An Open Spectrum Auction Is Best for Consumers and Public Safety

[Commentary] The Federal Communications Commission will soon release guidelines for an incentive auction for wireless spectrum. The incentive auction that the FCC is currently designing will be unlike any prior auction for spectrum. The current owners of the spectrum (in this case, broadcasters) will offer spectrum for sale. However, like the auction of a piece of fine art, the sellers set the minimum price they are willing to accept for it. If the bidders (in this case, wireless carriers) do not meet the broadcasters’ price, the spectrum goes unsold, and the auction fails. If conducted properly, the Incentive Auction could bring tremendous benefits by enhancing wireless Internet and mobile phone capacity, raising billions of dollars in revenue for the US Treasury, and funding a dedicated public safety and first response network, which Congress established as a priority use for the proceeds of this auction. The spectrum to be auctioned has been estimated to be worth as much as $36 billion to wireless companies if it is sold in a fair, transparent and inclusive auction. But in this two-sided auction, the money raised from wireless carriers needs to pay for the broadcasters to give up their spectrum. If the FCC restricts Verizon and AT&T from bidding, the auction probably won’t raise as much money. Fewer broadcasters will sell less spectrum at lower prices with less new spectrum for mobile broadband and with less cash left over for the government. My analysis demonstrates that imposing restrictions on Verizon and AT&T could result in billions of dollars of lost revenue. In fact, if revenue falls below a certain level, the Incentive Auction could fail because there wouldn’t be enough money to pay the broadcasters to give up a useful amount of spectrum.

[Leslie Marx, PhD, Professor, Duke University]