Sidak Study Analyzes the Benefits of Allowing Bidders to Opt Out of Their Winning Bids from the Nextwave Reauction

A study released on August 26, 2002 by Greg Sidak of the American Enterprise Institute and Criterion Economics, L.L.C. determines that the FCC's conduct regarding Auction 35 is stifling the economic recovery of the struggling wireless industry, delaying the roll-out of new wireless services, and impeding wireless investment that would increase U.S. GDP by between $19 billion and $52 billion. The study follows on the heels of recommendations by noted economists, telecom experts and the Cellular Telecommunications Industry Association (CTIA) in letters to the FCC, calling on the Commission to allow Auction 35 winners to opt out of their spectrum bids.

Despite its inability to produce licenses to Auction 35 winners since the auction concluded in January 2001, the FCC has refused to cancel the reauction results, even though it had no spectrum to give the winners. Winning bidders from Auction 35 have been forced to treat their obligations as contingent liabilities without deriving any benefit from the underlying asset. The Auction 35 debt looms over the wireless carriers. Mr. Sidak explains that those contingent liabilities have raised the carriers' costs of capital and impaired wireless firms' credit ratings.

The study explains that if the FCC reversed its current course and allowed bidders to opt out of Auction 35, the elimination of the carriers' contingent liabilities would enable them to redirect valuable capital to the wireless industry, and expedite the deployment of wireless services. This spending would directly benefit equipment manufacturers and create new jobs. The combined effects of this investment spending, according to the study, would be to increase U.S. GDP by between $19 billion and $52 billion, between $12 billion and $38 billion of which would occur before the end of 2005.

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