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Monday, January 23, 2012

Picking Auction Winners and Losers

Politicians and their appointees often exhibit unique talents for manipulating language to mislead. That was, in part, the case when Federal Communications Commission (FCC) Chairman Julius Genachowski spoke to the Consumer Electronics Show on January 13 on the topic of incentive spectrum auction legislation.

Genachowski identified the issue adequately: "If we don't authorize incentive auctions and make much more spectrum available for mobile broadband, we are going to get swamped by an ocean of demand and risk our competitive advantage in the race to lead the world in mobile innovation... And future innovators will be incentivized to launch their businesses in countries that beat us in the race for the best wireless infrastructure. The price of that will be measured in lost jobs, investment, and innovation. That's why the incentive auction concept needs to become law now."

So far, so good. After all, the idea behind these incentive auctions is that current licensees could, if they chose, give up their current license rights for a share of the auction proceeds, while the FCC would be able to auction spectrum it currently controls along with this spectrum held by private entities so as to increase the potential efficiency of spectrum usage. Consumers, including small business owners and their employees, investment, innovation and the economy would benefit.

However, Genachowski does not like the fact that the bipartisan legislation moving in Congress would allow any firms meeting technical, financial and character qualifications required to hold a license to participate in these auctions. That's an odd position for the FCC, especially if the commission truly is interested in the most efficient allocation of spectrum. But apparently Chairman Genachowski is interested in having the FCC free to pick the winners and losers when it comes to spectrum allocation.

But rather than simply making its case in a straightforward manner, Genachowski actually tries to dress up such political controls as being pro-market. For example, he said, "Why would it be a mistake to tie the agency's hands? This is an incredibly fast-moving space, and any policy that pre-judges or predicts the future runs a great risk of unintended and unfortunate consequences.

We don't know what the world will look like when the FCC adopts auction rules... We know how hard it is to change a law. In this dynamic space, locking restrictions into a statute would be a real mistake. And the consequences of a mistake are greater than in the past. We've never had more global competition, and the race to lead the world in mobile innovation is particularly intense. The costs of tying our hands could be devastating in the fast-moving and competitive global economy."

But the legislation does not tie the hands of the FCC. Instead, it merely protects against politics overruling economics by allowing all qualified competitors to compete in the auctions.

Genachowski even refers to a letter from various economists: "In endorsing incentive auctions, 112 leading economists from across the ideological spectrum wrote: ‘Giving the FCC the authority to implement incentive auctions with flexibility to design appropriate rules would increase social welfare.' That's economist-speak for more innovation, more economic growth, and more improvements in our quality of life."

But that statement does not refer to giving the FCC unfettered power to include and exclude certain firms from auctions. After all, that same letter clearly declared: "The United States has a long tradition of relying on private market transactions to guide resources to their highest value uses. Voluntary transactions in free markets ensure that trades happen only when the buyer and seller both benefit."

The incentive spectrum auction legislation merely seeks to allow qualified firms to participate in auctions, and prevent the FCC from excluding such entities due to non-economic, political preferences.

In the end, letting the market work through a free and open auction will ensure the most efficient allocation of spectrum, as ultimately dictated by consumers, not government appointees.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

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