Free markets for wireless and broadcasting: Good for consumers and the economy

In the late 19th century, American commerce moved by rail. By the second half of the 20th century, the highways moved America.

In the 21st century, electromagnetic radio spectrum is the pathway for the new economy. It’s how all of our wireless communications travel, from cellphone and radio signals to television and satellite transmissions.

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Now that the digital age is moving from cellphones to smartphones, iPads and tablets, use of radio spectrum is opening up whole new opportunities for consumers and the economy at large. Indeed, the productivity gains generated by spectrum-enabled services has spawned entire new industries and created millions of American jobs. 

In the past, the Federal Communications Commission (FCC) has repurposed and auctioned spectrum to stay ahead of advancing technology. These auctions were held primarily to enable new services and technologies with a side benefit of generating revenue for the U.S. Treasury. Simply stated, establishing sound policy was the goal — revenue was a consequence.

Today, the congressional debt-reduction supercommittee is considering radio spectrum auctions while the FCC has become a cheerleader for so-called “voluntary auctions” as the sole solution. Even though policymakers argue that spectrum auctions are a way to reduce congestion on the telecommunications highway because of the sharp increase in mobile data and video, their primary goal in pushing spectrum auctions has now become a means to raise revenue instead of establishing sound public policy.

For decades, Congress and the FCC have encouraged innovation by allowing licensees — from broadcasters to wireless companies — to invest in new services for consumers. Digital television, push-to-talk cellphones and wireless broadband itself all are examples of successful pro-consumer products that emerged after the FCC allowed licensees to innovate in introducing new services.

Ironically, as new wireless broadband products have enabled video downloads, this innovation has created the very network congestion that the FCC is trying to alleviate by auctioning broadcast spectrum for broadband. Unfortunately, this cure would be worse than the disease.

By rejecting the free-market approach that produced so much technological and economic progress, the FCC and Congress aren’t encouraging broadcasters to keep innovating with new services, such as mobile video and data service offerings that could compete with existing mobile broadband providers — and potentially ease the congestion on their networks. Instead, the FCC is limiting broadcasters to their traditional broadcast services, so that they can turn in their “excess spectrum” to be auctioned to the incumbent mobile operators. Despite setting a very bad precedent, deficit-conscious members of the supercommittee could be tempted to agree.

But, whether the goal is promoting innovation or raising revenues, this top-down approach is the wrong way to get there. As journalist Holman Jenkins put it, the FCC “is scrambling to engineer a politically dubious, one-time shift of airwaves from the broadcast sector to the wireless carriers.” Jenkins urges everyone to “have a little more faith in the technical and contractual innovations to manage our growing bandwidth demand while Washington engages instead in a more orderly rethink of spectrum policy.”

By picking the winners and losers in what should be a vibrant competition among technologies and services, the FCC’s approach is the kind of industrial policy that is doomed to fail in today’s rapidly changing marketplace for information and communications technology.

By focusing on the short-term promise of one-time auction revenue, this approach also loses sight of the long-term benefits to the economy — and the returns to the Treasury — generated by the robust, innovative and job-generating technology and telecommunications industry that thrives best in a free, competitive marketplace.

Indeed, when Congress first authorized spectrum auctions, it prohibited the FCC from considering how much revenue would be raised when considering whether and how to auction specific services. Congress understood that market forces and technological advances would reveal the best use of the radio spectrum, and a robust communications industry would generate economic activity that would more than replace any revenues lost from foregoing an auction.

When it comes to the radio spectrum, technology-neutral, pro-innovation policies have allowed market forces to reveal the highest and best use of this scarce resource, generated hundreds of billions of dollars in economic activity and created millions of jobs. By encouraging competition rather than choosing technologies, Congress can give consumers more choices, the economy more jobs, and the Treasury more revenue.

Kneuer is the founder and president of JKC Consulting LLC, a former assistant secretary of Commerce for Communications and Information and principal adviser to former President George W. Bush on telecommunications policy.