such calculations are best treated as indicative rather than precise 

measures. However, using prices and quantities observed 

from actual transactions for wireless services, some estimates for consumer surplus losses as a result of license 

dormancy in the C block are quite large, approaching 

$40 billion.34

Additionally, many of the contested PCS licenses ended 

up in the hands of large wireless providers, especially 

when in 2004 and 2005, NextWave sold to Cingular and 

Verizon the licenses that it kept as part of its agreement 

with the FCC. So to the extent that “disseminating licenses among a wide variety of applicants” was the goal of 

the license set-asides, bidding credits, and installment 

payment plans that NextWave benefited from as a small 

bidder, those preferences did not, in the case of a sizable 

portion of contested licenses from Auctions 5, 10, and 

11, serve their purpose.35 The next section investigates 

the degree to which small bidders have transferred to 

larger entities the PCS licenses that they won through 

preferences.

Transfer of PCS Licenses from Small Bidders to 

Larger Entities

Bidders that win a PCS license through preferences—for 

example, set-asides or bidding credits—cannot sell or 

transfer any part of that license for five years after it has 

been granted without paying a penalty, unless they do so 

to an entity that would also qualify for preferences at auction. By fall 2004, when the data for this study were obtained, most PCS licenses that had been put into operation after the close of their auction had been granted for 

at least five years. As a result, many small bidders that had 

won PCS licenses through preferences in the initial PCS 

auctions or the first PCS reauction were in a position to 

sell or transfer those licenses without penalty. And many 

appear to have done so. For licenses from the initial Cblock auctions (FCC Auctions 5 and 10), 38.2 percent of 

potential PCS coverage from currently active, unpartitioned licenses assigned through those auctions has been 

sold or transferred from entrepreneurs to nonentrepreneurs. Over half of the total potential PCS coverage from 

licenses set aside for small bidders at the initial D-, E-, 

and F-block auction (FCC Auction 11) and well over 40 

percent of the corresponding amount from the first PCS 

reauction have also been transferred from small bidders to 

larger entities.

The sale or transfer of a PCS license can take several 

forms and typically requires the FCC’s approval. When a 

license is acquired from an existing licensee by another 

entity, an application for “Assignment of Authorization” 

is submitted. When control of the entity holding a license 

changes hands, an application for “Transfer of Control” is 

submitted. In the latter case, for example, the name of a 

licensee need not change in the ULS database, even 

though control of the licensee and hence of the license it 

holds has changed hands. Assignments of authorization 

and transfers of control may also be pro forma, in the 

sense that actual control over the license or licensee, respectively, does not change.

This study identifies instances in which control (or ownership) of a license has moved from an entrepreneur to a 

nonentrepreneur by inspecting the application history

of active, nonpartitioned licenses that were assigned 

through Auctions 5, 10, 11, and 22 and that are held by 

entities whose total holdings from the respective auction 

account for at least 1 percent of potential PCS coverage 

from such licenses. Those licensees account for most po34. See Thomas W. Athlete and Robert E Muñoz, A Welfare Analysis 

of Spectrum Allocation Policies, AEI-Brookings Joint Center for 

Regulatory Studies (Washington, D.C.: August 2004), p. 21. 

Those authors estimate that the loss in consumer surplus brought 

about by the dormancy of the 30 megahertz of spectrum nationwide from all C-block licenses between 1996 and 2003 is equal to 

$39.2 billion (in 2004 dollars). That figure most likely overstates 

the actual loss in consumer surplus because the first C-block 

reauction (FCC Auction 22), which concluded in April 1999, put 

roughly one-third of the potential PCS coverage from licenses in 

the C block into the hands of viable PCS providers several years 

before the end point of the authors’ loss calculations (2003). 

35. See 47 U.S.C. 309(j)(3)(B).
20 SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES

Table 6.

Concentration in Ownership of Currently Active, Unpartitioned PCS Licenses 

from the Initial C-Block Auctions (FCC Auctions 5 and 10)

Continued

tential PCS coverage from currently active, nonpartitioned licenses.36 By examining the entrepreneur status 

of the last entity that has obtained control of the licenses—groups of licenses won in a given auction are 

typically sold or transferred together—it is possible to determine whether an entrepreneur has retained ownership 

of them.37

As of fall 2004, 38.2 percent of potential PCS coverage 

from currently active, unpartitioned licenses assigned 

through the initial C-block auctions (FCC Auctions 5 

and 10) had been sold or transferred from entrepreneurs 

to non-entrepreneurs (see Table 6). Because currently active, unpartitioned licenses account for 17.6 percent of 

potential PCS coverage from all licenses assigned through 

Auctions 5 and 10 (see Table 2 on page 12), the extent of 

small-to-large-entity license transfers in terms of total potential PCS coverage is 6.7 percent (38.2 percent times 

17.6 percent). However, that figure rises to 25.3 percent 

after adding the 18.6 percent of potential PCS coverage 

from the total available from C-block licenses that two 

large, non-entrepreneur wireless concerns—Cingular and 

Verizon—purchased from NextWave in 2004 and 2005 

(see Table 5 on page 18).

Number of

Licenses

Share of Potential PCS Coveragea

(Percent)

Entrepreneur

Control?

