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<div dir="ltr"><font face="Tahoma" color="#000000" size="2">I forward information about a study conducted by NERA on spectrum auctions.</font></div>
<div dir="ltr"><font face="tahoma" size="2">Not directly applicable to IP addresses, but has some relevance to current discussions about attempts to reserve resources for new entrants vs. incumbents. Bear in mind, of course, that the study was produced by Telus,
an incumbent operator, and discount for that; the point is that we need to pay attention to the economic reasoning underlying the finding; which is that policies designed to "help" competitors can have unintended consequences that may encourage conslidation
and higher prices. </font></div>
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<p dir="ltr"><span lang="en-us"><font face="Times New Roman">Dear</font></span><span lang="en-us">
<font face="Times New Roman">ITS</font></span><span lang="en-us"> <font face="Times New Roman">
Colleague,</font></span></p>
<p dir="ltr"><span lang="en-us"><font face="Times New Roman">As you know, Industry Canada completed Canada</font><font face="Times New Roman">’</font><font face="Times New Roman">s advanced wireless services (AWS) spectrum auction</font>
<font face="Times New Roman">in July 2008</font><font face="Times New Roman">.</font>
<font face="Times New Roman">A</font><font face="Times New Roman"> recent study that</font></span><span lang="en-us">
<font face="Times New Roman">NERA</font></span><span lang="en-us"> <font face="Times New Roman">
conducted for the Canadian telecommunications company TELUS</font><font face="Times New Roman"> analyzed the</font>
<font face="Times New Roman">auction, and found that it may have been distorted by the insertion of incompatible regulatory goals into the auction process</font><font face="Times New Roman">.</font></span></p>
<p dir="ltr"><span lang="en-us"><font face="Times New Roman">NERA</font><font face="Times New Roman">’</font><font face="Times New Roman">s analysis showed that while the auction generated higher revenues than expected, the</font>
<font face="Times New Roman">most important reason for this was due</font><font face="Times New Roman"> to arbitrage opportunities in the auction design generated by the regulator</font><font face="Times New Roman">’</font><font face="Times New Roman">s decision
to set-aside 44 percent of the available spectrum for “entrants” which, as defined, were as all qualified bidders except the three largest incumbent mobile operators.</font>
<font face="Times New Roman">A</font><font face="Times New Roman">s evidenced in the UK</font>
<font face="Times New Roman">3G</font> <font face="Times New Roman">and other 3G auctions in the early 2000s, the resulting inflated spectrum prices can negatively affect competition as investors tend to sell their holdings when earnings decrease and/or debt
ratings drop. In severe cases, it can</font><font face="Times New Roman"> lead to market exit or market consolidation, all of which has a direct effect on competition.</font></span></p>
<p dir="ltr"><span lang="en-us"><font face="Times New Roman">Our report</font> <font face="Times New Roman">
urges regulators to carefully balance the costs and benefits of regulatory intervention, and</font>
<font face="Times New Roman">includes</font> <font face="Times New Roman">suggestions for avoiding the problems</font>
<font face="Times New Roman">in future</font> <font face="Times New Roman">auctions</font><font face="Times New Roman"> that we identified in the Canadian case</font><font face="Times New Roman">.</font></span><span lang="en-us">
<font face="Times New Roman">The report is</font></span><span lang="en-us"> <font face="Times New Roman">
available</font></span><span lang="en-us"><font face="Times New Roman"></font> <font face="Times New Roman">
for free upon request at:</font></span><span lang="en-us"> </span><a href="http://www.nera.com" target="_blank"><span lang="en-us"><u><font face="Times New Roman" color="#0000ff">www.nera.com</font></u></span><span lang="en-us"></span></a><span lang="en-us"><font face="Times New Roman"></font>
<font face="Times New Roman">. [snip]</font></span><span lang="en-us"></span></p>
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<p dir="ltr"><span lang="en-us"></span><span lang="en-us"><b></b></span><span lang="en-us"><b></b></span><b><span lang="en-us"></span></b><a name=""><b><span lang="en-us"></span><span lang="en-us"><font face="Tahoma" size="1">___________________</font><font face="Tahoma" size="1">____________</font></span></b></a></p>
<p dir="ltr"><b><span lang="en-us"><font face="Tahoma" size="1">Christian Dippon</font></span></b><span lang="en-us"></span><span lang="en-us"></span><span lang="en-us"> <font face="Arial"><br>
</font></span><span lang="en-us"></span><span lang="en-us"></span><span lang="en-us"></span><span lang="en-us"><font face="Tahoma" size="1">Vice President</font></span><span lang="en-us"></span><span lang="en-us">
</span></p>
<p dir="ltr"><span lang="en-us"><b></b></span><b><span lang="en-us"></span><span lang="en-us"><font face="Arial" color="#0057a6">NERA</font></span></b><span lang="en-us"></span><span lang="en-us"></span><span lang="en-us"><font face="Arial"><br>
</font></span><span lang="en-us"><b></b></span><b><span lang="en-us"></span><span lang="en-us"><font face="Arial" color="#0057a6"> </font></span></b><span lang="en-us"></span><span lang="en-us"></span><span lang="en-us"> <font face="Arial"></font></span><span lang="en-us"></span><span lang="en-us"></span><span lang="en-us"></span><span lang="en-us">
<font face="Tahoma" color="#0057a6" size="1">Economic Consulting</font></span><span lang="en-us"></span><span lang="en-us"></span><span lang="en-us"><font face="Arial">
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<p dir="ltr"><span lang="en-us"></span><span lang="en-us"></span><span lang="en-us"></span><span lang="en-us"><font face="Arial" size="1">One Front Street, Suite 2600</font></span></p>
<p dir="ltr"><span lang="en-us"><font face="Arial" size="1">San Francisco, CA 94111<br>
Tel: 1-415-291-1044, Fax: 1-415-291-1020<br>
Mobile: 415-810-9246 </font></span></p>
<p dir="ltr"><span lang="en-us"><font face="Arial" size="1">Christian.Dippon@NERA.com<br>
</font></span><span lang="en-us"></span><span lang="en-us"><u></u></span><u><span lang="en-us"></span></u><u><span lang="en-us"><font face="Arial" color="#0000ff" size="1">www.nera.com</font></span></u><span lang="en-us"></span><span lang="en-us"></span><span lang="en-us"><br>
</span><span lang="en-us"></span><span lang="en-us"><u></u></span><u><span lang="en-us"></span></u><u><span lang="en-us"><font face="Arial" color="#0000ff" size="1">www.telecomeconomics.com</font></span></u><span lang="en-us"></span><span lang="en-us"></span><span lang="en-us"><br>
</span><span lang="en-us"><b></b></span><span lang="en-us"><b></b></span><b><span lang="en-us"></span><span lang="en-us"><font face="Tahoma" size="1">_______________________________</font></span></b><span lang="en-us"></span><span lang="en-us"></span><span lang="en-us"><font face="Arial"> </font></span><span lang="en-us"></span><span lang="en-us"></span><span lang="en-us">
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