Report: Incentive Auction Restrictions Will Harm Public-Safety Network (4/30/13)
Tuesday, April 30, 2013 | Comments

The nationwide public-safety broadband network will be threatened if the FCC limits participation in the incentive auction, according to a new study. The Center for Business and Public Policy at Georgetown University's McDonough School of Business released the study on the potential impact of the FCC spectrum incentive auction rules if the commission bans or limits participation of qualified auction bidders.

In the white paper, "The Economic Implications of Restricting Spectrum Purchases in the Incentive Auctions," economists Robert J. Shapiro, Douglas Holtz-Eakin, and Coleman Bazelon present a data-driven analysis that demonstrates how auction bidding restrictions would cut auction revenues, threaten the congressional mandate to fully fund a nationwide public-safety network, limit the amount of broadcast spectrum available for wireless use, and put upward pressure on the price of mobile broadband services as costs are elevated by restricting efficient firms' auction participation.

"The FCC's mission to advance the efficient use of spectrum will require a broad inquiry as it considers the design of rules for the upcoming spectrum auction," said John Mayo, a professor of economics, business, and public policy at Georgetown McDonough and executive director of the Georgetown Center for Business and Public Policy. “We are hopeful that the FCC will indeed incorporate the information provided in the study we are releasing today as the commission works to fashion the design of the auction. In particular, the analysis included in the study points to a number of costs associated with limiting participation in the auction. These empirical findings should give pause to any headlong move to handicap some firms' participation in the auction."

The FCC is developing a two-part incentive auction framework that enables TV broadcasters to voluntarily relinquish some of their spectrum licenses so they can be resold to wireless service providers. The auctions could result in as much as 120 megahertz of spectrum transferred from broadcasters, depending on the amount broadcasters' offer and whether the forward auction generates enough proceeds to pay for it.

The new study analyzes two potential scenarios — the impact of a complete ban on bidding by the largest wireless carriers and the outcome of permitting these entities to purchase all 120 megahertz. In looking at the entire range of potential action, the study provides a mechanism to evaluate the impact of varying restrictions. For example, if the FCC restricts, but doesn’t ban, bidding by the larger carriers, the impact on costs and employment would be proportionate to the extent of the restrictions.

In the study, Holtz-Eakin and Bazelon estimate that bidding rules that bar the participation of the two most efficient wireless providers, Verizon Wireless and AT&T, from participating in the auction process could reduce auction revenues by about 40 percent, lowering federal auction proceeds from as much as $31 billion to about $19 billion. This in turn would likely reduce the amount of spectrum acquired from broadcasters and made available for wireless broadband services.

The authors warn that lower auction revenues of $19 billion could result in a funding shortfall to support the buildout of the nationwide interoperable, public-safety broadband network mandated by Congress in 2012. In particular, they note that with the estimated $7 billion needed from the auction to deploy the public-safety network, coupled with the estimated $2 billion needed for re-packing costs, just $10 billion of the potential $19 billion in auction proceeds would remain for purchasing the broadcasters' spectrum.

That likely would not be sufficient to secure the full amount made available by the broadcasters. The authors' analysis shows that by permitting all four national carriers to participate without restrictions would generate more revenue, estimating that there could be as much as $22 billion available for the purchase of broadcaster spectrum.

"The first and foremost impact of a significant reduction in forward auction revenues would be the diminished amount of spectrum reallocated from television to wireless broadband uses," said Holtz-Eakin and Bazelon. "The inability to pay for all available spectrum would trim total revenue further and risk creating a potential vicious circle of declining revenues and even fewer frequencies reallocated, making the single most important spectrum auction in FCC history a failure."

In Shapiro's analysis, he finds that restricting the largest carriers from access to additional spectrum at auction would undermine the effort to address the nation's spectrum crunch by excluding the most efficient providers. According to the paper, this "would increase the industry's effective spectrum deficit by as much as 46 megahertz."

To access the full paper, visit http://cbpp.georgetown.edu.

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