To deal with the looming spectrum crunch, Congress passed the Middle Class Tax Relief and Job Creation Act of 2012, which would, through a series of reverse auctions, compensate TV stations for giving up broadcast airwaves and, through a series of forward auctions, allow wireless service providers to repurpose the spectrum for broadband services.
However, in writing auction rules, the FCC chose to restrict bidding by the two largest wireless providers, AT&T and Verizon, in the hopes that spectrum would be distributed more evenly amongst smaller providers. The action appears to be more about corporate welfare than promoting consumer welfare.
By incorporating bidding restrictions into the process, the FCC has likely jeopardized the success of the upcoming auction. In our recent analysis, we show thatrestrictions on competitive auctions will lead to lower bids for wireless spectrum. That, in turn, will mean that less spectrum would be repurposed to wireless broadband services, which means that consumers will potentially face spectrum rationing, poor service quality, higher prices and an increased reliance on data caps. In addition, since proceeds from the auction would be used to build out FirstNet, a public safety first responder’s network, the auction may not produce adequate funding for the build out.
By making the wireless auction less competitive and by favoring some competitors over others, the FCC’s decision means that wireless broadband consumers will be worse off than without restrictions. Specifically, as our analysis shows, the resulting consumer welfare losses will amount to roughly $23 billion for every television channel that is not repurposed to wireless broadband because of rules that limit competition in the auction. In other words, bidding restrictions could lower consumer welfare by $230 billion, according to our estimates.
This issue is important and more spectrum is urgently needed. Consumers have become deeply reliant on wireless broadband services for earning a living, studying, and communicating with family friends and co-workers. The new mobile wireless applications for communications, e-commerce, news and entertainment are hugely popular and useful. At the end of 2013, there were over 336 million wireless subscribers consuming more than 3.2 trillion megabytes of wireless data in the U.S., a 120 percent increase in traffic from the previous year.
In fact, the White House’s Council of Economic advisors estimated that wireless data in the U.S. would increase by 20-fold over the next five years. To meet this demand, the FCC estimated 275 megahertz of new spectrum will be needed by the end of 2014. With broadband networks already running at 80 percent of their capacity, spectrum is needed soon, or else congestion, slower service, poor quality, overly restrictive usage caps, and higher prices may result. The FCC needs to do the right thing for the benefit of consumers, not for a few corporations.
So, what must the FCC do? The FCC’s auction bidding system needs to be fully competitive. To accomplish this, the FCC needs to reconsider its rules or, alternatively, set minimum target prices that are sufficiently high as not to trigger any bidding restrictions. In this way, the FCC could allow the market to determine the right price for spectrum and get the wireless sector to pay for and repurpose the spectrum for the broadband services that consumers want. The last thing the FCC should do is make these rules even more restrictive to an open and competitive bidding process, as T-Mobile and Sprint have recently requested.
If the FCC does not do this, its restrictions will benefit only a few corporate winners, but leave millions of consumers as billion dollar losers. In short, the repurposing of scarce spectrum should be about helping consumers, not corporate welfare. The FCC needs to set this problem straight.
Pociask is president of the American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization. While he is a member of the FCC’s Consumer Advisory Committee (CAC), the views expressed here are solely his own and do not necessarily represent the views of the CAC or its members. For more information, visit www.theamericanconsumer.org.