No, Google Did Not Fleece Taxpayers Out Of $7 Billion
from the bad-math dept
We've talked about Scott Cleland before. He's a "telecom analyst" who has a reputation for stretching the truth as far as it can go in order to contort himself into making telcos look good and anyone opposing the telcos look bad. Jim Harper points us to Cleland's latest, where he accuses Google of "fleecing taxpayers" out of approximately $7 billion with its actions in the recent 700 MHz auction. He notes Google's admission that it was only in the auction to push the bid over the threshold requiring any service on the network to be open. This isn't a surprise. It was widely assumed that Google would merely bid up to the threshold, knowing that if it could buy the spectrum at that price, that would be great, but if someone else got it and the network was then required to be open, that was great too. So this is hardly a shocking admission on the part of Google.Cleland then compares the prices of the other blocks of spectrum available (those that didn't have open access rules) and does a back of the envelope calculation that the average price per MHz was noticeably higher on the closed access spectrum than the open access spectrum. From that point, he jumps to the conclusion that the C block (the open access block) was significantly underpriced because (he claims) telcos valued it less since it was open. Of course, there are all sorts of problems with this. He determines the amount of the underbidding by merely averaging the % difference in the A and B blocks to the C block -- but it's a massive difference. The A block was 50% higher and the B block was 250% higher. He then just averages that to 150%. Yet, anyone who bothered to actually think about it (rather than look for a weapon with which to bash Google) would note that this calculation is quite dubious. Beyond the "small sample size" problem, the very difference in price-per-MHz in the A and B blocks should make it clear that there are many other reasons why the price would fluctuate having absolutely nothing to do with whether the network was open or closed. To assign the entire blame to that makes no sense whatsoever and ignores the realities of what these different blocks of spectrum were good for.
Next, Cleland tries to spin this story as Google illegally swiping $7 billion from taxpayers -- since this entirely mythical $7 billion would have gone into the treasury, which will now have to make it up from taxpayers. On top of that, he suggests (totally incorrectly) that the only real beneficiary of the open access rules would be Google for its Android offering. Except... not quite. He's ignoring (conveniently) the other half of the equation. The open access rules benefit plenty of other companies beyond Google (in fact, any company that wants to take advantage of those rules), and will likely lead to much greater innovation and new and valuable businesses and services, that will likely generate much more tax revenue for the government than the totally mythical $7 billion. But Cleland decides to ignore all that inconvenient information in order to make an entirely bogus claim against Google.
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Filed Under: auction, scott cleland, spectrum, taxpayers
Companies: google
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Re:
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Re: Re:
"That's what a lobbyist does, and if one obtains his or her 'news' from such a one sided news source as Mr. Cleland then that individual is who he's pandering to!"
Cleland sounds like an idiot by Mike's description.
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School?
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Re: School?
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Odd economics
Google is responsible for the telco's paying more
money into the treasury if it drove the bidding above
the threshold.
Cleland says that Google is responsible for putting
the bidding over the threshold, then claims this
made the spectrum less valuable. I think he's tripping.
If this "analyst" is correct and close access spectrum
is worth more, then they would have paid less. Since
paying more means it must be open access.
Or am I missing something?
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4.5 > 17?
Or is his argument against just the fact that Google campaigned for those rules at all, and the fact that they were in place "cost" $7 billion?
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Re: 4.5 > 17?
My $0.02 worth
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Re: Re: 4.5 > 17?
So what comes down to is an arument that the open rules reduced the value of the spectrum, and so Google is at fault for petitioning for them at all (the imp,licit assumption being that C block would have sold for at least 17M if it were closed).
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Consumers Win Too
Even the iPhone, with all it's features is still limited and closed. Imagine the iPhone v3 on this spectrum, without limits and with the ability to run applications and services from your choice of vendors, not just Apple and the carriers choice.
I think that's worth more than $7 billion to eliminate the frustration and impediments we've had to deal with to date.
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A, B, & C Blocks
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I bet money...
He talks about google fleecing the taxpayers with the auction but what about the telcos walking off with that money we forked over for the network upgrades to keep up with the expansion of people using the internet?
We're still behind everyone else on speeds and wireless capabilities for our cell phones.
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7 billion
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Just as shoddy reasoning...
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Re: Just as shoddy reasoning...
Anyone want to play the race card now?
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Then...
I can make up number ma thingies ter!
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Short Sighted Valuations
Auction revenues are a one-off. But spectrum used well delivers economic value year after year after year.
The value of spectrum is in how it is used, what useful services it provides, the value of the business that eventually use it, the value of the communications services it offers. This should include any "consumer surplus". These things are NOT captured in the auction price - yes an auction determines the price, but it won't tell you the value.
For example, if the FCC puts a restriction that spectrum must operate in a public-private partnership for first responder priority access, it will lower the market value of those spectrum licenses, and thus the auction revenues for that license. Does that mean that spectrum licensed in such a way has a lower value to the US citizenry?
Cleland (total shill) is mostly saying Google fleeced the public because of its lobbying for the open access rules on the C block, not because of its bidding. But in reality, EVERY AMERICAN who doesn't own telco stock will benefit overall from Google's lobbying efforts. Google has pushed for OUR RIGHTS more than our own FCC did. They have successfully produced some spectrum where US consumers will have greater choice, greater flexibility, greater competition, and more options. Did they fleece us? No, they fought for us.
I'm not a Google lover. You'll see proof of that in this Techdirt post I wrote:
http://www.techdirt.com/blog/wireless/articles/20051229/112000.shtml
So don't lump me in with Google fanboys, but believe I'm sincere when I'm saying that Google has done a great deal of advocacy work in spectrum policy and changed things in ways that greatly benefit the PEOPLE of the USA. They've done it for their own self-interest, but done it nonetheless.
