Study Evaluates Plan for Commercial Re-Auction of D Block (5/24/11)
Tuesday, May 24, 2011 | Comments

In a new study entitled "Re-Auction of the D Block: A Review of the Arguments," the Phoenix Center demonstrates the problems behind the plan to re-auction the D block for commercial purposes.

The Phoenix Center first demonstrates that a re-auction of the D block is unlikely to generate $3 billion in revenues as some believe. Statistical analysis of auction data indicates that a 10-megahertz block of spectrum in the 700 MHz band must be unencumbered to produce $3 billion in revenues. However, the FCC's National Broadband Plan envisions a number of significant encumbrances on the re-auction of the D block that have reduced auction revenue in the past. The Phoenix Center finds that any expectation that auction revenues will reach $3 billion is "too rosy."

Second, the Phoenix Center points out that the re-auction of the D block can't fully fund the public-safety network. A nationwide public-safety network is expected to cost about $10 billion to $13 billion. Even if a re-auction of the D block did bring in $3 billion of revenues, the Phoenix Center demonstrates that it offsets only about one quarter of the public-safety network's cost. The D block re-auction offers no other mechanism by which to generate funds for the remaining network construction and operating costs. According to the Phoenix Center, the only formal proposal put forth to fund the public-safety network with auction revenue is a voluntary incentive auction for TV broadcast spectrum proposal.

The Phoenix Center's report also considers the potential broader adverse market effects of a D block re-auction. The evidence indicates that the public-safety community needs a full 20-megahertz of spectrum. If given only 10 megahertz as a result of a re-auction of the D block, then the additional 10-megahertz must be obtained from either future spectrum assignments or the capacity-equivalent obtained via public-safety use of commercial spectrum. This alternate block of spectrum will not be contiguous to the existing 10-megahertz public-safety block as is the D block, which has the effect of increasing the deployment cost of the public-safety network by an estimated $4 billion relative to the D block assignment. Filling the public-safety spectrum shortage with public-safety obligations on commercial providers could substantially reduce future auction revenues. The Phoenix Center notes that even under the favorable scenarios ($3 billion in expected revenues), the re-auction of the D block doesn't appear to pass a cost-benefit test.

"The D block re-auction does not come close to fully funding a public safety network," said study co-author and Phoenix Center Chief Economist Dr. George S. Ford. "The better alternative is to move forward with voluntary incentive auctions to repurpose television broadcast spectrum."

The complete copy of the study, Phoenix Center Policy Perspective No. 11-03: Re-Auction of the D Block: A Review of the Arguments, may be downloaded free from the Phoenix Center's Web page.

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