At Auction Close

GWI (MetroPCS) 15 40.6 Yes

Omnipoint 4 7.7 Yes

Carolina 27 6.8 Yes

DCR 11 6.7 Yes

PCS2000 7 5.6 Yes

ChaseTel 7 5.5 Yes

Indus 1 4.0 Yes

TriState 7 3.5 Yes

MercuryP 6 2.7 Yes

CookWest 10 2.2 Yes

RLV 2 1.3 Yes

Wire2000 4 1.3 Yes

BRK 9 1.2 Yes

PokaLam 5 1.1 Yes

Polycell 7 1.1 Yes

Total 122 91.2

36. Many currently active licenses have been disaggregated—that is, 

their initial spectrum bandwidth has been divided into segments. 

Hence, in the tables below, some PCS license winners appear to 

have won more licenses at auction than they actually did, only 

because the licenses they won have been disaggregated to create 

additional licenses. In the first PCS reauction (FCC Auction 22), 

for example, Leap Wireless International is credited with winning 

60 licenses. It actually won 36, but those 36 have been disaggregated to create additional licenses of smaller spectrum bandwidth.

37. Some third-party corroboration of CBO’s findings is available in 

Appendix B of Federal Communications Commission, “Comments of T-Mobile, Inc.,” In the Matter of Petition for Rulemaking 

or, Alternatively, a Waiver of the Closed Bidding Rules for C Block 

Licenses in the Broadband Personal Communications Services, RM11019, available at www.fcc.gov/DiversityFAC/auction58-

proposal/comments/T-MobilePetitionReplyComments.pdf.
SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES 21

Table 6.

Continued

Source: Congressional Budget Office based on the Federal Communications Commission’s Universal Licensing System database, available at 

wireless.fcc.gov/uls/.

Note: PCS = personal communications services.

a. This paper defines the potential PCS coverage of a license as the product of a license’s bandwidth multiplied by the population of the geographic area it covers (as measured by the 1990 census).

b. Cricket is a wholly owned subsidiary of Leap Wireless International, which qualified as an entrepreneur bidder in Auction 22.

c. Control of licenses transferred in 2002 to Deutsche Telecom.

d. Merged with T-Mobile (owned by Deutsche Telecom) in 2001.

e. Control of licenses transferred in 2002 to TEM PR, which is wholly owned by Telefónica Móviles, S.A., of Spain.

f. Control of license transferred in 2002 to AT&T Wireless.

g. Control of licenses transferred in 2002 to VoiceStream, which merged with T-Mobile (owned by Deutsche Telecom) in 2001.

h. Licenses controlled by Deutsche Telecom.

i. Control of licenses transferred from AT&T to Cingular in 2004.

Relative to all currently active unpartitioned licenses assigned through Auction 11 and Auction 22, the share of 

potential PCS coverage transferred from small to large 

entities is 59.8 percent and 49.7 percent. Multiplying 

each figure by the respective share of potential PCS coverage that currently active unpartitioned licenses account 

for relative to all licenses assigned in Auction 11 and Auction 22 (73.6 percent and 85.3 percent) results in total 

potential PCS transfer rates from small to large entities of 

44.0 percent and 42.4 percent, respectively, for those two 

auctions. Again, however, the total for Auction 11 rises to 

59.3 percent after adding the 15.3 percent of potential 

PCS coverage accounted for by NextWave’s sales of

Number of

Licenses

Share of Potential PCS Coveragea

(Percent)

Entrepreneur

Control?

As of Fall 2004

GWI (MetroPCS) 14 38.2 Yes

Cricketb 13 8.4 Yes

Omnipointc 4 7.5 No

VoiceStreamd 18 4.3 No

NewComm Wireless Servicese 2 4.0 No

Wisconsin Acquisition Corporationf 1 4.0 No

CIVS IV License Sub 1, LLCg 4 3.8 No

Eliska Wireless Venturesh 7 3.5 No

Aircom PCSi 6 2.7 No

Triton PCS 11 2.5 No

Cascade Wireless 1 2.4 Yes

Cellco Partnership 9 2.3 No

TeleCorp Holding Corp.i 9 2.3 No

AT&T Wirelessi 7 1.3 No

MetroPCS California/Florida 4 1.1 Yes

Total 110 88.2
22 SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES

Table 7.

Concentration in Ownership of Currently Active, Unpartitioned F-Block PCS 

Licenses from the Initial D-, E-, and F-Block Auction (FCC Auction 11)

Continued

F-block licenses to Cingular and Verizon in 2004 and 

2005.38

Entrepreneur license winners have frequently availed 

themselves of the option of selling or transferring their licenses to larger entities at the end of the obligatory fiveyear holding period (see Tables 6, 7, and 8)—and research to determine entrepreneur status indicates that 

some did so before then, paying unjust enrichment penalties as a result. Also, several licensees identified as entrepreneurs actually have sizable equity investments (as 

much 85 percent, as allowed by FCC regulations) from 

larger wireless providers. That may be evidence of the importance of large-firm advantages in providing personal 

communications services because if larger firms were able 

to operate most profitably in markets for mobile wireless 

communications, then putting control of PCS licenses in 

their hands could be financially advantageous both for 

themselves and for smaller licensees.39 However, consumers and society in general would not be better off if such 

profitability came through a lack of competition among 

PCS providers. Additionally, there is also evidence that

Number of Licenses

Share of Potential PCS Coveragea

(Percent)

Entrepreneur

Control?