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Who's the idiot?
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Cleland
As one who isn't afraid to use my real name, and one who "openly" discloses that as Chairman of Netcompetition.org I represent broadband interests, I am amused at how many people conveniently avoid grappling with ideas, arguments, estimates -- by anonymously making ad hominum attacks on an intellectual opponent.
For those who haven't bothered to check out my professional and analyst qualifications they can be found here http://www.precursor.com/bio_long.htm
I have been attacked for my views and analyses before. Bernie Ebbers ridiculed me regularly for having Worldcom's number before he was indicted. It comes with the territory. I understand that the kitchen can get hot and I can take the heat.
Expect me to continue to argue my point of view until someone can present a better argument and convince me on the merits.
Most of the commentary about the spectrum auction is surprisingly and woefully uninformed. Many people spout what they think the facts should be not what they are.
The cold reality is that Google manipulated the spectrum auction and fleeced the American taxpayer of a lot of money -- we can quibble over the exact amount but that is just a distraction from the real issue -- Google fleeced the American taxpayer out of the full value of the spectrum. One can also disagree with the law that seeks to maximize spectrum auction revenues and not "openness" -- but its still the law.
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Re: Cleland
Welcome, Scott... but I'm afraid I feel shortchanged after reading your post. Perhaps you can add another penny to the pool?
Expect me to continue to argue my point of view until someone can present a better argument and convince me on the merits.
Funny then that you don't actually respond to any of the criticisms in my post or Derek's post -- both of which are by identified and known individuals. You simply brush off all the points as coming from anonymous detractors when that's simply not true.
It doesn't help your case to not respond to the criticism.
Most of the commentary about the spectrum auction is surprisingly and woefully uninformed. Many people spout what they think the facts should be not what they are.
It might help if you actually identified what is uninformed. So far, Derek has shown that it appears to be you who is rather uninformed -- and you failed to respond to a single one of his criticisms.
The cold reality is that Google manipulated the spectrum auction and fleeced the American taxpayer of a lot of money -- we can quibble over the exact amount but that is just a distraction from the real issue -- Google fleeced the American taxpayer out of the full value of the spectrum. One can also disagree with the law that seeks to maximize spectrum auction revenues and not "openness" -- but its still the law.
Repeating your original claim isn't making an argument, especially when you ignore all the salient points made against you.
You don't explain who got fleeced between the A and B blocks since there was such a huge differential in price there.
You don't explain how the bidding that Google did (which you claim manipulated the auction) is actually manipulating the auction if (as you also claim) without Google's involvement the final price would have been much higher.
You don't explain how why you only count the benefits in one direction (to your clients, the telcos) but not to everyone else.
You don't explain why you value all the blocks of spectrum identically despite the fact that they have very different limitations.
You don't explain the difference between the value of the spectrum and the price.
In other words, you leave a lot unexplained, but you paint all your critics with a rather broad brush.
So, why not come back and maybe add that missing penny to the supposed 2 cents you left here?
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Re: Cleland
Google bid the minimum needed to allow open access. How would the limit higher bids?
OMG someone who wants to charge me $200 for a locked phone to their service would have bid higher for the monopoly on the service, I get it.
I’m looking forward to the innovation(s) that occur in the C Block.
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Re: Cleland
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Very Naive
Moreover, the point of the open access is that it will generate more value to the economy than a closed network. That is the model has succeeded quite a bit in things like oh the internet.
So the open network can bring value to the US network and build off of that in the US, hopefully spawning value beyond four CEOs and their cayman accounts.
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Cleland response
thanks for the opportunity to comment
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Wi-Fi, Nextwave, TV, etc.
In fact, this whole argument is about opportunity costs. It's about what COULD have been done that would have been better for the citizens, both in terms of treasury revenue, services that could have been provided, and competition that could have existed.
Everyone here except Cleland seems to understand that there is more to the value of spectrum than it's auction price. The government could give spectrum away, and it would still deliver value to the citizens (and this has happened).
TV spectrum was given to broadcasters in the 40's (?) and they used it to broadcast TV. Now, I think most TV is bad, and today spectrum is wasted on it, but it's hard to argue that there is NO value in TV because there was no auction gain to the treasury.
Nextwave won a boatload of spectrum in the C Block of 1996's PCS auction for $4B but didn't find the air interface performances they wanted, nor the capital to build out a national network. The spectrum was supposed to "bring high quality and affordable wireless voice and data services to the mass market", but instead the spectrum lay basically unused and fallow until the present. That's 12 years that the US citizens have lost the advantage of another competitor in that spectrum. Twelve years of not seeing an innovative service appear. CLELAND WOULD TELL US THIS COST DOESN'T EXIST, but he would sing the praises of the $4B in revenue that Nextwave had to pay from the auction. Yet this situation wasn't a $4B win for the US citizens, it was a multi-year boondoggle in which their public airwaves weren't used in a manner that delivered ongoing value. (Nextwave didn't break any laws at all, and is still trying to launch services on that spectrum.)
That situation is exactly why the FCC requires spectrum licensees to DO something with their spectrum. They have to provide services to the public, or forfeit the spectrum. There is no doubt that spectrum without the obligation to DO something with it would sell at auction for more $, but it would be less beneficial to the citizenry. Speculators would buy spectrum with no intention of building a network, but just to resell it later. Hooray, the treasury gets an extra few million, and we have no TV, no cellphones, and no radio. Hooray for the treasury!
