[2] Ibid, Title I.

[3] See, for example, Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, Notice of Proposed Rulemaking, CC Dkt. No. 96-98 (April 19, 1996).

[4] Telecommunications Act of 1996, Sec. 254(b), and Federal-State Joint Board on Universal Service, Notice of Proposed Rulemaking and Order Establishing Joint Board, CC Dkt. 96-45 (March 8, 1996) ("NPRM"), Para. 3.

[5] Telecommunications Act of 1996, Sec. 254(b)(5) and Sec. 254(b)(4).

[6] NPRM, Para. 16.

[7] NPRM, joint comments of the United States Catholic Conference, National Coalition for the Homeless, Washington Legal Clinic for the Homeless, American Women's Roundtable, Community Technology Institute, Consumer Action, Farmworker Justice Fund, Fifth Street Connection, Heartland Alliance for Human Needs and Rights, Interstate Migrant Education Council, National Association of Migrant Educators, Marcia Zashin, Education Consultant to Cleveland Public Schools and Project Act, Migrant Legal Action Program, and Vermont Migrant Education Program.

[8] NPRM, joint comments of People for the American Way, Alliance for Community Media, Alliance for Communications Democracy, Benton Foundation, Center for Media Education, League of United Latin American Citizens, Minority Media and Telecommunications Council, National Council of La Raza, and National Rainbow Coalition.

[9] NPRM, initial comments of the American Association of Retired Persons, Consumer Federation of America, and Consumers Union.

[10] See Leighton, Wayne, "Consumer and Cross-Subsidies: An Interest Group Theory of Telecommunications Regulation," Ph.D. dissertation, George Mason University (1996), and "Telecommunications Subsidies: Reach Out and Fund Someone (Whether You Want to or Not)," Citizens for A Sound Economy Foundation Issue Analysis, January 5, 1995. See also, Kaserman, David and John Mayo, "Cross-Subsidies in Telecommunications: Roadblocks on the Road to More Intelligent Telephone Pricing," Yale Journal on Regulation, Vol. 11, No. 1 (1994). For a more detailed analysis of the subsidy from urban to rural areas, see Telecommunications Industries Analysis Project, "What is the Price of Universal Service? Impact of Deaveraging Nationwide Urban/Rural Rates," TIAP, Cambridge, MA (1995). For an analysis of subsidy flows from interexchange callers to local callers (including both urban and rural), see Makarewicz, Thomas, "Efficient Telecom Pricing: Who Stands to Benefit?" Public Utilities Fortnightly (March 15, 1996); and the discussion Crandall, Robert, After the Breakup: U.S. Telecommunications in a More Competitive Era, The Brookings Institution, (1991).

[11] Telecommunications Act of 1996, Sec. 254(b)(3).

[12] As mentioned above, Part II of Title I of the Act focuses on developing competitive markets. See also the Joint Explanatory Statement of the Committee of Conference.

[13] Among the organizations whose comments mention support for some type of auction: Association for Local Telecom Services, Continental Cable Vision, Inc., Florida Cable Television Association, GTE Corporation, National Cable Television Association, New York Consumer Protection Board, Personal Communications Industry Association, Time Warner Communications, Inc., and Wisconsin Public Service Commission.

[14] For a discussion of the disincentives faced by regulated firms -- especially those under traditional rate-based regulation, see, Leibenstein, Harvey, "X-Efficiency, Intrafirm Behavior and Growth," American Economic Review, Vol. 56 (1966), pp. 392-415.

[15] NPRM, comments of GTE Service Corporation. See also, Before the National Telecommunications and Information Administration, In the Matter of Inquiry on Universal Service and Open Access Issues, Dkt. No. 940955-4255.

[16] For a discussion of this competitive bidding process as applied to the PCS auctions, see McAfee, R. Preston and John McMillan, "Analyzing the Airwaves Auction," Journal of Economic Perspectives, Vol. 10, No. 1 (1996) pp. 159-75. For a more general description of auction models, see Riley, John and William Samuelson, "Optimal Auctions," American Economic Review, Vol. 71 (1981) pp. 381-92, and Vickrey, William, "Counterspeculation, Auctions and Competitive Sealed Tenders," Journal of Finance, Vol. 16 (1961) pp. 8-37.

[17] The FCC auctions for PCS used a three-stage bidding process, which is also the approach taken by GTE. Since the intent is to select that provider who will serve for the least subsidy -- rather than pay the most for a license -- this is technically a simultaneous decreasing auction. Under either label -- simultaneous increasing or decreasing auctions -- the result is still the same. That is, the bidder who can use the resource most efficiently will offer more (or, in the case of subsidies, agree to take less) than all other providers.

[18] This does not mean that the winning provider would enjoy exclusive rights to serve an area upon winning an auction, though a PCS auction winner does enjoy exclusive rights to the license won. Rather, for the high-cost subsidy auction, the purpose of a simultaneous process is to give the bidder some estimate of the subsidy to be received, thus making large scale planning easier.

¹⁹ See, for example, comments by the New York Consumer Protection Board and the Wisconsin Public Service Commission, and NPRM, Para. 37.

[20] NPRM, Para. 37.

[21] NPRM, comments by Time Warner Communications, Inc. See also the paper accompanying this company's submission, "Funding Universal Service: Maximizing Penetration and Efficiency in a Competitive Local Service Environment," A Time Warner Communications, Inc., Telecommunications Policy White Paper.

[22] For example, the GTE model modifies the FCC's use of simultaneous ascending auctions. Under the FCC's model for PCS licenses, bidders were required to actively bid in the first stage on at least one-third of those licenses in which they had an interest, with this requirement increasing to two-thirds of their desired licenses for the second stage and all licenses in the final stage. The purpose of this requirement is to limit the ability of bidders to understate their interests early in the process. The GTE model proposes changing these activity requirements for the first, second and third stage to 80 percent, 90 percent, and 100 percent, respectively.

[23] See Demsetz, Harold, The Organization of Economic Activity, Vols. I and II, Blackwell, Cambridge, MA (1989).

[24] This is not to say that a capital investment in telecommunications infrastructure can or cannot be recouped over five years. However, under such a time constraint, a potential provider with an investment needing six years over which to finance would not necessarily be kept out of the market. Rather, this provider would simply raise its costs to reflect the risk associated with an uncertain return in year six, a common calculation for many businesses.

[25] We note that some plans do not necessarily exclude non-bidders from eligibility, but any plan that provides rewards to bidders will disadvantage non-bidders.