Why Spectrum Auctions are a Bad Idea

Unless you’re still on a flip phone, it’s hard to miss the demand for mobile wireless bandwidth. The FCC is under intense pressure to make more spectrum (frequencies) available for data services, repurposing underused spectrum and obsolete applications (e.g. old UHF TV channels).

As you might imagine, an exclusive FCC license can have significant commercial value.  Given this, the primary method of making wireless bandwidth available (as directed by Congress) is to auction it off.

On the surface, this seems like a reasonable approach.  Companies shouldn’t get a government “free lunch”, and we can certainly use the cash ($60 billion to date).  Companies can’t mine Federal land without paying, and the patent system shows how exclusivity incents commercial investment.  Also, a market-based system sounds appealing.

But if our goal is driving innovation and meeting growing bandwidth needs, it’s time to consider that the policy (as the primary way to allocate bandwidth) is seriously flawed.

Unlike oil drilling, spectrum is not a commodity:  1GB used today doesn’t mean there’s less tomorrow.  And license exclusivity is not like patents:  the wireless bidders are not providing a documented technological advance.  Spectrum is a public right-of-way:  what if your local government auctioned off public roads to the highest bidder?  (To be clear:  I’m not suggesting government wireless infrastructure.)

The real problem is that we’re stuck in the translation trap that often happens when we attempt to treat intangible licenses as physical property.  The failure is becoming more clear:  much auctioned spectrum remains underused.  Winners generally have little obligation to actually do anything, and technology advances make it notoriously difficult to estimate future value and bid accurately.  Licenses are for very long periods, not matched to the rapid pace of innovation.

As a result, licenses become expensive trading cards for large wireless companies, with lawyers and regulators involved with every exchange.  Witness the arguing and posturing that’s between Sprint, Clearwire, and all the other wireless companies.  (TL;DR:  Clearwire’s WiMAX business hasn’t gone so well, Sprint wants to buy them for the spectrum value).   Spectrum ends up stuck in a slow-moving, heavy-friction “market”, without being efficiently deployed.

We need a policy that removes friction, by making more unlicensed (or lightly licensed) spectrum available.  The unlicensed bands are a source of significant innovation, starting with CB Radio, and continuing with cordless phones, the Family Radio Service, Wifi, and Bluetooth.   Where else can you buy a 150mbit radio for under $3?  We all switch our phones over to Wifi if it’s available (often provided by a $50 access point).

Our current spectrum policy is a vestige of the old “walled garden” mobile market, where the wireless carriers had exclusive control of the mobile device.  We need a policy that’s aligned with the app-store world, with more spectrum available to innovators that don’t have lawyers and billions of dollars.

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