Wi-Fi is a technology that uses the so-called "garbage band" that the FCC never licensed off for private use because the value was deemed low, since it is a resonating frequency of water. Thus, this band was open for anyone to use with a few limitations on transmit power. The spectrum auction revenues for the 2.4GHz band? ZERO!!! Now, Cleland, please argue to me that since the auction revenue for 2.4 is zero, therefore that spectrum provides no value to the US citizenry. Be sure to explain how:
- Linksys and Intel are fleecing the US citizens
- cordless phones offer no value
- wi-fi is worthless in the home and enterprise
- medical devices that use 2.4 don't save lives
- baby monitors aren't useful to parents
Clearly, the open nature of the 2.4 spectrum has allowed that spectrum to deliver more net social benefits per megahertz than many licensed bands. Hertz for hertz, 2400MHz punches above its weight...yet was valued at $0 at auction.
Of course if the FCC offers spectrum at auction, and says it will allow bidders to run a closed service as a monopoly with the spectrum, and that the FCC will limit the amount of competition bidders will face, then the bidders will offer more for the spectrum. Well, duh. But is that better for the people?
I therefore conclude my point: auction price is NOT directly related to the value of spectrum. In fact, FCC restrictions that will INCREASE the long term value of the spectrum often lead to DECREASES in the auction price.
Oh, Yeah... Despite the fact that I won't win any prizes or awards for stating the ridiculously obvious arguments above, you said that your detractors were anonymous, so:
Derek Kerton,
Wirless Telecom Consultant for 7 years
street cred at: http://www.kertongroup.com
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Third Comment by Cleland
Kudos on an excellent post. You have an obviously strong grasp of different types of auctions, and different types of spectrum arrangements, and the economics of opportunity costs to different players.
Thank you for conceding what you consider is a "small point" -- that there is an opportunity cost to the taxpayer here.
I won't quibble with your analysis here other than to say the the "small point" you agree with was my main point and the primary reason for my Friday blog post.
Where we disagree, is that all these different examples (TV, Nextwave, WiFi) are not as analagous as you suggest. They all operated with a different factual and legal predicates making them unfair to lump together logically. TV licenses were granted decades ago in return for a "public interest obligation" way before the 1993 law. WiFi was not 700 MHZ super-premium-quality spectrum like this acution which generated $19b. And Nextwave was a total travesty because of legal mistakes the FCC made that were disastrous. The American Taxpayer was hurt in that instance as well like you wisely point out.
As I said in my last comment -- of course spectrum has other tangible and intangible "value" other than the auction price. I don't think I said that -- that is the characterization you all have heaped on me.
I have not tried to say there is no other value. I'm just not letting Google escape from the legal reality of the 1993 Budget Act or the FCC's anti-collusion rules because they or their sympathizers don't like the law or the rules and want to make up their own by blog comment acclamation.
I stick by my main and not so "small" point. Google manipulated the FCC auction per my Friday blog costing taxpayers real dollar value and I offered my simple, clear, and transparent estimate of what the size of that lost value was to the American Taxpayer --$7 billion.
You all may want to chase rabbits because like ad hominem attacks it changes the subject.
I will remain on subject which is Google manipulated the FCC's auction to its benefit and to the detriment of the American taxpayer.
Scott Cleland
Chairman Netcompetition.org
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Cleland = Telecoms Fascist
I heard the National Inquirer have lewd pictures of Cleland and various members of the "Subcommittee on Telecommunications and the Internet" members bathing each other in taxpayer money from the extra fees on every American's phone bill. Tauzin was the veteran consultant helping with party favors.
I tag all Cleland's stuff "Telecoms Fascist". I read BOTH Techdirt and 'The Precursor Blog by Scott Cleland - Forward Thinking At The Nexus Of Policy, Markets And Change'. One is forward thinking and constructive. The other is propoganda... I razzed him about not having comments even enabled on his blog. Recently, he's added them, and he's getting taken apart (granted it's probably because he's not smart enough to know how to make sure the comments don't come from 'anonymous' posters);
http://tinyurl.com/6lyqgq
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Cleland = Telecoms Fascist
I heard the National Inquirer have lewd pictures of Cleland and various members of the "Subcommittee on Telecommunications and the Internet" members bathing each other in taxpayer money from the extra fees on every American's phone bill. Tauzin was the veteran consultant helping with party favors.
I tag all Cleland's stuff "Telecoms Fascist". I read BOTH Techdirt and 'The Precursor Blog by Scott Cleland - Forward Thinking At The Nexus Of Policy, Markets And Change'. One is forward thinking and constructive. The other is propoganda... I razzed him about not having comments even enabled on his blog. Recently, he's added them, and he's getting taken apart (granted it's probably because he's not smart enough to know how to make sure the comments don't come from 'anonymous' posters);
http://tinyurl.com/6lyqgq
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Clelands entire argument is really flawed
Lets take his argument to the extreme to demonstrate that. Towns are fleecing taxpayers by providing public parks, public beaches, public roads, etc. They could be auctioned off to exxon or whomever. But they are not because they bring greater value by increasing public access. same deal here.
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A fourth Cleland comment
http://www.precursorblog.com/node/707
Scott Cleland
Chairman NetCompetition.org
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Briefly
In his latest response, he very nicely backs up his accusations of Google's manipulating the auction process. So much so, that I would think if he had titled his original article "Google Manipulates Spectrum Auction To Their Own Ends", I would have agreed.
