Re-Auction of the D Block: A Review of the Arguments

The authors explore the arguments supporting re-auction of the D Block for commercial use, and demonstrate that both the economics and prior history bear out significant problems with such a policy approach.

First, a re-auction of the D Block is unlikely to generate $3 billion in revenues. Statistical analysis of auction data indicates that a 10 MHz block of spectrum in the 700 MHz band must be unencumbered to produce $3 billion in revenues. However, it is important to recognize that the FCC's National Broadband Plan envisions a number of significant encumbrances on any re-auction of the D Block which have substantially reduced auction revenues in the past.

Second, regardless of the total amount received from a re-auction, the re-auction of the D Block does not fully fund the public safety network -- not even close. A nationwide public safety network is expected to cost about $10 to $13 billion. Even if a re-auction of the D Block did bring in $3 billion of revenues, it offsets only about one quarter of the public safety network's cost. The D Block re-auction offers no other mechanism by which to generate funds for the remaining network construction and operating costs. To date, the only credible proposal that could provide sufficient spectrum to alleviate the looming spectrum exhaust and provide significant auction revenue sufficient to cover the cost of building a public safely network and have money left over for deficit reduction is the notion of voluntary incentive auctions to repurpose unused broadcast spectrum.

Finally, the potential broader adverse market effects of a D Block re-auction. The evidence indicates that the public safety community needs a full 20 MHz of spectrum. If so, then the additional 10 MHz must be obtained from either future spectrum assignments or burdensome public safety encumbrances on commercial spectrum. A new block of spectrum will not be contiguous to the PSB Block, which has the effect of increasing the deployment cost of the public safety network by an estimated $4 billion relative to the D Block assignment. This assignment also has the potential of frustrating the creation of contiguous blocks of spectrum for future auctions, thereby substantially reducing subsequent auction revenues. Filling the public safety spectrum shortage with public safety obligations on all commercial providers could also substantially reduce future auction revenues. Thus, even under the rosiest of scenarios ($3 billion in revenues), the auction of the D Block flunks the cost-benefit test.