With AT&T’s proposed merger with T-Mobile looming in the background, the White House last week made the economic case for auctions of broadcast spectrum to free up airwaves for wireless high-speed Internet. Members of the administration said that, among other benefits, it would provide the economic opportunity to create high-tech jobs that will help the United States compete on a global level. President Barack Obama said he hopes to raise $27.8 billion in the next decade from auctions of broadcast channels that would be converted into wireless networks to connect smartphones and tablets to the Internet.
At the White House spectrum summit last week, Gregory Rosston, deputy director of the Stanford Institute for Economic Policy Research, brought with him a letter signed by 112 economists “who specialize in telecommunications, auction theory and design, and/or competitive policy.”
“We understand that Congress is considering legislation that would give the FCC explicit authority to run ‘incentive auctions’ in which it would have the ability to distribute some portion of the auction proceeds to licensees who voluntarily give up their license rights,” it reads. “We support such an effort and think it would increase spectrum efficiency in the United States.”
The AT&T-T-Mobile merger could slow progress toward the administration’s goals and could “alter the current spectrum debate in Washington,” Rebecca Arbogast, an analyst at Stifel Nicolaus, said in a recent note. “If these two companies can satisfy much of their spectrum needs by joining forces, it would reduce some of the demand for new spectrum and possibly lower auction revenue estimates.”
However, Joe Rothstein, editor of EIN News, wrote that an AT&T executive told a group of reporters at the Brookings Institution that by the end of 2012, the company would be perilously close to a spectrum shortage in New York City. He estimated that by 2015, AT&T’s traffic would be 10 times what it was just last year, and Cisco forecasts a 26-fold increase in mobile data traffic from 2010 to 2015.
An administration official dismissed the merger’s impact on the president’s wireless agenda.
“Our focus is on enabling the access of spectrum to as many bidders as possible,” the official told The Washington Post. “We have to leave it to antitrust authorities to evaluate any mergers, but we believe the demand and appetite under any scenario is going to be considerable.”
Austan Goolsbee, chairman of the Council of Economic Advisers, said the auction would relieve the spectrum crunch, foster innovation and job creation, provide revenue to broadcasters to help them transform their businesses, reduce the deficit and help fund a public safety network and a wireless innovation fund.
Sen. John D. Rockefeller IV, D-WV, introduced a bill that authorizes the FCC to conduct the auctions. But, lawmakers also want to scrutinize the huge telecom deal. The Justice Department and FCC will review whether the merger would have anticompetitive effects or would harm the public’s interest. The review could take as long as 18 months, analysts project.
Throughout discussions, the plan has been criticized for its complexity. Considering that there are several steps to the auction process, an administration official estimated that it could take at least three years before any spectrum was put on the auction block.
Broadcasters are lobbying lawmakers for legislation that protects their interests. They want to be ensured they aren’t forced to give up airwaves or move to “junk channels” on low-quality bands.
“As we’ve said consistently, NAB does not oppose incentive auctions that are truly voluntary,” spokesman Dennis Wharton said. “We would remind our economist friends that broadcasters returned more than a quarter of the spectrum held by TV broadcasters less than two years ago, and those airwaves have yet to be fully deployed.
In the letter, the economists said broadcasters could do the following in an incentive auction:
However, the economists in attendance suggested that if the marketplace works the way it is supposed to, there will be a price point at which broadcasters will be willing to make a deal. What that “fair market value” is remains to be seen.