However, let's recall that Mr. Cleland's title was 'Google Fleeces the taxpayer of $7B'. That argument remains totally unproven. Mostly because of the fact that the spectrum, now triggered to be open, COULD prove far more valuable to the citizens than spectrum without open requirements. Mr. Cleland's back-of-envelope calculations are suspect, but let's grant (for the moment) that $7B was left on the table because of the Open requirements. Mr. Cleland leaves that as the end of the calculation, where I argue that the calculation MUST also include the net benefits (or net costs) of making the spectrum open.
Is this a case of Google 'fleecing' us of an apple, but giving us an orchard in return? You need to also consider the long-term ROI of open spectrum, and it's either foolish or deliberately negligent not to do so.
Now, on to arguing the better case Mr. Cleland makes that Google unethically manipulated the auction process. Well, I also disagree here, although his case is well made. His case is that Google, while not breaking any laws, has pushed them to the limit. I would argue that to do any less at a spectrum auction would be akin to bringing a wad of tofu to a gunfight. The carriers, who dominate these auctions, have a long, long history of lobbying for favorable rules, favorable laws, and favorable auction terms to meet their goals. That done, the carriers also have a long history of gaming the auction process as much as they can, so as to meet their goals. In fact, these very acts are the main catalyst for the FCC's anti-collusion rule changes at each successive auction. As an example, I'm reminded of recent auctions where the FCC set up preferable terms for smaller telcos to bid, so the larger telcos took majority interests in the smaller telcos both before and after the auction, and did their bidding via these shells.
Come, on Mr. Cleland, you, who represents the telcos so often, now have the nerve to point the finger at Google for simply playing ball? If they broke the law during the auction process, then let them pay. But if they merely pushed the limit, just give their lobbyist the keys to the ol' boys club.
What's more, I disagree with Mr. Cleland's premise that Google's gaming was nefarious. I see Google "signaling" before the auction as "putting your money where your mouth is." Consider it this way: Google says "Some spectrum should be open, that would benefit the people, and yes Google." But opponents and telcos say, "But that would make the spectrum undesirable, and it will be auctioned for a pittance." To which Google says, "OK, we don't agree, but to address that concern, well we'll cover the treasury's risk ourselves. If the FCC requires openness, then we will ensure the American public that their spectrum will not sell for a song, by publicly committing to bid no less than $4.6B."
Taken this way, Google actually set a bid floor, and protected the Treasury from getting only a pittance. The only treachery I could have accused Google of, would have been if they had won, and then backed out. If they were sincere in their bids, then I see no malfeasance, and in fact much less treachery than I normally witness in spectrum auctions.
So, I'm glad to be finally arguing the issues, and not our credentials, because while Mr. Cleland's experience and credentials may trump mine, I think his arguments fall short.
Derek Kerton
www.kertongroup.com
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briefly a fifth comment from Cleland
Thank you for your thoughtful argument.
The flaw in your charge that my argument falls short is that you don't accept the premise of the 1993 law and the FCC auction rules as the foundation for judging the outcome here. I can't think of a more legitimate or sound fouundation for a argument of this type than the law and the FCC rules.
By declaring that Mr. Kerten's personal-devised cost-benefit calculation is the one that should be operative here is weak at best. If his personal opinion was taken as the operative final word here --anyone could waltz into a court of law or the FCC and say I have a better construct than the law of the operative jurisdictional authority and therefore I am right and my personal outcome should rule. Constitutional democracies do not work by blog acclamation but by due process and the rule of law.
Many many people may agree with you Mr. Kerton that your foundational construct for the argument is better and more in line with the way it "should be." I certainly understand its emotional appeal among techdirts tech parochial readership.
Once again I resort to reminding everyone that my argument is based on the legal/economic reality of the law and the FCC rules -- your first beef is not with me but the law and the US Congress and the FCC.
I respect your right to question the back of the envelope $7 billion calculation -- I was clear and transparent in how I came up with the number, do you have a clear and transparent alternative methodology for how much the competitive price was suppressed by Google's highly unusual bidding behavior? Everyone reading this far would be interested I would think.
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Re: briefly a fifth comment from Cleland
The flaw in your charge that my argument falls short is that you don't accept the premise of the 1993 law and the FCC auction rules as the foundation for judging the outcome here.
As soon as we get to talking about the numbers part of your equation (the economics) you flip to the legal side (but the law says this!).
We're trying to figure out how anyone was fleeced, and you still don't answer that question.
You still (at this point it's getting amusing) refuse to explain why your calculation makes sense for the C block, but not the other blocks, which also had different per-MHz prices.
You also put in a big fat $0 for the value of openness. Derek's not putting a specific number on it, but he's pointing out the two key flaws in your "fleeced $7 billion" statement:
1. The calculation you make (indeed, openly) doesn't make any sense, and that's easy to see just from the differences in the other blocks.
2. You refuse to count ANY value towards openness.
In other words, you have a totally invalid number and your model ignores a huge part of the benefit (no matter what the cost).
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A sixth comment from Cleland
I have said in previous comments that there may be intangible value to openness. I certainly concede that you and other commenters "value" openness -- but you keep asking for something of me that the law, the FCC, or common sense don't require. Why should I estimate the intangible value you and others put on openness conditions? Isn't that for you to do? Why are you delegating to someone who disagrees with you the staff work to make your point? Am I missing something here? You want me to estimate an intangible value you have in your head but I don't have in my head. A mind reader I am not.
Lets talk about the blocks and why I compared the "c" block to the A and B blocks. First, I hope we can agree that the 'D" block was an unmitiaged disaster in that it did not come close to the reserve price and there was no competitive bidding. That's becuase the buildout conditions and the lack of any business control allowed in the rules to mitigate risk made that block toxic.
The A and B blocks were the roughly comparable blocks differing primarily by geopgraphic configuration.
