Ensure Open and Competitive Spectrum Auctions

While listing America’s infrastructure inadequacies in his recent State of the Union address, President Obama lamented the “incomplete” nature of our country’s high-speed broadband network. By equating the Internet to more traditional infrastructure as bridges and roads, the remarks properly signaled the critical role of digital communications in the 21st Century economy.

As it happens, Congress is now inching toward one part of the solution — legislation for new spectrum auctions that would free up underutilized spectrum and make it available to wireless service providers as they work to meet exploding data demand. The general idea of spectrum auctions, which would raise billions of dollars in new revenue to help reduce the federal deficit, has broad support on both sides of the political aisle.

But the momentum for auctions has smacked up against the old adage that “the devil is in the details.” In this case, we’re seeing disagreements over who sets the rules for the auctions, who can bid and who can win or lose. Many in Congress fear FCC micromanagement and seek open auction rules free from FCC interference. The FCC, of course, objects to Congressional micromanagement of their micromanagement, seeking maximum flexibility to set auction rules.

The irony here is that these auctions are needed because the last time this spectrum was assigned, policy makers limited its potential use and transfer. Thus much of the spectrum is under-utilized and our economy suffers for it. One might hope that policy makers finally get the joke and recognize that policy limitations on who can use or transfer which spectrum to whom shortchange American innovation and limit market efficiency. Likewise, we shortchange taxpayers through limitations on spectrum, as we saw in 2008 with the 700 MHz auctions, where limitations cost billions in lost revenue without protecting against any real harm.

As Larry Downes wrote recently, restricted auctions threaten the public policy goal of spreading wireless broadband as widely and quickly as possible. If that happens, the President’s frustration about “incomplete” broadband networks could become a fixture of future State of the Union speeches.

Downes points out that auctions enable the market to direct resources to their “highest and best use” on the theory, mapped out by Nobel economist Ronald Coase in 1959, that the highest bidder in an open auction has the most incentive to quickly and efficiently put the new assets to work.  In other words, consumers get better networks and better service.

Let’s keep our focus on the ultimate goal: ensuring open, competitive auctions with many bidders and many winners; strengthening our economy and expanding America’s technological leadership.  We can reach that goal by ensuring that no one, neither Congress nor the FCC, micro-manages an auction process that diverts from this objective.