Airwaves Auction Like The Second Calif. Gold Rush

UCSD Professor Is Hired By FCC To Help Design System; Qualcomm To Host Bidders

By MARIO C. AGUILERA San Diego Daily Transcript Staff Writer

Some call it the Oklahoma land rush for the 21st century. Others say it's a modern-day California gold rush.

Billions of dollars and the future direction of telecommunications will be at stake when the Federal Communications Commission auctions off broadband licenses in two weeks.

Based on the FCC's inaugural auctions in the summer and fall, which brought in more than $1 billion, the auction for personal communication services Dec. 5 should bring in even more money. Possibly much more.

And when the bidding officially gets under way, two San Diego entities will have a hand in how it all shapes up.

UCSD professor John McMillan was retained by the FCC to help design the auction system while another local player, wireless giant Qualcomm Inc., will host a PCS TechForum for auction bidders next week.

Before the 1980s, the federal government simply gave away radio wavelength licenses through the administrative hearing process. Companies would file applications and plead their case with the FCC, which would decide which company was most deserving.

"While that was a boondoggle for the lawyers, it was largely inefficient for the government," said McMillan, in a mild accent drawn from his New Zealand roots.

McMillan, a professor of international economics at the Graduate School of International Relations & Pacific Studies, said that cumbersome method led to an unhealthy backlog of unassigned licenses. Congress searched for a faster process and decided on the lottery system.

As a mathematical economics and game theory expert, McMillan said that format also proved counterproductive because winners were not necessarily sincere in their effort to use the license. Often lottery winners would turn around and sell the license for a healthy profit.

McMillan recalls that a group called the RACDG partnership won the right to run a cellular telephone network in Cape Cod in 1989. The group, he said, then sold the license to Southwestern Bell for $41 million. In fact, the total value of the licenses given away in the '80s is estimated to be more than $45 billion.

With a deficit budget on the rise, Congress took note of the potential payload.

In September 1993 McMillan was hired as the only academic consultant in a team charged with developing a system McMillan had long written and advocated as the best method of license distribution: auctioning.

The first of a proposed six auctions was held in July and brought in $617 million for 10 narrow-band licenses for wireless pagers. The recently completed second auction brought in another $489 million.

Now the wavelengths formerly reserved for military use are on the auction block. Government estimates say the December bids for personal communication services (PCS) licenses could bring several billion dollars. (PCS, which encompasses pocket use-anywhere telephones, portable fax machines and wireless computer networks, is still under development.)

But, "nobody knows for sure how much they'll bring in," said McMillan. "The first auctions brought in much more than people expected."

While the July auction was heavily attended in person, McMillan said next month's format will be an exercise in virtual auctioning, with the bulk of companies putting up bids on-line. Techies can even find out results posted on the Internet.

Because the upcoming auction presents such a landmark event for the PCS world, Qualcomm will host a three-day PCS TechForum Nov. 29 to Dec.1. The forum will feature a series of seminars for PCS bidders on the technology, regulatory issues and auction strategies.

"The tech-forum is for people who are bidding, financing and network planning for this all-in-one, wave of the future auction," said Qualcomm's Julie Cunningham.

Featured speakers include Raymond Steele, managing director of Multiple Access Communications Ltd. and Stewart Fist, a wireless communication free-lance journalist. Panels will include representatives from major wireless companies such as Motorola, AT&T, Oki, Sony and Northern Telecom.

Of course Qualcomm will skew the event toward PCS applications that employ its code division multiple access technology, which is under consideration for use in the PCS spectrum. Qualcomm will feature a hands-on demonstration of a 4-cell CDMA PCS network deployed by an experimental license in San Diego.

As for McMillan, the auctions present a unique historical development for two reasons.

First, the auctions signify an enormous affirmative action exercise. Minorities, women and small-business owners will receive special consideration through price breaks, installment payment options and a separate, affirmative-action-only 30 megahertz auction.

And, the auctions present McMillan with a rare opportunity to witness game theory in motion. Exercises in decision making, analysis and mathematical economics normally don't see real-world applications on this scale.

"We get to see the actual ideas used in game theory here," McMillan said. "It is the largest model to study ever."