I looked at several ways to make my point. I considered a more elegant model with multiple assumptions but thought it would be a disservice to be complex when I could be most clear and straightforward by choosing the simplest easiest to understand and easiest to replicate model/estimate. What I find most annoying is if people make an estimate but provide incomplete info so one has to guess how they drived it or make their own assumptions.
I find it amusing that you find yourselves arguing the train of thought that I was too open, transparent, honest, too straightforward.
I guess one can't win, if you are straightforward you get criticized for not being detailed enough and if you are too detailed the criticism would be what are you trying to hide?
We should agree to disagree on this point. You and some of your commenters want me to accept your world view, concede your framework for estimating value, and think the way techies think. It's not really an argument it is a presumption of unilateral disarmanment by me in a debate. That makes no sense to me.
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Re: A sixth comment from Cleland
Again, you miss the point and again you fail to answer the question.
Let me even more direct: Who got fleeced and why between the A and B blocks since they were purchased at such different valuations?
The problem we have isn't just with the calculation, but the fact you falsely estimate that the entire difference in price is due to the open requirements. That's easily proven false: because if it were true, the A and B blocks would have sold for similar prices per MHz.
So the very basis of your calculation is false.
And, no, it is incorrect to claim that we're dinging you for being too open, transparent and honest. We're dinging you because that openness shows that your numbers don't make any sense at all.
And, I'm not asking you to calculate the value of openness at all, as you state. I'm pointing out that totally ignoring that value, no matter what it is, makes your already bad calculation even worse.
In other words, they're two separate criticisms that show your calculation is totally incorrect.
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A Tangent On Openness, And Whether We'll See It, And Why
In fact, all these arguments have some merit. "Open" by no means means it will be easy to slap a radio on AT&T or VZW's 700MHz spectrum, and connect to service. And for God sakes, no Techdirt writer has ever suggested that "Open" meant free. Of course it does not. As "techies" I should hope we "get" what "open" means. (This point is aimed at the general Internet discussion which seems to accuse techies of confusing open and free. I haven't seen anyone with any decent reputation mistaking open for free.)
So Cleland, and others could argue that the value of openness is nil. That would explain why he consistently fails to factor it into his math. That's why in #25 I point out a few examples where "open" spectrum has proven to have great commercial and social benefits (ex: Wi-Fi). Therefore, I think it neglectful to deny those benefits exist. But I've also been careful to allow that some people might think there are costs to openness (i.e. some companies are threatened by Wi-Fi). Either way, 2.4GHz has shown that the impact of open spectrum is NOT nil. If one does back of envelope calculations, the effect of opening up spectrum should be part of the math.
And regarding your suggestion that I am asking you to do MY calculations, au contraire. It's not MY job to do it for YOU, Mr. Cleland. They are YOUR back of the envelope calculations we are talking about. I'm just the teacher giving you a failing grade, I'm not here to do your homework for you. I've done my part by proving that the assumption of nil is incorrect, and thus your math is wrong. I don't need to offer a discrete figure of the value of openness to make MY point, but you DO need one to make yours.
But what I really came back to point out was this interesting sequence, and it's really a bit of a tangent from our enjoyable debate. It deals with the fact that a variety of forces are pushing the wireless market to be more open. It's not just spectrum regulation, but some market forces as well. It appears that, no matter how much some companies like the control closed spectrum offers, there is simply greater customer demand for more open mobile solutions. Here's a fun timeline:
June 2007: the iPhone decreases carrier control, although mostly just transferring it to Apple
August 2007, Google successfully lobbies to have "open" requirements in the 700MHz C block
November 2007: Google announces the Android platform which promises greater openness
November 2007: Verizon announces they will open their network
November 2007: AT&T and other carriers follow suit and rush to say "We're open too."
There are many reasons that the current trend is towards openness, but I think it would be naive to deny that Google has had a direct role in accelerating the trend. Verizon has been seen to have an acute ability to fight tooth and nail against something, but to realize when the battle is lost, and to join the popular team for the PR boost. Remember WLNP: http://www.techdirt.com/blog/wireless/articles/20030815/181925.shtml
Sure it is debatable whether we will ever see real openness or not, but the evidence shows that it's really happening.
And it is arguable whether it will be better or not, but in every case of openness I've seen, it seems to be beneficial. It's a very American position: I think open competition is better than market control.
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a seventh comment from Cleland
No one got fleeced in the price difference of the A and B blocks because they were market driven auction blocks not skewed by Google's open access conditions. Compeitive bidders in the marketplace bid different amount for different regions because different regions are more valuable than others. More people = more value. If you better understood markets and auctions you would not even suggest that the A and B blocks should deliver the same price per MHz.
My simple transparent averaging of the two blocks is the basic technique any person uses to compare two groups of numbers overall that are not identical. Using average prices between the blocks is a perfectly legitimate shorthand calulation method. How would you calculate it more accurately Mr. Masnick? You only offer increasing levels of minutia criticism without offering your answer of what it should be. It is very easy to criticize but harder to problem solve oneself. What is your estimate? and why did you choose that estimation method?
Who got fleeced in the C block was the American taxpayer because: Google's open access conditions, google's $4.6 billion opening and de facto bid ceiling signal that violated the spirit of the FCC anti-collusion rules, google's deceptive bidding against itself to fake a competitive bidding situation, and finally Google's exit from the auction once it triggered the auction and did not fulfill trying to be a third national broadband provider --were all cumulatively deceptive misrepresentations that suppressed the competitive price at the auction which shortchanged the taxpayer. Sorry for the long run on sentence but I wanted to put it all in there so you can't legitimately say I didn't try to explain how google fleeced the taxpayer.
