The FCC Needs to Rethink Its Auction Rules

The FCC Needs to Rethink Its Auction Rules

When Congress passed the Middle Class Tax Relief and Job Creation Act in 2012, the bill included a provision that would allow broadcasters to auction off the spectrum they owned. This was meant to help alleviate congestion on wireless Internet networks, a problem that's growing rapidly as consumers increase their use of smartphones and other data-focused devices.

There has, however, been a major hiccup in rolling out these spectrum auctions that could have a detrimental effect on the consumer. In writing the auction rules, the FCC decided to restrict the bidding of the "dominant" carriers in each area -- usually Verizon and/or AT&T. These two companies combined serve 220 million subscribers, accounting for 65 percent of the wireless market.

The rule is meant to make more spectrum available for smaller carriers -- but it does so at the expense of the carriers that need wireless-broadband capacity the most. Consumers are hurt if the broadband isn't allocated according to the actual demand for it: One recent study estimated that these rules could lead to billions of dollars of consumer-welfare losses.

And, as if these bidding rules weren’t damaging enough, last week Spint and T-mobile filed with the FCC, claiming that the agency's favoritism toward them has not gone far enough.

The goals of these auctions should be twofold -- first, to make spectrum more flexible so that it's used in the most efficient way possible; and second, to ensure that the profit potential of putting spectrum up for bid reflects the maximum value of that spectrum. By restricting the biggest players in the wireless-broadband industry, the FCC is setting back both of those goals.

The FCC detailed its plans in a blog post, saying that after "trigger point" (largely a dollar-amount threshold) is hit in these auctions, some spectrum will be reserved for smaller carriers. If the FCC truly wants to benefit consumers, the agency should reconsider -- or at least impose target prices that are high enough not to trigger these restrictions except in the rarest of occasions. And the last thing the FCC should do is make these rules even more restrictive, as T-Mobile and Sprint have requested.

Many broadcasters have also been wary about the intentions of the FCC. Though the auctions are voluntary, the FCC has been vague about the rules, about the approval processes, and about how spectrum will be handled after the auctions. National Journal reports that just 70 television stations are considering entering the auction.

With the restrictions the FCC has put into place, consumers could continue to face poor service quality and spectrum rationing, combined with the potential for higher costs and data caps. The FCC should work to make the auctions more competitive by reconsidering its restrictions.

Zack Christenson writes on digital-tech issues for the American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization.

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