At Auction Close

NorthCoast 44 23.4 Yes

OPCSE 47 17.1 Yes

AerForce 5 10.8 Yes

Telecorp 7 5.7 Yes

Cook Inlet 7 4.5 Yes

Mercury 24 3.8 Yes

Devon 11 3.0 Yes

MercuryM 18 2.0 Yes

DCCPCS 6 2.0 Yes

AirGate 3 1.7 Yes

Oregon 1 1.3 Yes

PCSouth 12 1.3 Yes

Central 6 1.3 Yes

Radiofone 1 1.1 Yes

Alpine 8 1.1 Yes

Total 200 80.1

38. Although the share of potential PCS coverage from licenses 

offered in Auctions 11 and 22 that has been transferred from small 

license winners to larger entities is relatively large compared with 

the corresponding share for Auctions 5 and 10 (6.7 percent), recall 

that many licenses assigned through Auctions 5 and 10 were 

reauctioned in Auction 22. 

39. For a discussion of large-firm advantages (or “scale economies”) in 

the provision of commercial mobile services, see Federal Communications Commission, In the Matter of Implementation of Section 

6002(b) of the Omnibus Budget Reconciliation Act of 1993, Annual 

Report and Analysis of Competitive Market Conditions with Respect 

to Commercial Mobile Services, WT Docket No. 04-111, FCC 

04-216 (September 28, 2004), p. 46. Such scale economies are 

not, however, a new development: in drafting the legislation that 

requires the FCC to establish competitive bidding procedures that 

ensure that some small businesses win wireless licenses, the Congress nonetheless “recognize[d] that the characteristics of some services are inherently national in scope, and are therefore ill-suited 

for small business.” See House Committee on the Budget, Report 

to Accompany H.R. 2264, Report 103-111 (May 25, 1993), 

p. 103.
SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES 23

Table 7.

Continued

Source: Congressional Budget Office based on the Federal Communications Commission’s Universal Licensing System database, available at 

wireless.fcc.gov/uls/.

Note: PCS = personal communications services.

a. This paper defines the potential PCS coverage of a license as the product of a license’s bandwidth multiplied by the population of the geographic area it covers (as measured by the 1990 census).

b. Cricket is a wholly owned subsidiary of Leap Wireless International, which qualified as an entrepreneur bidder in Auction 22.

c. License controlled by Cingular.

d. Control of licenses transferred from AT&T to Cingular in 2004.

e. Licenses controlled by Cellco and Verizon.

f. Licenses controlled by Cingular.

g. Although Cook Inlet qualifies as an entrepreneur, in 2002 it transferred control of six of the nine licenses listed to VoiceStream, which 

merged with T-Mobile (owned by Deutsche Telecom) in 2001.

Number of Licenses

Share of Potential PCS Coveragea

(Percent) Entrepreneur Control?

As of Fall 2004

VoiceStream 62 29.4 No

Cellco Partnership 25 18.8 No

THC 5 5.6 Yes

Cricketb 12 4.9 Yes

Pacific Telesis Mobilec 1 2.5 No

Telecorpd 8 2.3 No

New Pare 15 2.3 No

CCPR Paging, Inc.f 2 1.9 No

Verizon 2 1.6 No

Cleveland Unlimited 1 1.6 Unknown

Cellular South 12 1.3 Yes

Buffalo-Lake Erie Wireless 6 1.3 Unknown

Royal Wireless 5 1.2 Yes

Alpine 8 1.1 Yes

AT&T Wireless 3 1.0 No

Cook Inlet 9 1.0 --g

USCOS 10 1.0 Yes

Total 186 78.8
24 SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES

Table 8.

Concentration in Ownership of Currently Active, Unpartitioned C-Block PCS 

Licenses from the First PCS Reauction (FCC Auction 22)

Continued

small PCS providers have been well suited to operate in 

some rural markets.40

Estimating Revenues Forgone to the 

Government from Small-Bidder

Preferences

The Federal Communications Commission has offered 

preferences to small bidders in all but one of its auctions 

of licenses for personal communications services (there 

were no such preferences offered in the first PCS auction, 

FCC Auction 4). Because the intent of those preferences 

is to enable small concerns to obtain licenses at auction 

when they otherwise could not, auction preferences may 

have allowed some PCS licenses to be won at less than 

market prices. However, it is not clear that auction preferences necessarily produce revenue losses for the government. For example, offering preferences to small bidders 

may, in some instances, result in greater competition for 

licenses, pushing up winning bids beyond what larger 

bidders would otherwise have been required to pay.

Alternatively, if small bidders can eventually resell a license to a larger entity at a market-determined price—

even after a delay, say, of five years—then competition 

among bidders that enjoy license set-asides or bidding 

credits can result in winning bids that exceed the bids of 

larger entities competing for the same license by roughly 

the value of those preferences. The small bidders would 

thereby “bid away” the value of their preferences, and 

those preferences would not have an impact on auction 

receipts to the government (that is, they would be “reveNumber of Licenses

Share of Potential PCS Coveragea

(Percent)

Entrepreneur

Control?

At Auction Close

OPCS Three 34 22.3 Yes

Cook Inlet 24 16.6 Yes

ABC Wireless 66 11.4 Yes

Leap Wireless International 60 11.3 Yes

BCN Communications 3 4.3 Yes

Beta Communications 6 3.8 Yes

American Wireless 10 3.2 Yes

Viper Wireless 5 2.9 Yes

Zuma PCS 7 1.8 Yes

OPM Auction Co. 6 1.7 Yes

ConnectBid 2 1.5 Yes

Telepak 2 1.3 Yes

Highland Cellular 4 1.3 Yes

Eliska Wireless 2 1.1 Yes

Conestoga Wireless 5 1.0 Yes

CFW Communications 6 1.0 Yes

Alpine PCS 1 1.0 Yes

Entertainment Unlimited 2 1.0 Yes

Total 245 88.7

40. See Matt Richtel, “Where Only the Antelope Roam,” New York 

Times, November 6, 2004.
SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES 25

Table 8.

