Corporate Welfare in Spectrum Auctions
According to numerous reports in mid-April, the FCC has plans to earmark large pieces of auctioned wireless spectrum for certain carriers. The move stands in contrast to the FCC's original plan to offer spectrum up for competitive bidding and has many wondering if the FCC and its chairman, Tom Wheeler, are in the business of picking winners and losers.
The new plan was detailed in an FCC blog post on April 25 and has some carriers rethinking their participation in the auction. Wheeler's new plan would reserve large swaths of spectrum for smaller wireless carriers who have a harder time putting up the cash needed to compete. Once a reserve price is met, certain spectrum ranges will be biddable only by smaller providers, while other ranges will be open for true auctions.
Smaller -- though hardly small -- carriers like T-Mobile and Sprint have been lobbying for just such a policy since the announcement of the auctions, and it looks like those lobbying dollars have paid off. The newly rewritten auction rules could mean a difference of billions of dollars on the price tag of spectrum. Of course, that's billions of dollars less for taxpayers and could be seen by some as a generous handout to weak or second-rate wireless providers that most consumers tend to avoid.
There's no question that the need for spectrum, the pipes through which all our mobile data flows, is growing rapidly. According to MobileFuture.org, wireless data use is expected to grow by 100 times in the next ten years.
To fight ever-increasing demand for spectrum in the wireless space, the FCC had devised a plan they called the "Incentive Auction." The auctions would allow those controlling unused spectrum -- namely over-the-air television and radio stations -- to sell chunks of it. The FCC will referee the whole process by packaging the chunks into meaningful blocks of spectrum and splitting the proceeds among taxpayers, the television station owners, and an effort to build a nationwide broadband public-safety network.
Originally these auctions were designed to be a true competition, with each piece of spectrum going to the highest bidder. The new rules would reduce high-dollar bidders in more than one-third of the effective spectrum auctions. In his blog post on the matter, FCC chairman Tom Wheeler suggests the net effect is "to promote robustly competitive auction with all parties vying to establish a fair market price." It seems hard to believe that placing artificial limits on bidding could possibly be a move to embrace "robust competition." The new rules punish the companies with the most subscribers -- the ones that consumers demand the most -- while opting for providers that have shown to be least popular or second-rate in the marketplace.
The longer-term effects of the rule changes are not fully clear yet, but many, including the American Consumer Institute's own Steve Pociask, are likening the rigged auctions to a preemptive bailout. One study, done this month by Compass Lexicon, suggests the new changes will likely result in the loss of billions of dollars of revenue.
The costs to consumers could be enormous. An infographic by MobileFuture.org shows that more than 200 million consumers will be directly harmed by the FCC's new policy. In addition to these losses, it is possible that the new public-safety network will never be built if the auction underperforms.
Amidst the last-minute rule-writing and confusion, things can get a bit foggy. One thing, though, is certain: American taxpayers will end up paying more for wireless service and getting less, while some companies get preferential treatment. It's corporate welfare.
Zack Christenson writes on digital tech issues for the American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization.