FCC Record, Volume 28, No. 5, Pages 3700 to 4038, Supplement (March 2013) Page: 3,767
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Federal Communications Commission
of network deployment costs (a type of fixed cost240 of building network capacity) in relation to the
number of customers may limit the number of firms that can enter and survive in a market.ul For
example, areas with a low population density tend to have fewer facilities-based competitors (and higher
concentration) than areas that have a high population density.242 For an entrant to survive in the market,
the market must be large enough, and profits high enough, for a potential entrant to recoup its network
deployment costs over time from service revenues. Costs that delay entry, sometimes referred to as
"adjustment costs," are relevant for estimating exactly when entry will occur.243 One role of competition
policy is to estimate how the timing of entry depends on various costs and to determine whether there are
any relevant regulatory policy tools that can reduce entry delay.2" Below, we briefly discuss the major
costs of setting up a network and gaining a customer base.
80. Spectrum. A potential facilities-based entrant to a wireless service market can obtain
spectrum in several ways including purchasing licenses at Commission auctions, purchasing licenses in
the secondary market, and leasing spectrum in the secondary market/' For instance, in two major
spectrum auctions in 2006 and 2008, the average price ranged from $0.53/MHz-POP for the AWS-1
(Advanced Wireless Service) band (1700/2100 MHz band) in Auction 66 to $1.28/MHz-POP for the 700
MHz band in Auction 73.246 At these prices, aggregating a significant regional spectrum footprint would
involve an outlay of hundreds of millions of dollars and a national footprint would require billions of
dollars. Additional information about spectrum can be found in Section I.F.
24 The fixed costs to produce a'range of output are costs that are generally incurred independently of the quantity of
output produced within the range. They can be financed in many ways, including over time. See Intermediate
Microeconomics, at 353.
U' See W. Kip Viscusi, et al., Economics of Regulation and Antitrust (3d ed.), MIT Press, 2000, at 150. See also
Competition Policy, at 51, 76. See also Sutton, J., Sunk Costs and Market Structure, 1991, MIT Press. See also
Competition After Unbundling, at 332, 337. For the use of fixed costs to estimate market concentration, see, e.g..
Modern Industrial Organization, at 41; Economics of Regulation and Antitrust, at 150. For the relevance of the size
of sunk costs to predict market concentration, see Competition Policy, at 76-79; Competition After Unbundling, at
337; and Dennis W. Carlton, Why Barriers to Entry are Barriers to Understanding, American Economic Review,
2004, 94: 2, at 467. See also Written Statement of George S. Ford, Ph.D., Chief Economist, Phoenix Center for
Advanced Legal & Economic Public Studies, Before the House of Representatives, Committee on Energy and
Commerce, Subcommittee Telecommunications and the Internet, Hearing on "An Examination of Competition in
the Wireless Industry," May 7, 2009, at 5, (estimating that three to five nationwide carriers will be able to provide
mobile services, including mobile broadband).
241 See Section III.D, Horizontal Concentration, supra.
243 See Dennis W. Carlton, Why Barriers to Entry are Barriers to Understanding, American Economic Review,
2004, 94: 2, at 468-469. See also R. Preston McAfee, et al., What Is a Barrier to Entry?, American Economic
Review, 2004, 94: 2, at 463 (What is a Barrier to Entry?).
244 See, e.g., Dennis W. Carlton, Why Barriers to Entry are Barriers to Understanding, American Economic Review,
2004, 94: 2, at 469; Malcolm B. Coate, Theory Meets Practice: Barriers to Entry in Merger Analysis, Review of
Law and Economics, vol. 4, Feb. 2008, at 190; What is a Barrier to Entry?, at 463-465. The difference between an
adjustment cost and a barrier to entry (i.e. a permanent asymmetry in firms' costs) may, in practice, be a matter of
degree, depending on the length of the delay caused by the adjustment cost. See What is a Barrier to Entry? at 464
(arguing that economies of scale are not barriers to entry), and 465 (arguing that sunk costs cause firms to delay
entry because of their option value).
45 Spectrum Bridge, Inc. provides an online marketplace for spectrum exchange. Spectrum Bridge Inc.'s online
market exchange, SpecEx, can be accessed at http:\ /~ww.spccex.com/Default.uispx (visited Aug. 16, 2012). Its list
of available spectrum can be accessed at hlttp:/spcctnmzbridc.cor/Products:crvicesispeccxIVerticalCarriers.aspx
(visited Nov. 30, 2012).
A This was calculated by dividing the total net auction revenue by spectrum bandwidth and population in the year
2000.3767
FCC 13-34
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United States. Federal Communications Commission. FCC Record, Volume 28, No. 5, Pages 3700 to 4038, Supplement (March 2013), book, March 2013; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc177415/m1/78/: accessed April 24, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.