Continued

Source: Congressional Budget Office based on the Federal Communications Commission’s Universal Licensing System database, available at 

wireless.fcc.gov/uls/.

Note: PCS = personal communications services.

a. This paper defines the potential PCS coverage of a license as the product of a license’s bandwidth multiplied by the population of the geographic area it covers (as measured by the 1990 census).

b. Cricket is a wholly owned subsidiary of Leap Wireless International, which qualified as an entrepreneur bidder in Auction 22.

c. Control of licenses transferred in 2002 to VoiceStream, which merged with T-Mobile (owned by Deutsche Telecom) in 2001.

d. Control of licenses transferred from AT&T to Cingular in 2004.

e. Control of licenses transferred in 2002 to Deutsche Telecom.

f. Licenses controlled by Deutsche Telecom.

Number of Licenses

Share of Potential PCS Coveragea

(Percent)

Entrepreneur

Control?

As of Fall 2004

VoiceStream 49 36.7 No

Cricketb 49 12.5 Yes

BCN Communicationsc 3 4.3 No

ABC Wireless 22 3.5 Yes

Telecorp 7 3.1 Yes

Triteld 11 2.3 No

AWS License Newco 2 2.3 No

Lone Star Wireless 2 2.3 Yes

D&E/Omnipoint Joint Venturee 3 2.0 No

Cellular South 2 1.3 Yes

Highland Cellular Holdings 4 1.3 Yes

Key Communications 4 1.3 Yes

Von Donop Inlet PCS 8 1.2 Yes

Coral Wireless 1 1.1 Yes

Powertel Knoxvillef 2 1.1 No

Keystone Wireless 5 1.0 Unknown

Southwestern Bell 2 1.0 No

NTELOS 6 1.0 Yes

Alpine-Fresno 1 1.0 Yes

Entertainment Unlimited 2 1.0 Yes

Total 185 81.3
26 SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES

nue neutral”). Indeed, if bidders that receive preferences 

rely mainly on larger entities for their financing—recall 

that the FCC allows up to 85 percent of a small bidder’s 

equity to be provided by other concerns, as long as that 

equity participation satisfies certain conditions—then 

bidding credits could basically be superfluous.

This analysis examines how much it costs the government 

to offer preferences to small bidders in its PCS spectrum 

auctions by comparing the winning bids of small bidders 

that benefit from preferences with the winning bids of 

larger entities for the same type of license.

In Auction 11, small bidders paid—net of bidding credits 

and after incorporating a range of estimates of the value 

of government-financed installment payment plans— on 

average between 31 percent and 61 percent less (per unit 

of potential PCS coverage) for licenses set aside for them 

than did bidders that won comparable licenses in open 

bidding. In subsequent auctions, installment payment 

plans were discontinued and the number of set-aside licenses varied, largely according to the population of the 

market for which a license authorized service. In Auction 

35, winning bids on set-aside licenses were between 14 

percent and 15 percent less, depending upon market population, than what was paid for comparable licenses won 

in open bidding. The estimated impact of license setasides on the average level of winning bids in Auction 58 

is very different: license set-asides appear to have had virtually no impact on average, and for some populous markets, winners of set-aside licenses actually paid more.

In both Auctions 35 and 58, small bidders eligible for 

bidding credits placed winning bids that were 20 percent 

and 19 percent less, respectively (per unit of potential 

PCS coverage) than the next-highest bid of bidders that 

did not qualify for bidding credits. However, among all 

C- and F-block licenses available in open bidding at those 

auctions, that outcome was not common. In terms of total net auction receipts, bidding credits reduced revenues 

by a bit over 2 percent, on average, in affected auctions.

With the exception of license set-asides in Auction 58, 

small bidders appear to have used auction preferences to 

pay less than they otherwise would have in competition 

with larger bidders. Those results do not support a hypothesis of revenue neutrality from auction preferences. 

However, the diversity of estimates across Auctions 11, 

35, and 58 and the different circumstances surrounding 

each auction make it difficult to reach a general conclusion about the extent to which preferences reduced auction receipts. The relative demand for and supply of licenses, the degree to which entrepreneurs and designated 

entities that benefit from preferences also receive financing from larger concerns, the extent of cooperation or rivalry between particular bidders, and other factors are 

likely to determine whether auction preferences reduce 

government revenues, and if they do, by how much.

Not all PCS auctions in which preferences have played a 

role allow for comparisons of winning bids between small 

bidders eligible for preferences at auction and other bidders. For example, the initial C-block auctions (FCC 

Auctions 5 and 10) and the first PCS reauction (FCC 

Auction 22) were basically restricted to entrepreneur bidders.41 By comparison, both small and large bidders 

could take part in the initial D-, E-, and F-block auction 

(FCC Auction 11) and the second and third PCS reauctions (FCC Auctions 35 and 58), with open and closed 

bidding taking place simultaneously on distinct—but 

comparable—licenses for wireless personal communications services in the same market. Qualified small bidders 

(designated entities) could also avail themselves of bidding credits at those auctions.

