Spectrum, the hidden economic gold mine unused by government

When was the last time you used your landline at home? Do you even have one at all, for that matter?

With mobile data usage growing off the charts in recent years, the wireless age is fully upon us. But given how important wireless infrastructure is to our economy and how we communicate, the issue of spectrum regulation receives surprisingly little mainstream attention. Spectrum refers to the radio frequencies that wireless services use to transmit information all over the world. While commercial use soaks up a substantial portion of this finite resource, about 60 percent of the spectrum supply is still owned by the government.

{mosads}The Federal Communications Commission (FCC), which regulates and allocates spectrum, is currently in the process of holding a spectrum auction to help meet the rapidly growing demand for more frequencies. The first step in the process involves asking broadcasters to sell their underused (is it unused or merely underutilized? I’m personally unclear on this point) low-band spectrum. Once it has secured a price, the FCC will then turn and auction off that spectrum to wireless carriers and tech companies, effectively acting as the middleman in what would otherwise be a private-to-private sale.

As often happens when the government tries to impose its sense of “fairness” on the dealings of private companies, things can go horribly awry, as they did during the last spectrum auction. Federal regulators reserved a portion of choice spectrum to be made available at a discounted price for smaller carriers to bid on. DISH Network, however, decided to game the system by creating front companies, which it used to snap up spectrum reserved for smaller carriers (and save itself $3 billion in the process). Thankfully, the government realized what happened and forced DISH to pay the full price for the spectrum it acquired, but the damage had been done. The company still walked away with the spectrum, making a “mockery” of discounts that were intended for small businesses, as FCC Commissioner Ajit Pai put it.

The rules for the action are similar this time around. The FCC has placed restrictions on the largest bidders to try and help smaller providers be more competitive. Like the last auction, unfortunately, the rules are more conducive to cronyism than competition, promising a costly, less competitive auction. As Steve Pociask explains in Forbes, this is bad news for both taxpayers and consumers, because it reduces auction proceeds (which the FCC stands to benefit from) and pushes companies to acquire less optimal spectrum licenses than they would have in a more competitive bidding environment.

These auctions are only one of several options the FCC has for making more spectrum available to private companies. The federal government could consolidate and sell its own spectrum, much of which it likely hasn’t developed. The auction process is a complex and tedious process that will ultimately prove insufficient to address future demand, but the government stands to reap huge long-term economic benefits by supplementing auctions with the release of some of its undeveloped spectrum. As a point of reference, consider that the licensed spectrum currently in use has an estimated value of nearly half a trillion dollars, but the social welfare generated from wireless services using this spectrum has a direct market value of roughly $5 trillion to $10 trillion dollars.

Imagine a form of stimulus spending that drove 10 to 20 times as much growth as it cost on the front end, and you have a sense of the FCC’s opportunity here. Spectrum catalyzes economic growth. It’s no surprise that Verizon is calling for the FCC to open up super-high frequency spectrum for use by mobile operators. The company says that “millimeter wave” technology using these frequencies would allow the deployment of next-generation 5G services, which have the potential to be up to 50 times more effective than 4G LTE.

As Verizon continued: “The Commission should not artificially limit bandwidth, performance, and innovation through arbitrary pre-deployment aggregation limits. It is far too early in the innovation cycle to know how much bandwidth an operator will require to provide the type of services envisioned in a 5G environment.”

In other words, rather than timidly trying to forecast the amount of spectrum American consumers need through a tedious and ineffective auction process, the FCC should seek to provide wireless providers with the spectrum they need to keep America on the cutting edge of innovation and communication. We can only hope the FCC learns from its past mistakes and heeds the call of consumers and companies alike.

Neily is the president of the Franklin Center for Government and Public Integrity, a nonprofit that publishes public interest journalism at Watchdog.org.