Phony Wireless Spectrum 'Sale' Would Rip Off Taxpayers & Consumers
Everyone agrees: the future of next-generation wireless connectivity is fast approaching and providers need to have the bandwidth to deliver lightning-fast internet to consumers via 5G. But like most policy matters, the devil is in the details. A consortium of satellite companies known as the C-Band Alliance is trying to convince the Federal Communications Commission (FCC) to allow it to sell a portion of the spectrum they currently lease from the agency and keep the proceeds to themselves or provide a “voluntary” contribution to the U.S. Treasury after the sale.
In other words, these companies have the chutzpah to sell a valuable taxpayer-owned asset without compensating taxpayers. This move would not only be unfair, but also contort incentives for any future leasing or privatization of spectrum. Taxpayers deserve better than this half-baked butchering of auction markets.
In order to get 5G up-and-running across the country, the FCC is doing everything in its power to equip providers with enough spectrum to get the job done. One pivotal part of the puzzle is the “C-band” (3.7-4.2 GHz band) a block of bandwidth currently used by satellite companies to transmit their signals from space to Earth (where in turn, signals can be directed to cable stations). As mid-band spectrum, C-band occupies a sweet spot for wireless providers; higher bands of spectrum can only carry internet waves a short distance whereas lower bands can’t be easily reused.
The spectrum was licensed to these companies by the U.S. government, and legally, the C-Band Alliance lacks the power to dispose of the spectrum as it wishes. It also lacks the power to repurpose it on its own. As the predominant owner of U.S. spectrum licenses, only the U.S. government (via the FCC) has that power. The agency is in charge of auctioning frequencies to companies and putting the proceeds toward deficit reduction.
By and large, this method has been successful in getting companies access to the spectrum they need while using market mechanisms. In the past, the FCC has used incentive auctions to get incumbent and prospective users of spectrum to agree on a price, and the new users can repurpose spectrum for consumers’ benefit. The incumbent users of spectrum are made whole, but the FCC stays in the driver seat and taxpayers keep future auction proceeds.
Almost always, outright privatization is the best approach to ensure that parties can arrive at the right price and deliver much-needed services with minimal middle-man interference. But transitioning from public to private only works when the initial private buyer actually compensates taxpayers for what they’re buying.
For instance, New York City offers a path to privatization of publicly-owned housing stock, which was administered by developers via generous low-interest loans in return for developers agreeing to charge tenants very low rents. But that transition only makes sense if the owners agree to “buy out” of the program and compensate the government for all of the assistance they received, plus steep, mandatory fees. Allowing developers to simply take over would set a disturbing precedent where doing business with the government suddenly becomes far more lucrative than it should be.
The same problematic incentives would arise on FCC spectrum markets if such a flawed private sale went through, and even more players would try to take ever-scarcer spectrum resources and hold on for an opportunity to take them free of charge. In addition, the proposed structure of the sale would ensure high prices and limited spectrum availability. As one telecom scholar notes, a government-granted monopoly over the band (via a consortium of private companies), “would have a tendency to bring to market a smaller portion of the band at a higher price than that which would prevail in a competitive market.”
But, spectrum is not a traditional monopoly. This isn’t as if the government owns all of the hamburger restaurants in the country and is selling franchises and disallows any other hamburger restaurants. Spectrum is a finite resource that has governmental and private sector uses.
Privatization can deliver the goods, making it essential that the government doesn’t botch the process by empowering a monopoly to control the process. The rollout of 5G is just too important of a process to mess up. The FCC is working quickly and effectively at bringing breakneck internet speeds to the public, and the auctioning process for C-band spectrum can improve on prior successes. And, when moving forward with the auction, the FCC should explore ways to speed up the process so 5G can be deployed in a timely manner.
But leaving this sale to the satellite companies could mean a haphazard process and will potentially put the spectrum and the revenue from the spectrum at an unacceptable risk. If the agency botches privatization by embracing the C-Band Alliance’s flawed approach, taxpayers and consumers eagerly awaiting a better internet will lose out.
Ross Marchand is the director of policy for the Taxpayers Protection Alliance.