In making such comparisons, several potential qualifications need to be kept in mind. First, using the difference 

in winning bids of small and large concerns to infer lost 

auction receipts is tantamount to concluding that the 

winning bids of large concerns are equal to the amount 

that the government would have received for the licenses 

won by small bidders without preferences. Typically, 

41. In principle, one could compare the winning bids by small bidders 

for C-block licenses in Auctions 5 and 10 with the winning bids 

for comparable licenses in frequency blocks A and B in Auction 4, 

which directly preceded Auctions 5 and 10 and which was available to qualified bidders of any size. However, such comparisons 

are difficult to make because most of the winning bids in Auction 

5 were not viable. As a result, auction receipts due to the government at the conclusion of Auctions 5 and 10 overstate actual 

receipts. Also, because of differences in how markets were defined 

geographically in those auctions, licenses are not directly comparable. In Auction 4, licenses were available for 51 major trading 

areas (MTAs); in Auctions 5 and 10, licenses were available for 

493 basic trading areas. Hence, to compare licenses across auctions, the licenses available in Auctions 5 and 10 would have to be 

aggregated to the MTA level. And lack of comparability could be a 

problem even then because bidding strategies and the level of winning bids could vary depending upon whether a handful of MTA 

licenses or numerous BTA licenses needed to be won at auction to 

establish a wireless network of the same size. 
SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES 27

however, analysts assume that when the supply of a good 

is increased—in this case, when bidding on set-aside licenses is opened up to large bidders—then the price of 

that good will decline (in other words, the 

average price that large bidders pay after purchasing the 

additional licenses newly available to them will fall). 

Consequently, an estimate of the lost revenues to the government based on bid differences between entrepreneurs 

and nonentrepreneurs would represent an upper-bound 

estimate of the actual losses.

In contrast, auction preferences may also have a revenueboosting effect on government receipts. That would be 

especially true when there was little competition between 

bidders that valued the licenses most highly and when the 

government could distinguish between groups of highand low-valuation bidders. For example, by reducing the 

number of licenses available to high-valuation bidders 

when competition among them was weak, set-asides 

could force higher bids from that group that would more 

than offset the loss in revenues to the government from 

lower bids on the set-aside licenses. Offering bidding 

credits to small bidders in open bidding may in some instances result in greater competition for licenses, pushing 

up winning bids beyond what larger bidders would otherwise have been required to pay.42 Using differences in the 

winning bids on set-aside versus other licenses to infer the 

lost receipts to the government from its small-bidder 

preference scheme would not capture the potential revenue-boosting effects just described because it would miss 

the counterfactual outcome without preferences.

Finally, estimates of the impact of preferences may not always be comparable across PCS auctions. For example, 

because bidding credits in Auction 11 were applicable 

only to licenses won in closed bidding, the impact of license set-asides and bidding credits are lumped together 

in comparisons of winning bids between small and other 

bidders.43 Several other aspects of Auction 11 also distinguish it from Auctions 35 and 58 in ways that could influence comparisons of the average bids of small bidders 

and large license winners. 

First, just over eight years separate the close of Auction 11 

(January 1997) and the close of Auction 58 (February 

2005). At the close of Auction 11, PCS markets were still 

emerging; at the close of Auction 58, they were well established. Hence, the willingness of bidders to pay, and 

the difference in the bids of small and large firms, might 

differ in comparisons of the two auctions. 

Second, Auction 11 made available a sufficient number of 

PCS licenses in each of three frequency blocks (D, E, and 

F) to authorize wireless coverage across the entire United 

States and its territories. In contrast, in Auctions 35 and 

58, licenses were available only on a scattered basis geographically (although Auction 35 offered licenses in major metropolitan areas). The prospect of offering personal 

communications services nationwide is considered to be 

an important competitive advantage for those wireless 

providers capable of building out and operating large networks. Because all licenses in block F were set aside for 

bidding by small bidders in Auction 11, larger bidders 

may have effectively faced limits on the number of licenses they could win at auction relative to the number 

they required to establish wireless networks of a size they 

desired. Hence, winning bids by larger firms in Auction 

11 may understate the amount those bidders would have 

paid had there been no set-asides at that auction.44

Third, and in contrast to the previous factor, is the possibility of collusion among larger bidders in Auction 11;

42. For the positive impact of preferences on government receipts 

from a narrowband auction that preceded the PCS auctions, see 

Ian Ayres and Peter Cramton, “Deficit Reduction Through Diversity: How Affirmative Action at the FCC Increased Auction Competition,” Stanford Law Review, vol. 48 (1996), pp. 761-815. In 

particular, the authors attribute the rise in auction receipts, moving from the national to regional narrowband PCS auctions, to 

stronger competition for regional narrowband licenses brought 

about by the higher bidding credits offered to smaller bidders at 

that auction. 

43. Further, entrepreneur bidders in Auction 11 were able to take 

advantage of installment payments at subsidized rates of interest 

to pay off their winning bids, so the impacts of license set-asides, 

bidding credits, and subsidized lines of credit are all intermingled 

in comparisons of winning bids between small and large bidders 

in that auction.

44. For example, as part of an exchange of spectrum with Nextel, the 

FCC increased from $1.62 to $1.70 (per unit of potential PCS) 

the value of spectrum at issue to reflect the benefits to a wireless 

mobile communications provider of having a sufficient number of 

licenses to be able to provide nationwide service. That estimate 

would have been larger if a large share of providers had not 

obtained a sufficient number of licenses to be able to provide service nationwide. See Federal Communications Commission, In 

the Matter of Improving Public Safety Communications in the 80 

MHz Band, WT Docket No. 02-55, FCC 04-168 (August 6, 

2004), p. 144.
28 SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES

Table 9.