Please prove the superiority of your analysis of the situation by offering a superior estimate of the amount the auction was skewed by the google conditions.
I will also include the following answer to Mr. "anonymous coward" his self appellation not mine. Your comment was one of the better in the string. why by anonymous or think of yourself as cowardly? -- you are more than capable of engaging in an intelligent debate in your own identity, unless your identity would tell us something you don't want disclosed.
Let me respond to your final summary comment that open competition is better than market control. I am all for open and competitive markets that is what free market advocates like myself seek and seek to preserve. We free marketeers cherish liberty and want limited government. Google and the much of the "open" movement have twisted the meaning of what they mean by "open" to be more about government intervention to impose artificially pre-determined outcomes that favor one set of business models or companies over another. "Open" is also increasingly being thrown around not in the literal sense of what open means -- the opposite of closed -- but to mean communal or public owned property as the information commons movement defines it. I view this communal twisting of the free market principle of "openness" into a communalist -- anti-property rights concept -- to threaten the core of our free market Internet.
In closing if you want to be further riled up, I have argued against another pet rock that many of you care about -White spaces -- in my latest blog http://precursorblog.com/node/709
I suspect that post will prompt some comments as well...
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Re: a seventh comment from Cleland
I give up Scott. *I* didn't say A and B should deliver the same price, YOU did. My whole point is that it shows that you are wrong, and here you just admitted it. The different blocks have totally different values for a *VARIETY* of reasons.
Yet you chose to assign the ENTIRE reason to Google and openness, despite little evidence to suggest that's accurate.
That's my complaint.
My simple transparent averaging of the two blocks is the basic technique any person uses to compare two groups of numbers overall that are not identical. Using average prices between the blocks is a perfectly legitimate shorthand calulation method.
No, it's not a perfectly legitimate method, because as you just admitted (FINALLY!) the different blocks had very different characteristics, which resulted in different bid prices. That's true of all of the blocks.
How would you calculate it more accurately Mr. Masnick? You only offer increasing levels of minutia criticism without offering your answer of what it should be. It is very easy to criticize but harder to problem solve oneself. What is your estimate? and why did you choose that estimation method?
I wouldn't calculate it because I don't see how the taxpayer got fleeced any more in that auction than in any other auction. In EVERY spectrum auction the FCC has put specific rules and limitations on the spectrum. Yet you didn't complain about who got fleeced then.
Who got fleeced in the C block was the American taxpayer because: Google's open access conditions, google's $4.6 billion opening and de facto bid ceiling signal that violated the spirit of the FCC anti-collusion rules, google's deceptive bidding against itself to fake a competitive bidding situation, and finally Google's exit from the auction once it triggered the auction and did not fulfill trying to be a third national broadband provider
There are two contradictory points here. If Google was only bidding against itself, then it should have won. Clearly, Verizon valued the spectrum (open or closed) more than Google did. So the entire complaint about Google gaming the system is moot. Verizon valued it more than that, so it doesn't matter.
Furthermore, there was no *requirement* that a third national broadband provider win the auction. If so, then the FCC would have prohibited the likes of Verizon and AT&T from participating. Google made it clear they were perfectly willing to do something with the spectrum *if* they got it around $4.6 billion. There was nothing deceptive at all.
So, no, you have not shown how Google has fleeced the taxpayer, because you keep giving contradictory statements:
Contradiction 1:
1. The A and B block prices serve as a good proxy for what the C should have been priced at.
2. The A and B blocks were priced differently due to a variety of factors.
Contradiction 2:
1. Google bidding against itself artificially increased the auction price.
2. Because of Google, the value of the spectrum went for less than it should have.
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Forgot To Fill In Headers
Derek Kerton.
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One Of Our Tripping Points
Where I see what Google did as setting a bid floor. Did Google do anything to prevent any of the other hundreds of qualified bidders from bidding higher? Did Google ever say that $4.6B was their upper limit? I can confirm that they did say it was their lower limit, but please show me where they said it was their upper limit, too. By declaring a lower limit, they did nothing to cap bidding on the C block.
At the time, there was no clear signal from Google that they were not in it to win. We even had mass speculation that Google wanted to enter into the BWA space, based on some people's observations of their recent hiring choices, their interest in(and failure of) Muni WiFi, their fiber backbone acquisitions, their disdain for the existing carriers, and their stated wireless ambitions. Smart analysts, like us here at Techdirt, assumed they would bid to trigger, then stop. But we arrived at that conclusion ourselves, because that's what we would advise them to do...not because Google said so.
How can you accuse a participant at an auction of limiting the bids of others? Google didn't stop anyone from bidding higher, and it's not their responsibility to produce other bidders who will bid higher, and it's definitely NOT their obligation to become the third pipe the FCC wants. And that's true whether Techdirt wants more telecom competition or not. Our desire for more competition does not obligate Google to deliver it.
Gosh! To argue that you are a free marketeer, while your thinking is laced with the notion that Google *owes* the US people another telecom competitor is decidedly incongruous.
And while I'm chatting on the free market. Don't get Mike started on how telecom is anything but. Telecom lobbyists love the regulated market when it limits their competition through: exclusive franchises, exclusive spectrum rights, exclusive rights-of-way and such. But they then turn around and act like any new regulation would amount to terrible market interference. Here's old news: it's not a free market, it's a far cry from a free market.
