Op-eds and Articles

Forbes: Congress Holds The Key To More Broadband Competition

By / 7.29.2015

Are we getting enough broadband competition? And if not, where should we look for a new Internet access provider to keep broadband prices in check and to spur incumbents to increase speeds?

The answer may be staring you in the face . . . assuming you are reading this from a wireless device. Even if you’re looking at a desktop, your smartphone is likely within reach. And therein lies the key to broadband competition.

This week the Senate Commerce Committee is holding a hearing on “Wireless Broadband and the Future of Spectrum Policy.” With luck, policymakers will see the connection between more spectrum and broadband competition.

With the recent transition from third-generation to 4G, wireless networks now offer speeds—between 30 and 40 Mbps down—that are comparable to the average speeds attainable on a cable connection. And 5G wireless speeds promise to be even faster.

A super-charged wireless broadband offering would force DSL providers to upgrade to fiber, which in turn would cause cable operators to enhance their speeds.

When confronted with the notion of wireless-wireline substitution, the naysayers point to data limitations on wireless plans. But those limits are there to preserve the wireless experience given the constraints associated with commercially available spectrum. Relieve those constraints and wireless becomes an even closer substitute to wireline broadband (as those pesky data limits are likely raised).

How much additional spectrum is needed? A recent study estimates that the United States will need more than 350 MHz of additional licensed spectrum to support projected commercial mobile wireless demand, which represents a 50 percent increase in the supply of licensed broadcast spectrum.

And the source of this newfound spectrum? After the broadcasters’ spectrum, the next tranche of beachfront property would come from federal agencies, which have little incentive to give up the goods.

To align the broadcasters’ interests with those of wireless consumers, the Federal Communications Commission (FCC) came up with a novel idea—an “incentive auction” that permits broadcasters to share a portion of the proceeds from the sale; those who don’t participate will now be forced to explain to shareholders why they can put the spectrum to greater use.

Economists have a fancy word for this problem—some firms (think polluters) don’t “internalize” the cost of their actions. Sitting on valuable spectrum, while not as onerous as polluting, doesn’t cost an agency a dime. The key is to make these agencies internalize the cost of their actions (or inaction), as the FCC is about to do for the broadcasters.

There may be some impediments to importing the incentive auction wholesale into the realm of government agencies. Although the Department of Defense was compensated for its relocation costs via a portion of the proceeds from the recent AWS-3 auction, paying an agency to surrender spectrum may not induce the same response as paying a profit-maximizing firm. Another complication is that some underutilized spectrum is shared by several agencies. Still other agency heads might think that an influx of auction revenues would be met with offsetting budget cuts by Congress.

Several clever ideas have been floated to overcome this inertia and force agencies to internalize the cost of their spectrum holdings. Some have suggested that underutilized spectrum count against an agency’s budget at market rates; if the agency doesn’t relinquish the spectrum or put it to greater use, the agency sees its budget chopped. Alternatively, we could encourage direct transactions (sales or leasing plans) between private carriers and government agencies, cutting the FCC and Congress out of the loop.

For those who doubt that an agency could ever respond to financial incentives, there’s always command-and-control techniques; for example, Congress could establish a spectrum czar tasked with shifting a certain percentage of spectrum from the public to the commercial sector every year.

Whichever way is ultimately chosen, we must expedite the process. A study by CTIA estimates that it takes a staggering 13 years on average for wireless spectrum to be deployed after the legislative and regulatory process begins.

That’s unacceptable, particularly given the critical role that wireless broadband plays in the economy. MIT economist Jerry Hausman estimated that the FCC’s delay in licensing the first spectrum for cellular service, which was caused by regulatory indecision, cost U.S. consumers $31 billion to $50 billion in lost welfare annually for between seven and ten years.

According to a 2010 FCC analysis, making 300 MHz available by 2014 would create over $100 billion in economic value for the country. Given the shift in traffic from wireline to wireless networks since 2010, and given the potential of wireless to be an even more effective restraint on wireline broadband prices, the social value of an infusion of the same magnitude today could be worth even more.

Congress should assign a task force comprised of engineers and economists to investigate the best approaches and present a plan in 90 days. The cost of delay is simply too much to bear.

This piece is cross-posted from Forbes.