Comparison of Winning Bids for Comparable Licenses in FCC Auction 11

(Dollars)

Source: Congressional Budget Office using data on winning bids in FCC Auction 11 from wireless.fcc.gov/auctions/11/charts/11market.xls 

and 1990 population data to weight winning bids from wireless.fcc.gov/auctions/data/maps/cntysv2000_census.xls, worksheet 

“BTA.”

Notes: PCS = personal communications services.

In FCC Auction 11, open bidding (in which all auction participants could bid) was used to auction licenses in frequency blocks D and E, 

while closed bidding (in which only qualified small bidders could participate) was used to auction licenses in frequency block F. The 

difference between average winning bids for licenses in frequency blocks D and E was $0.01.

Comparison of average winning bids is based on 449 markets, rather than the 493 markets for which licenses were available. Markets 

are omitted from calculations if licenses were won there by bidders that subsequently contested them in bankruptcy (that is, by either 

Airadigm, NextWave Personal Communications, or Urban Comm).

a. Winning bids are expressed per unit of potential PCS coverage (which is defined as the product of a license’s bandwidth multiplied by the 

population of the geographic area it covers) and are net of bidding credits. In calculating average differences, each winning bid is 

weighted by the share of potential PCS coverage accounted for by the corresponding license, relative to the total available from all 

licenses used in calculations.

b. To pay off their winning bids, license winners in closed bidding in FCC Auction 11 enjoyed a financing subsidy from the federal government in the form of loans at below-market rates of interest; that subsidy was in addition to the government-subsidized bidding that took 

the form of bidding credits. Because of the financing subsidy, small bidders were able to bid more for F-block licenses than they could 

have if they had been forced to obtain funds in private capital markets. However, in contrast to bidding credits, the amount of the financing subsidy could not be directly observed. Hence, to capture fully the impact of small-bidder preferences in FCC Auction 11, winning bids 

in closed bidding were reduced by a fraction that reflects a range of estimates (either 20 percent or 40 percent) of the value of the financing subsidy to small bidders (see Congressional Budget Office, Where Do We Go from Here? The FCC Auctions and the Future of Radio 

Spectrum Management (April 1997), Box 1.

any such anticompetitive behavior may have reduced the 

level of winning bids by larger firms.45

Auction 11

In the FCC’s Auction 11, a 10 megahertz license was 

available in frequency blocks D, E, and F for each of 493 

geographical areas. Hence, Auction 11 put on the market 

1,479 PCS licenses of 10 megahertz, which were awarded 

simultaneously through a single, multiple-round auction. 

Licenses in frequency blocks D and E were offered in 

Average

Winning Bida

Without Adjustment for Financing Subsidy in Closed Biddingb

Open bidding 0.36

Closed bidding 0.25

Difference 0.11

With 20 Percent Adjustment for Financing Subsidy in Closed Biddingb

Open bidding 0.36

Closed bidding 0.20

Difference 0.17

With 40 Percent Adjustment for Financing Subsidy in Closed Biddingb

Open bidding 0.36

Closed bidding 0.15

Difference 0.22

45. Peter Cramton and Jesse A. Schwartz, “Collusive Bidding in the 

FCC Spectrum Auctions,” Contributions to Economic Analysis and 

Policy, vol.1, no.1 (2002).
SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES 29

open bidding, while licenses available in frequency block 

F were set aside for entrepreneurs in closed bidding. To 

pay for the licenses they won in frequency block F, entrepreneurs could take advantage of installment payments at 

a subsidized rate of interest.46 That interest rate varied by 

size of entrepreneur and was basically the rate of interest 

at which the federal government was able to borrow plus 

in some cases a modest premium, which according to 

most observers fell considerably short of what private 

lenders would have charged such small bidders. Qualified 

small bidders (designated entities) also received bidding 

credits for F-block licenses.

Licenses in any of the three frequency blocks (D, E, and 

F) appear to be identical with respect to a given geographic area, in the sense that they convey the same 

amount of wireless spectrum bandwidth.47 Consequently, a direct way of determining whether preferences 

allowed small bidders to pay less for the licenses they won 

than larger bidders paid would be to compare the difference between winning bids in open bidding (that is, for 

licenses in frequency blocks D and E) and winning bids 

in the closed bidding for F-block licenses.

Per unit of potential PCS coverage, the average winning 

bids on licenses in open bidding exceeded the average 

winning bid in closed bidding by $0.11 (see Table 9). 

That estimated shortfall in the winning bids for set-aside 

F-block licenses represents roughly 31 percent of the average winning bid in open bidding for licenses in blocks 

D and E. However, in making that comparison, it should 

be kept in mind that in addition to the licenses set aside 

for them in block F, entrepreneur bidders won 155 licenses in open bidding. Thirteen entrepreneurs won 29 

licenses in blocks D and E without winning an F-block license. Indeed, a higher portion of nonentrepreneur bidders came away from Auction 11 without a license (37 

percent) than did entrepreneurs (11 percent).

To obtain a complete estimate of the revenue forgone

to the government from its small-bidder preferences,

winning-bid differences between small and large bidders 

must take into account the financing subsidy from the installment payment available to winners of set-aside licenses. That subsidy allowed bidders to place higher bids 

than they could otherwise have afforded. In particular, 

because the installment payment program offered to entrepreneurs spread winning-bid payments out over 10 

years—five years longer than the holding date necessary 

for an entrepreneur to sell or transfer a license without 

penalty—small bidders for set-aside licenses may have 

had an incentive to “bid away” some of the value of that 

set-aside in anticipation of recouping that portion of the 

bid upon resale to a larger firm. 