It sorta pains me to have to be devil's advocate here, since I make most of my money working for and with the telcos. Basically, I believe they provide an extremely valuable service, with high reliability, and reasonable prices (cheapest in the world). But I work with them by telling it like it is. By advising them how to make their products and services better. By advising about important trends. By showing how they can please the customer more, which does cost more, but the long-term benefits of customer loyalty and increased service revenues can outweigh the costs. I also talk frankly with clients about economic and market inevitabilities. And I usually get them right. Sadly, many clients would rather have advisors who blow smoke up their dumb pipes.
I also see your position. Telcos will try to profit seek as much as they can. And Wall Street puts incessant pressure on them, with ridiculously short-term vision for the next quarter, always just the next quarter. Long term profitability is less important. With the profit motive so strong, of course telcos will try to game the system to their advantage. And thus enter lobbyists like yourselves. You argue untenable points with aplomb and straight face, and this helps the telcos - at least for the short term. Your job is to game the system, even as you blame Google for the same. And maybe you believe the doublespeak you state, and maybe you don't. I suppose I could give you the benefit of the doubt there. But you're either a deliberate misleader, or quite wrong - neither one is good on you.
But I'm at my limit. If you see a bidding floor as a bidding ceiling, we'll never agree. We could be nose to nose and still not see eye to eye.
BTW, the system here puts in the name "Anonymous Coward" if one neglects to fill the form as I did in #36. My bad.
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an eighth comment from cleland
#1 is not a contradiction since A and B were the only unencumbered blocks so they represent the only available pool of blocks/prices to compare with C. To accept your logic would be to accept there can be no comparison between unencumbered blocks and encumbered blocks and that's not reasonable or logical.
#2 is not a cotradiction becuase Google informed us in the NYTimes article it was not participating with the same purpose as othere who participated and respected the rules and fair representation -- they only were in the auction to trigger the conditions. if goog was honest and straightforward and not manipulating it would have put in one bid for $4.6 b and be done with it. simulating competition by bidding against oneself to mask your deception is still deception. By the way the 4.6b researve price was way below the average market rate in the A and B blocks. so you suggesting it is a contradiction is a basic misunderstanding of my point and the trigger price.
sorry for the typos I only have a moment now to comment.
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Re: an eighth comment from cleland
Um. Wow. I don't think you understand what I'm saying.
Derek spells it out nicely, but let me try again as well:
YOU say A block is different than B block.
Then you say that C block is different than A or B block but ONLY because of the open rules.
Do you really not see how that's a contradiction?
All of these blocks of spectrum have different characteristics. For you to admit that A and B are different for a variety of reasons, but then insist they're the same for comparison to the C block is a HUGE contradiction.
#2 is not a cotradiction becuase Google informed us in the NYTimes article it was not participating with the same purpose as othere who participated and respected the rules and fair representation -- they only were in the auction to trigger the conditions. if goog was honest and straightforward and not manipulating it would have put in one bid for $4.6 b and be done with it. simulating competition by bidding against oneself to mask your deception is still deception.
You didn't address the actual contradiction I pointed out. The cognitive dissonance in you is strong...
By the way the 4.6b researve price was way below the average market rate in the A and B blocks. so you suggesting it is a contradiction is a basic misunderstanding of my point and the trigger price.
And there you go, making the exact same contradictory statement again.
I can't figure out if you're just having fun with us at this point or if you really believe the logical pretzel you've twisted yourself into.
Does your sort of math actually work on politicians?
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Net - Net of Net Neutrality Argument: You're all special.
Cleland, you're still a Fascist.
Just admit you were trying to devise a tasty Techdirt-like article title, and stepped in it. Google did NOT fleece taxpayers. Take the rest of the day off and relax... you're still a smart guy, [exceedingly] well-informed, and with interesting, detailed and mature methods of debating on such topics. But you're still playing the spin game.
Enjoy the weekend.
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The Cathartic Process
Mike has summarized the Cleland logic as: a is not equal to b, therefore, the average of a and b is c. Doesn't take a philosophy major to judge that claim as false.
I have argued that in calculating the net benefit of the auction to the citizens,
b - c = n
(benefit minus cost = net)
Mr. Cleland's math calculated a (flawed) cost, but neglected the benefits, and look like this:
-c = n
It doesn't take a math major to judge that calculation as wrong.
So we've all done our jobs here. Mike and I have spent time and made no money arguing what we believe. We've both jeopardized, even just slightly, our client opportunities with telcos. Mr. Cleland has successfully met his objectives as a lobbyist for oligopolists by adding fog to the auction debate. Most people won't read this thread and see the deconstruction of his arguments and calculations. His auction commentary is all too similar to the witches of MacBeth chant "Fair is foul, and foul is fair..." while the reality is forced to "...hover through the fog and filthy air."
Now we move on to the white spaces debate, where I'm sure the "Little Boy Who Cried Wolf" will be raising the alarm again. You know, someday Google might come to attack us for real, but who will believe the Little Boy after all those false alarms?
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A ninth comment by Cleland and some humor to enjoy
Back to the debate.
I have to address one of the anonymous commenters who had some ok things to say but couldn't resist the ad hominem attack that I am a fascist. As a poli sci major in college and an avid student of twentieth century european history particularly WWII, I am not sure our commenter understands what fascism is/was or for that matter how to identify a modern day fascist... For an ephitet like that to have any sting it has to have a scintilla of truth which this one does not. Fascism allowed no debate, no freedom of speech, no criticism of the Government or its allies, no respect for individual liberty or for the rule of law, and they were prone to violence against those who opposed them. If anyone was being ganged up on for sticking up for my constitional freedom of speech while enduring ad Hominem attacks, in this debate, I think it would be me here.
