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Wednesday, August 14, 2019

It’s Time to Celebrate Markets in Wireless Spectrum, Not Undermine Them

The FCC can facilitate the rise of 5G by letting markets work instead of handpicking monopolies pushing lopsided “sales.”

To many casual observers, all the quibbles, technicalities, and nitpicking over wireless spectrum (“invisible waves carrying information”) seem a tad… tame. But make no mistake: US spectrum policy has undergone bold, unprecedented changes over the past few decades, shifting from complete government command-and-control to a market-based system of auctions.

Because of the rise of 5G and the need to quickly reallocate massive amounts of spectrum toward broadband, these market mechanisms have never been more important. But the market approach is increasingly under threat by a consortium of satellite companies bent on undermining property rights and the rule of law. The Federal Communications Commission (FCC) should ensure a fair and open auction process instead of allowing a few companies to monopolize control of the valuable spectrum. 

In 1959, famed economist Ronald Coase bemoaned a Soviet-style system where, in order to operate, broadcast station owners had to obtain FCC licenses, which “are not issued automatically but are granted or withheld at the discretion of the Commission…” Coase suggested that the FCC auction off spectrum to users valuing particular bands most highly. This was a revolutionary idea that faced plenty of resistance from think tanks and governmental bodies. Reason finally prevailed in 1994 when the FCC conducted its first spectrum auction. 

Not Everyone’s a Fan

These auctions have been a stunning success, resulting in the allocation of spectrum to its most productive uses, including high-speed internet. And since the government (read: taxpayers) is still the ultimate owner of spectrum, FCC auction proceeds go toward paying down the federal debt. 

But not everybody is on board with the market-based auction approach. A consortium of satellite companies called the C-Band Alliance (CBA) is fighting for the right to circumvent the auction and payment process altogether. CBA wants to cancel spectrum licenses they don’t like and conduct a sham “sale” of a valuable part of the spectrum known as mid-band (or “c-band”). 

The CBA’s preferred “private sale” method for clearing the spectrum bears no resemblance to any actual market process. The satellite operators behind CBA originally received their spectrum for free from the government, yet they argue for the right to sell “their” spectrum and pocket the proceeds without any guarantee of compensation for the taxpayers that own the band.  A CBA spokeswoman has claimed the organization will eventually compensate the FCC and that

the amount will need to be determined after we have a sense that the material aspects of our proposal are accepted. This will open the door to a discussion of the economics of a contribution.

This, of course, flies in the face of sound privatization policy where the government agrees to sell its property only after the buyer agrees on the quoted price. 

Government Protection Locks Out Competition

Truly private transactions also allow rival companies (big and small) to make their own sales pitches and present competing offers in both directions.  This allows for prices that reflect market conditions. But the CBA’s proposal would result in a government-granted monopoly that would exclude small satellite owners (SSOs) from the sale/compensation process. 

In December, a group of small satellite owners noted that

the CBA… proposes to exclude the SSOs from compensation for the reduction in value of C-band assets that would result from a partial reallocation, while nevertheless claiming a right to the exact same compensation for the CBA’s own members.

Exploiting a government power to carve out a monopoly on “private sales” is not only unfair but would also lead to less 5G deployment. One telecom scholar notes that this 

would have a tendency to bring to market a smaller portion of the band at a higher price than that which would prevail in a competitive market.

Consumers and taxpayers deserve spectrum markets that allow different groups to buy and sell spectrum and compensate owners. Coase’s vision of a free market in radio waves is increasingly being realized, but botched “privatization” could easily undo decades of progress. The CBA’s gambit would send a destructive message to other spectrum holders: Hold onto your licenses as long as you can, form consortiums, and lobby the government for monopoly selling power. Instead, the FCC should allow for a large, transparent selling process that can help clear spectrum for more productive uses while still making taxpayers whole. An alternative plan offered by ACA Connects, the Competitive Carriers Association, and Charter would allow for an FCC-led public auction that would make more spectrum available faster than the CBA proposal. 

The FCC can facilitate the rise of 5G by letting markets work instead of handpicking monopolies pushing lopsided “sales.”

  • Ross Marchand is the director of policy for the Taxpayers Protection Alliance.