Let Everyone Bid in the Spectrum Auction

By and / 9.5.2013

In our new paper released today, we examine the economics and policies related to an upcoming spectrum auction by the Federal Communications Commission, illustrating that a more efficient regulatory system that facilitates competition and innovation can also provide essential consumer protection.

The auction, which the FCC hopes to conduct next year, is designed to enable continued expansion of mobile broadband and other wireless services by buying back spectrum now belonging to TV broadcasters and making it available to wireless service providers. As often happens in Washington, there’s a fight over how the auction should be structured—specifically a push by some smaller competitors to limit bidding by the largest providers, AT&T and Verizon. Such limits would effectively set aside a portion of low-frequency spectrum for the smaller rivals at discounted prices.

But we argue that such regulatory structures would needlessly complicate the auction process, undermine competition in the overall broadband marketplace, and make it difficult to meet consumers’ expectations for wireless service. Moreover, putting a thumb on the scales of the auction process is unnecessary. Rather than achieve the goal of enhanced innovation, we show that the rules proposed by smaller competitors could make innovation more difficult.

In our paper, we make the case for directing spectrum into the hands of some specific companies and away from others rests on the flawed assumption that smaller carriers are competitively “impaired” without low band spectrum. The recent successes of T-Mobile and Sprint in gaining market share, despite a lack of low-band spectrum, show that such spectrum is not a “must-have” for competition. We observe that the smaller carriers’ recent gains “would not be possible if spectrum powering their networks were vastly inferior.” “If access to low-frequency spectrum were essential… then AT&T and Verizon would be running away with the wireless prize. But in fact, U.S. wireless concentration as measured by the FCC has held steady since 2008.”

Instead of designing bidding restrictions that set aside spectrum for smaller carriers, we argue that the FCC should follow its past practice of post-auction review and address any competitive concerns on a case-by-case basis.