According to the Federal Credit Reform Act of 1990 

(FCRA), the cost to the government of any financial subsidy should be limited to direct interest rate subsidies plus 

the expected loss in the event that winning bidders default on their loan obligations and the government must 

reauction those licenses. Entrepreneurs in Auction 11 had 

to pay at least the government borrowing rate on their 

winning F-block license bids, so there was no direct interest subsidy. The U.S. government borrows at a risk-free 

rate, however, which does not reflect the cost of potential 

entrepreneur default.48 The benefit to entrepreneurs of 

government-subsidized installment payments should be 

greater than estimates under FCRA of the government’s 

cost of providing that financing. If small bidders were to 

finance their winning bids on private financial markets, 

they would have to compensate the lender not just for the 

expected loss upon default but also for the cost that the 

lender incurs from holding capital (or securing additional 

lines of credit) to accommodate deviations of actual default losses from the value expected for them.

Assuming a 20 percent financing subsidy raises the 

amount by which winning bids on licenses in open bidding exceed those on F-block licenses to $0.17 (per unit 

of potential PCS coverage). Assuming a 40 percent financing subsidy raises the corresponding excess winningbid amount to $0.22. Those figures represent 47 percent 

and 61 percent, respectively, of the value of the average 

winning bid on licenses available in open bidding.49

46. See 47 C.F.R. 24.716.

47. The mean difference (per unit of potential PCS authorized by 

each license) in the value of winning bids by geographic area for 

the D- and E-block licenses available to all bidders is approximately zero.

48. Although some F-block license winners were charged an interest 

premium in addition to the risk-free government borrowing rate 

on their installment loans, it is still likely that their borrowing 

costs were less than those they would have paid in private financial 

markets.

49. See Congressional Budget Office, Where Do We Go from Here? The 

FCC Auctions and the Future of Radio Spectrum Management (April 

1997), Box 1.
30 SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES

Table 10.

Comparison of Winning Bids for Comparable Licenses in FCC Auctions 35 and 58

Source: Congressional Budget Office using data on winning bids in FCC Auctions 35 and 58 from wireless.fcc.gov/auctions/35/charts/

35market.xls and wireless.fcc.gov/auctions/58/charts/58market.xls, respectively, and 1990 population data used to weight winning bids from wireless.fcc.gov/auctions/data/maps/cntysv2000_census.xls, worksheet “BTA.”

Note: PCS = personal communications services; n.a.= not applicable.

a. Winning bids are expressed per unit of potential PCS coverage (which is defined as the product of a license’s bandwidth multiplied by the 

population of the geographic area it covers) and are net of bidding credits. In calculating average differences, each winning bid is 

weighted by the share of potential PCS coverage accounted for by the corresponding license, relative to the total available from all 

licenses used in winning-bid comparisons in each market tier.

Auctions 35 and 58

A smaller number of licenses were offered in FCC Auctions 35 and 58 than in Auction 11; however, those later 

auctions do allow the impact of license set-asides and bidding credits to be calculated separately. For example, Auction 35 put on the market a total of 422 licenses. However, only 355 of those licenses, in 140 markets, were in 

frequency block C and thus potentially set aside for small 

bidders. Further, there were only 84 markets in Auction 

35 in which open and closed bidding took place simultaneously and where, as a consequence, winning-bid comparisons could be made—a much smaller number than in 

Auction 11 (which, after excluding markets where won licenses were subsequently contested, had 449). For similar 

reasons, although Auction 58 put on the market 242 licenses, there were only 56 markets that allowed for a 

comparison of winning bids between open and closed 

bidding.

License Set-Asides. In Auctions 35 and 58, only licenses 

in frequency block C were potentially set aside for small 

bidders. The number of licenses available in open and 

closed bidding also depended upon the population of the 

market for which a license authorized service. For examAll Market Pairs Excluding New York City

Number of 

Markets

Average Winning Bida 

(Dollars)

Number of 

Markets

Average Winning Bida 

(Dollars)

Auction 35

Tier 1 Markets

Open bidding 9 6.25 8 3.81

Closed bidding 9 4.89 8 3.29

Difference 1.36 0.52

Tier 2 Markets

Open bidding 75 2.75 n.a. n.a.

Closed bidding 75 2.32 n.a. n.a.

Difference 0.43 n.a.

Auction 58

Tier 1 Markets

Open bidding 4 1.14 n.a. n.a.

Closed bidding 4 1.32 n.a. n.a.

Difference -0.18 n.a.

Tier 2 Markets

Open bidding 52 0.72 n.a. n.a.

Closed bidding 52 0.72 n.a. n.a.

Difference 0 n.a. n.a.
SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES 31

ple, where three licenses were available, markets with 2.5 

million or more in population (Tier 1 markets) generally 

had two licenses available in open bidding and one license available in closed bidding. For markets with 

smaller populations (Tier 2 markets), the license allocation between open and closed bidding was reversed.50

In Auction 35, the average winning bid on a PCS license 

available in closed bidding for a Tier 1 market was $1.36 

less (per unit of potential PCS conveyed by the license) 

than on a license available in open bidding (see Table 10). 

However, after excluding New York City from that calculation—winning bids in that market were exceptionally 

high at Auction 35 owing to unusually strong competition among a handful of bidders for PCS licenses there—

that difference falls to $0.52, representing approximately 

14 percent of the value of the average winning bid in 

open bidding for a license in those markets. The corresponding differential for Tier 2 markets in Auction 35 is 

was $0.42, or 15 percent of the average winning bid in 

open bidding.

