“Within the next five years, we’ll make it possible for businesses to deploy the next generation of high-speed wireless coverage to 98 percent of all Americans,” enthused the president in his State of the Union address. The president didn’t explain how he proposes to get us from here to there. But most economists who pay attention to this sort of stuff agree that the best route is to make available as much electromagnetic spectrum as is technically practical, and then let the market decide how it’s used and by whom.
This still leaves the $64 billion question of who gets the gravy – the difference between what the spectrum costs the government (zip. nada) and what it is worth to consumers. Our preference is to have the government sell unrestricted licenses through auctions. That way, the gravy goes to Washington, which these days can use all the revenue it can scrape up.
But what if the government, in its wisdom, wants to allocate spectrum to some socially worthy cause that can’t afford to pay top dollar? Auctions still make sense, but this time in reverse. The government can specify the service needed – say, providing wireless broadband to Lonesome Polar Bear, Alaska – and ask for bids, the way the government routinely solicits bids for, say, office space or ballpoint pens. In figuring their bids, the telcos would have to factor in the cost of acquiring the necessary spectrum on the free market (thereby making it possible for the taxpayers to know what it really costs to provide service to all those nice folks in Lonesome).
There are signs the FCC will, indeed, use auctions to push more spectrum into use. But we’re concerned that the agency will place unnecessary restrictions on the spectrum, as it did with a big chunk of spectrum in a recent auction of the so-called C block. While restrictions to promote “openness” and other abstract virtues have a nice ring, there’s a risk that any limitation on use will slow the sorts of innovation that the president has rightly called for (as well as reducing government revenues). Truth is, wireless technology is moving so fast as competing carriers maneuver for advantage that nobody really knows which restrictions would be harmless and which could have unintended consequences.
So, two cheers for President Obama. We’ll decide on the third after we see how the spectrum is distributed.