Technology Policy Institute Panel Discusses Spectrum Incentive Auctions

WASHINGTON May 24, 2011 – The Technology Policy Institute assembled auction experts Monday to discuss the value and mechanics of proposed spectrum incentive auctions.

“Markets work best when there are rules for the market players to act within,” said Peter Cramton, Professor of Economics, University of Maryland. “Increasingly people are getting their television service through cable and satellite making the mobile broadband market a much more valuable use for the spectrum currently held by television broadcasters.”

Voluntary incentive auctions would allow current spectrum owners to auction of part or all of their spectrum holdings and obtain a part of the proceeds.

Cramton said that any auction would allow for three possible actions on the part of the broadcasters; keep their entire spectrum holdings, sell a portion of their holdings or sell their entire holdings.

According to Cramton many broadcasters could sell half their holdings and still maintain a robust broadcast area. Using multicasting technology, broadcasters could share a single channel allowing them to transmit up to two high definition signals or five standard definition signals.

“The broadcasters do not want this right now; they feel as though they have just been forced to be moved under the DTV transition,” said Karen Wrege, Senior Auction Consultant, Power Auctions LLC. “But they will sell their holdings for a price. They know the value of their spectrum and will be able to determine through the auction if it’s worth holding on to or selling.”

Moving spectrum licenses for the purposes of improved management and better uses is not new, according to Wrege. The practice has occurred since the Federal Communications Commission began managing the radio spectrum. She also called on the Commission to ensure that the auction process is transparent, with well-established rules.

To improve the auction process, Wrege suggested that the FCC conduct a mock auction with possible participants to test out the proposed rules.

Evan Kwerel, Senior Economic Advisor at the Federal Communications Commission, approved of Wrenge’s suggestion saying that it is likely that before any auction occurs the commission will conduct a number of mock auctions in the lab.

Kwerel went on to say that, while the issue of spectrum auctions is being talked about as a quick solution to the spectrum crunch, the actual auctions would not take place for a while. The FCC – while proficient in auction design – will take many months to study the issue before any rulemaking occurs.  Additionally, the comment period alone would last months.

Other panel participants estimated that it would take the Commission nearly two years from Congressional approval of auction legislation to when the auction would occur.

Lawrence Ausubel, Professor of Economics at University of Maryland called the auction a possible solution for the increasing market concentration occurring in the mobile broadband market.

“One of the primary reasons why AT&T is buying T-Mobile is to acquire more spectrum since they cannot buy it in the open market,” Ausubel said. “The auction will create a large amount of supply which will allow for the possibilities of new entrants.”

Cramton supported the idea that the auction would allow for increased competition, but observed that in most developed countries there are only three or four major operators with a handful of regional options.