With all due respect to Mr. Kerton, you appear to be frustrated in this debate that I don't "cry uncle" and concede you are right. Why the need for the ad hominem attacks that your logic is better because you are unpaid, or that I am just a proverbial "little boy who cried wolf"? In reviewing your previous comments -- they were intelligent, well argued, and among the most informed of all the commenters. You can do fine on the merits -- why undermine the record and let fair-minded people dismiss your good analysis when it is laced with ad hominem attacks? I do hope we can continue the debate on the White Spaces issue because that argument is much more clear cut as we don't have to argue about estimation methods we can just argue the law and the merits of giving away what should be auctioned.
Mr. Masnick,thank you for your patience, fairness and learned restraint from ad hominem attacks. Let me try again as you seem genuinely interested in why I could hold onto such a contrary view as you do given the same analysis or facts.
It is not a contradiction. My choice of selecting a simple straightforward estimation method involved a clear tradeoff, and you are pointing to the fact that I made a trade-off for a legitimate purpose, clarity and "openness" to say I am being contradictory -- that does not logically follow. I also was upfront in calling my estimate and estimate. You may not be aware that most of your argument is that my estimate is not perfect, and I concede an estimate is by definition not perfect. Proving it is not perfect does not prove it has no merit. Most fair-minded people can see that I was not intent on making the $7b point but the broader point that Google fleeced the taxpayer by manipulating the auction. You all still have not come close to disputing that finding -- by the way you have largely confirmed it by obsessing over the number and not the principle.
Lastly, the "logical pretzel" you have discovered is yours in trying to prove why someone could hold a different opinion from you. Opinions emerge from different values, assumptions, priorities, and perspectives. Your frustration with me is that I think differently than you all, and have different beliefs. Embrace diversity of thought and opinion. Its much more interesting and productive than the anonymous, gang swarm bullying that many blog commenters consider "debate".
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Leap Wireless
http://www.fiercewireless.com/press-releases/leaps-testimony-700-mhz-auction?utm_medium= nl&utm_source=internal
Leap pointed out how in spectrum auctions, the field is consistently tilted in favor or the large incumbents, naming AT&T and Verizon as the main beneficiaries.
However, in Leap's entire testimony about what went wrong, the small wireless carrier never mentioned the Google. Could it be that this scrappy little telco is actually barking up the right tree?
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Congress Weighs In On Auction Outcome
They were pleased at the total revenues from the auction, not thrilled at the D block, which they say should be tweaked, but still re-auctioned with similar private-public safety goals.
But most of the criticisms for the auction outcomes were reserved for the C block, where Industry rag Wireless Week said this:
In a harsher critique, Markey (D-MA) noted that telecom giants, not new players, still dominated the auction. “As a result, the wireless ‘third pipe’ to compete with the telephone and cable industry is proving either elusive – or simply allied with one of the two existing providers in much of the country. This is too cozy and not nearly competitive enough. The decision to eliminate spectrum caps by the FCC under Chairman Powell is proving highly ill-considered. Spectrum caps had ensured that incumbents couldn’t gobble up all of the available spectrum and effectively box out would-be competitors from reaching the market.”
http://www.wirelessweek.com/Congress-700-MHZ-Auction.aspx
From the news I read, I couldn't tell if congress even mentioned Google's role in the auction.
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a tenth comment from Cleland -- Congressman on gaming of system
You must not have dug very deeply, or the news you read is only from like-minded blogs/sources, but how could you miss the Bloomberg news service coverage: "Google 'gamed' airwave sale, Republican lawmakers say." http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a.ocUgM0IJ5Y
It was also picked up here as well: http://www.phonemag.com/google-blamed-for-700mhz-auction-bid-shortfall-042383.php
IDG PC world also picked it up: http://www.pcworld.com/businesscenter/article/144666/lawmakers_complain_that_google_gamed_auction.ht ml
Even the Wall Street journal mentioned that lawmakers were concerned the open access rules depressed C block prices.
Mr. Kerton, as a research analyst you need to get out more and read more. All you would have had to do was Google it to find that "congress even mentioned Google's role in the auction."
Scott Cleland
Chairman, NetCompetition.org
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11th comment from Cleland -- new evidence against Google
See: http://www.precursorblog.com/node/720
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Re: 11th comment from Cleland -- new evidence against Google
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More From Congress
http://www.fiercewireless.com/story/is-att-bitter-about-the-c-block/2008-04-16?utm_medium =nl&utm_source=link#comment
The congressmen grilled the FCC brass on whether they were duped by Google. All accusations were basically handled with the logic (which would be familiar to anyone reading this thread), "How is bidding up to the point where you don't want to bid anymore gaming?" Commissioner Adelstein noted that Google put $4.6B of their capital on the line, which is all one expects of an auction loser.
The FierceWireless writer in the link, Brian Dolan asks, "So who would have swooped in and driven up the price of the C Block had it been provision-free?" suggesting that the likely winners ended up winning anyway, and no company has yet said they "would have bid" if only those Open provisions weren't in place.
But it's true the C block could have auctioned for more without provisions, which may or may not have been a worthwhile tradeoff against the possible benefits of opening up the spectrum. It's impossible to guess what might have been the price, and also impossible to put a price on the future benefits of openness - despite some people's attempts at so doing.
Having three respectable congressmen independently come to the conclusion that Google's actions harmed the people that those congressmen represent certainly is damning for Google. It seems certain that Google HAS crossed those represented by the congressmen. Read on...
Oh, last point that Brian Dolan noted: The three congressmen who grilled the FCC and argued Google had duped the Commission were all 14 year veterans in office. The company that contributed the most to EACH of their campaigns during the last 14 years? Starts with an A, and ends with an T&T. Have a guess.
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