White House Makes Case for Voluntary Incentive Auctions
The White House turned up the heat Wednesday on Congress to approve incentive auction legislation. It held a spectrum event at the Old Executive Office Building, complete with a speech by FCC Chairman Julius Genachowski and a panel of economists. The White House released a letter signed by 112 economists supporting the administration’s spectrum efforts.
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Council of Economic Advisers Chairman Austan Goolsbee said dealing with spectrum issues is critical for the economy. “It’s extremely important for innovation and growth that we get this right,” he said. “All of the demand for wireless broadband is, obviously, creating a major challenge.” Voluntary incentive auctions offer one of the best chances of adding spectrum for wireless broadband, Goolsbee said. “This crunch is a problem that we can solve … using basic economics. It essentially just requires us to reallocate spectrum, from low value uses to high value uses."
Genachowski called incentive auctions the “single most important step” toward making additional frequencies available for wireless broadband. “Incentive auctions are based on the same premise as the original spectrum auctions -- unleashing market forces to reallocate this scarce resource,” he said. “They are two-sided auctions, so that existing licensees can receive a share of the proceeds for participating in the auction -- a capital infusion for them as we free up spectrum."
"The days for easy reallocations are over,” Genachowski said. He called the letter, signed by prize-winning economists from across the political spectrum, an important endorsement of incentive auctions. “They disagree on many things, but they agree on the importance and necessity of voluntary incentive auctions,” Genachowski said.
Greg Rosston of Stanford University said the signers agree that Congress should leave the details of incentive auctions to the commission. “These auctions are a logical extension of the auction authority granted to the FCC over the past 20 years,” he said. “The FCC has the experience to determine the precise details of an incentive auction,” he said: “Congress should neither prescribe” nor “proscribe specific rules."
"This goes back to very simple economics,” said Michael Riordan of Columbia University, a former FCC chief economist. “The principle of a voluntary transaction is that a broadcaster would not give up a right to use spectrum unless in the broadcaster’s view there was sufficient compensation.” Business decisions tend to be rational, and an auction would help determine the best use for the spectrum, Riordan said. “A lot of MBAs will be employed in picking through carefully what the value of the spectrum is for a particular purpose."
"How much people value” the spectrum “will depend on what’s being offered,” said Michelle Connolly of Duke University, another ex-FCC chief economist. “On the buy side the auction design will matter, what rules might be in place … will affect how people will value things.” The agency’s knowledge of the industry and auctions is critical to their success, she said.
Hal Varian, Google’s chief economist, stressed the importance of selling broadcast spectrum in an auction rather than letting broadcasters cut deals with carriers. “As soon as you start thinking about this -- trying to arrange 20 or 30 or 40 voluntary transactions where each party can delay, can hold up, can do the usual sort of negotiation ploys -- you realize that’s not going to work,” he said. “You've got to have an organized auction, an organized market."
TIA President Grant Seiffert is pleased that the White House and FCC are making the economic case for incentive auctions, he said in an interview. “We support the fact that the drum beat is getting louder, and we will be part of that.” Asked whether budget issues and the approaching federal debt limit will force action on spectrum, he said, “I think that’s a common belief. I think there’s legitimate interest from the Congress’s point of view."
CTIA and Mobile Future put out statements applauding the administration for holding the forum. “Today’s White House spectrum summit underscores the broad recognition that growing consumer demand for wireless technologies and mobile innovations are fundamentally transforming our nation’s economic future,” said Jonathan Spalter, chairman of Mobile Future.
"NAB does not oppose incentive auctions that are truly voluntary,” the group said in a written statement. “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 that those airwaves have yet to be fully deployed.”