The FCC’s Incentive Auction: Getting Spectrum Policy Right

By and / 9.5.2013

As the Federal Communications Commission (FCC) considers how to allocate the broadcasters’ spectrum in the upcoming “incentive auction,” it should be guided by economic principles designed to maximize social benefits. To date, the spectrum policy debate largely has been driven by considerations of the private benefits of carriers such as Sprint, T-Mobile/MetroPCS, U.S. Cellular, and other small carriers (collectively, the “smaller carriers.”).

In April, the Department of Justice (DOJ) weighed into this debate by advocating “rules that ensure the smaller nationwide networks, which currently lack substantial low-frequency spectrum, have an opportunity to acquire such spectrum.” Although it is natural instinct to root for the little guy, ensuring the livelihood of smaller carriers is not an appropriate policy objective, as that would counsel a range of subsidies and tax credits for handpicked competitors. Indeed, maximizing the number of wireless competitors is not the appropriate objective either; using spectrum allocation as a tool for reducing wireless concentration would require divvying up the spectrum in such thin slices as to render the resulting allocation virtually useless. The problem with these narrow objectives is that, if pursued to their logical extreme, the resulting policies would sacrifice massive (and growing) economies of scale associated with providing the capacity needed to support mobile video, telemedicine, distance learning, and a host of other bandwidth-intensive applications that consumers and small businesses are demanding from their mobile devices.

The spectrum policy debate must be informed by the tradeoffs inherent in spectrum aggregation: more (smaller) firms versus more robust wireless networks. As wireless consumers increasingly demand that their wireless devices support bandwidth-intensive applications such as mobile video, the optimal allocation of spectrum tilts in favor of more robust wireless networks. Focusing narrowly on reducing wireless concentration could result in a spectrum allocation under which wireless carriers lack the incentive to deploy next-generation technologies. If policymakers fear that “too much” spectrum in the hands of any one carrier raises anticompetitive issues, there are several ways to address those concerns that do not undermine investment in next-generation wireless broadband networks, and the attendant innovation that such investment engenders.

Download the entire backgrounder.