In contrast, the estimated impact of license set-asides on 

the level of winning bids in Auction 58 was very different 

from that in Auction 35. The average winning bid on a license available in closed bidding for a Tier 1 market was 

actually $0.18 higher (per unit of potential PCS coverage) than on a license available in open bidding for the 

same market. The corresponding winning-bid differential 

between open and closed bidding for licenses in Tier 2 

markets in Auction 35 was approximately zero ($0.01). 

Part of the surprising outcome for Tier 1 winning bids 

was probably the result of there being only four Tier 1 

markets that allow for comparisons of winning bids between open and closed bidding. Such a small number of 

data points may allow idiosyncratic influences—such as 

the particular composition of the group competing in either open or closed bidding—that are peculiar to only a 

few markets to have a large influence on the average.

In the competition for licenses in the four Tier 1 markets 

at Auction 58 that featured both open and closed bidding, one bidder—Cook Inlet, an entrepreneur affiliated 

with the large wireless provider VoiceStream—often exerted strong upward pressure on license prices in closed 

bidding in particular. Whether Cook Inlet was the highest or next-highest bidder in those cases and whether it 

actually ended up winning a license for the same market 

in open bidding, the winning bids on set-aside licenses 

that resulted far exceeded most of the corresponding winning bids in open bidding (and on several occasions 

worked to the detriment of one particular entrepreneur 

competitor, Vista PCS).

Bidding Credits. In Auctions 35 and 58, bidding credits 

were offered exclusively in open bidding on C- and Fblock licenses. Hence, an estimate of the impact of bidding credits on receipts from those auctions can be obtained by comparing the winning bids—net of bidding 

credits—of small bidders in open bidding with the nexthighest bids on the same licenses by bidders that were not 

eligible to receive bidding credits.

In Auction 35, small bidders eligible for bidding credits 

placed winning bids that were on average $0.83 less (per 

unit of potential PCS coverage) than the bid of the nexthighest bidder that was not eligible for bidding credits 

(see Table 11). In Auction 58, the corresponding figure 

was $0.20. Those estimates account for 20 percent and 

19 percent, respectively, of the average next-highest bid of 

bidders that did not qualify for bidding credits ($4.12 

and $1.05, respectively). 

Among all C- and F-block licenses available in open bidding at those auctions (there were 250 and 65 such licenses in Auctions 35 and 58), the outcome in which a 

small bidder used bidding credits to outbid a larger competitor was not common. When weighted by their share 

of potential PCS coverage from all C- and F-block licenses available in open bidding (approximately 18 percent and 24 percent, respectively), bidding credits in Auctions 35 and 58 resulted in winning bids that averaged 

$0.15 and $0.05 less, per unit of potential PCS coverage, 

than the average value of the next-highest bid by bidders 

not eligible for bidding credits. In terms of total net auction receipts, bidding credits reduced revenues by about 2 

percent: $345.8 million in Auction 35 (relative to total 

net auction receipts of $16.9 billion) and $47.7 million 

in Auction 58 (relative to total net auction receipts of 

$2 billion).

50. Whether a particular license or set of licenses was offered in open 

or closed bidding within each tier depended upon a license’s allocated frequency band within the C block. Also, all C-block 

licenses that had not been won by any bidder at earlier FCC auctions were offered in open bidding. As a result, licenses for some 

markets in Auctions 35 and 58 might be offered entirely in open 

or closed bidding.
32 SMALL BIDDERS IN LICENSE AUCTIONS FOR WIRELESS PERSONAL COMMUNICATIONS SERVICES

Table 11.

Impact of Bidding Credits on Winning-Bid Differences in Open Bidding in

FCC Auctions 35 and 58

Source: Congressional Budget Office using data on winning bids in FCC Auctions 35 and 58 from wireless.fcc.gov/auctions/35/charts/

35market.xls and wireless.fcc.gov/auctions/58/charts/58market.xls, respectively, and 1990 population data to weight winning bids 

from wireless.fcc.gov/auctions/data/maps/cntysv2000_census.xls, worksheet “BTA.”

Notes: Bidding credits in FCC Auctions 35 and 58 were applicable to open bidding on licenses in frequency blocks C and F.

PCS = personal communications services.

a. Share of total potential PCS coverage (which is defined as the product of a license’s bandwidth multiplied by the population of the geographic area it covers) from all licenses offered in open bidding in frequency blocks C and F. 

b. Winning bids are expressed per unit of potential PCS coverage and are net of any bidding credits. In calculating average differences, each 

winning bid is weighted by the share of potential PCS coverage accounted for by the corresponding license, relative to the total available 

from all licenses used in calculations for each auction.

The data from Auction 35 also suggest that bidding credits might have contributed to more competitive bidding 

in Auction 35: 40 percent of licenses to which bidding 

credits could be applied were won by a bidder that did 

not qualify for bidding credits, with the next-highest bid 

being placed by a bidder that did qualify for bidding 

credits. However, many of those bidders that qualified for 

bidding credits also received substantial financial backing 

from larger wireless firms.51

With the exception of license set-asides in Auction 58, 

small bidders appear to have used auction preferences to 

pay less than they otherwise would have in competition 

with larger bidders. 

Number of 

Licenses

Share of Potential

PCS Coveragea

(Percent)

Average

Winning Bidb

(Dollars) 

Average

Next-Highest Bidb

(Dollars)

Average

Differenceb

(Dollars)

Auction 35 35 18 3.29 4.12 -0.83

Auction 58 19 24 0.85 1.05 -0.20

51. See John Rockhold, “Auction Masquerade—Government Activity,” Wireless Review, February 1, 2001.