Using Auction Results to Forecast the Impact of Wireless Carterfone Regulation on Wireless Networks (Second Edition)

In the last year, many advocates have called for the imposition of Carterfone regulation on the wireless industry. The FCC partially heeded this call when it imposed open platform regulations on one substantial block of spectrum (the Upper C block) that was recently part of the record-setting 700 MHz auction. In the fourteen years that the FCC has performed spectrum auctions, never before has the FCC simultaneously auctioned similar spectrum licenses that are subject to two radically different regulatory regimes. In this Bulletin, we utilize the results of this unique auction to show that applying similar wireless Carterfone regulation to all commercial wireless spectrum could suppress wireless infrastructure investment by $50 billion over the next decade, sharply reduce the profitability of wireless network services by 32%, and harm consumers. Because there are significant fixed and sunk costs involved with building and operating a wireless network, the estimated change in profitability could limit consumer choice by creating more highly-concentrated market. Indeed, applying such regulation across the board is likely to cause particular harm to small or medium-sized wireless firms by enhancing the role of scale economies in determining industry structure