Secondary Market Sale Called Preferable to Incentive Auction
Let broadcasters sell their underused spectrum in the secondary market, not through a staged FCC incentive auction, economist Jeffrey Eisenach proposed Thursday at a Georgetown Center for Business & Public Policy event. Eisenach said the commission under Julius Genachowski deserves credit for taking up the question of how to deal with lightly used broadcast spectrum. But its proposed solution of an incentive auction may not be the right one, he said.
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The FCC is expected to ask questions about a proposed incentive auction and other spectrum issues in notices set for votes at its Nov. 30 meeting. Eisenach, managing director of Navigant Economics, recently completed a paper, “Spectrum Reallocation and the National Broadband Plan,” that was written with the financial support of Verizon and distributed at the event Thursday.
When it comes to spectrum, “the 800-pound gorilla in the room and the multibillion-dollar transaction that’s waiting to happen” is the sale of broadcast spectrum from broadcasters to wireless carriers, Eisenach said. “How do you bring that transaction about? How do you allow those parties to engage in a trade?” There is an alternative to an incentive auction, he said. Eisenach added: “It is clear we need to do something to clarify rights. Do we need to clarify flexibility? I think the answer to that question is yes."
Eisenach asked whether a single, massive incentive auction would work as well as giving broadcasters the ability to sell spectrum rights on the secondary market. One big question, he noted, is how much of the proceeds from an incentive auction would go to broadcasters and how much to the Treasury. “When we say, ‘We're going to share the proceeds with the broadcasters,’ do you think that means sharing 80 percent of the proceeds?” Eisenach said. “I don’t think so. Ninety percent of the proceeds? I don’t think so. I think it means sharing a small percentage.”
Eisenach asked whether the government would expect to take $40 billion from a $50 billion auction. “I think that’s expensive for an auctioneer.” The problem is, “the higher that fee is the fewer rights are going to change hands,” he said. “If you say to the two people in the market, ‘There’s an 80 percent excise tax on this transaction,’ … guess what: You're going to have a lot fewer transactions."
Eisenach also took a shot at the FCC as trying to overmanage a likely spectrum sale. “Allocating spectrum to the right uses is incredibly complex and so far has defied the ability of our most competent Soviet-style modelers … to administratively and econometrically determine the best outcome,” he said.
Public Knowledge Legal Director Harold Feld, who also spoke at the event, asked Eisenach to “stop dropping S bombs” including “socialist” and “Soviet-style planning.” “If we are going to have, as the trendy phrase is, an adult conversation about this stuff, we have to get away from the idea that if you're not a full, free-market, put it out there for auction kind of guy you harbor some sinister tendencies,” he said.
Feld said just defining rights, to encourage sales in the secondary market, is not the answer. “My favorite example is the wireless microphone, which was the biggest toxic spill, across spectrum, in my opinion, that we've ever had in this country, with the possible exception of the 800 MHz rebanding order,” he said. “In both of those cases, property rights were relatively well defined."
Concerning wireless microphones using 700 MHz spectrum, Feld said, the rules were well defined. “It didn’t matter, because you had actors who didn’t care about the rights,” he said. “No matter what equilibrium we strike, there will always be a role for the FCC and a role for the federal government, generally, as the backstop for what happens if something goes really wrong.”
Scott Wallsten, vice president for research at the Technology Policy Institute and a former FCC economist, said he’s pleased that spectrum is “moving up the agenda” at the FCC. “Over the last year net neutrality sort of overwhelms everything and net neutrality, no matter what you think of it, is part of a 100-year-old argument about how you deal with very high fixed-cost infrastructure,” he said. “We're not going to solve this, but we can argue about this for another 100 years.”