Study: Limiting Bidding On Spectrum Could Cost Billions

itwbennett writes "According to a study (PDF) by the Georgetown Center for Business and Public Policy, restricting the ability of Verizon Wireless and AT&T to bid in upcoming spectrum auctions would drive down the bidding during the auction, and could cost the U.S. treasury as much as $12 billion. Even a partial restriction of bids by Verizon and AT&T could have a significant impact on auction revenues, said Douglas Holtz-Eakin, a co-author of the Georgetown study. Matt Wood, policy director at digital rights group Free Press, fired back, saying 'No one is talking about completely barring AT&T and Verizon from the incentive auction. Sensible people are talking about making sure that more than two companies have a chance at obtaining spectrum. The fact that these duopolists hired economists to parrot the companies' own talking points isn't really that newsworthy.'"

Comments

Those who would trade a bit of freedom...

[Anonymous Coward]

For a bit of money, will soon have little of either.

Letting the cash-rich companies have their way is surely a bad idea.

Re:Those who would trade a bit of freedom...

[goombah99]

If it's worth billions more to verizon then you can be sure versizon is going to extract many ties that from the citizenry. So in the end the govt would get more revnue but the people would have less money. I'd rather have the reverse. Moreover the competition may be good.

Re:Those who would trade a bit of freedom...

[Drakonblayde]

I am by no means a fan of AT&T or Verizon, but the concept of preventing a company from bidding on something in the name of competition strikes me as... anti-competitive. I'm a firm believer in a free market economy and this reeks of giving all the kids a trophy just for playing.

Re:Those who would trade a bit of freedom...

[goombah99]

I am by no means a fan of AT&T or Verizon, but the concept of preventing a company from bidding on something in the name of competition strikes me as... anti-competitive. I'm a firm believer in a free market economy and this reeks of giving all the kids a trophy just for playing.

Your assumption is that the sole criteria is return in dollars, and not say some other public good. When we sold land to homesteaders in the wild west we did not maximize the return but had settlement in mind. We do this with lots of resources. The public gets a greater benefit, the govt gets less revenue. We often handicap research grant scores to favor young investigators or classes of institutions. This is a case of maximizing future returns and diversifying risk rather than getting immediate return of maximum research output per dollar spent.

Not having a monopoly may be a better use of the spectrum than simply more of the same from an existing large company.

Re:Those who would trade a bit of freedom...

[fredprado]

The natural progression of a truly free market is money agglutination, monopolies and the collapse of the economy because of speculation. That is why there never was a real world implementation of laissez-faire capitalism and there will never be.

Free market is a concept that resides in the realm of fantasy, together with communism.

Re:Those who would trade a bit of freedom...

[ebno-10db]

We need a truly free market to reduce abuses

A truly free market (more importantly, a truly competitive market) is one where new suppliers can enter the market. Unfortunately spectrum is a strictly limited resource. Therefore allowing currently entrenched companies to buy big chunks of spectrum and block future entrants into the market is highly anti-competitive.

Re:Those who would trade a bit of freedom...

[jensend]

Ah, but what they're bidding on is not merchandise but a government-enforced monopoly. Normal free-market rules are already out the window; you may call what you propose a free market solution but really it's a mercantilist solution. Selling letters of patent to whoever brings the most into the Crown treasury is precisely the kind of thing Adam Smith was writing to oppose in the first place.

Normally the solution is to get rid of the government-granted monopoly. But that doesn't work out so well here. We license spectrum because leaving it to the free market to figure it out would result in horrible interference and transmit power arms races -- a classical tragedy of the commons market failure.

In many market failures government won't actually manage to improve the situation. But the spectrum really is a clear case where intervention can improve social welfare-- as long as we don't get confused about the purpose of spectrum regulation and start treating it like it's a free market designed for increasing government revenue.

Re:Those who would trade a bit of freedom...

[DNS-and-BIND]

Yes, but in those days the government did not spend like it does today. Today the government desperately needs money, and lots of it. This $12 billion is badly needed and will enable the government to operate for almost thirty hours. Not to mention the additional revenue available by borrowing against future revenue of this sort.

Mention something like "public good" to anyone who works in Washington DC and watch the smiles and guffaws start. You just mark yourself as a redneck and an idiot with talk like that.

Re:Those who would trade a bit of freedom...

[Drakonblayde]

That's the way it should work. Unfortunately, reality is quite a bit different.

You're absolutely correct in that supply is fixed. You're also absolutely correct that there's flexibility in demand (which is presently going up and shows no signs of going the other way).

Your flaw is that entire public good thing.

Either the resource is to be allocated and managed for the public good, or it isn't. Given that AT&T and Verizon own such a large portion of spectrum already, the question becomes are they managing it for the public good or not. The sentiment seems to be that they're not, and as such, shouldn't be allowed to acquire more.

If that is true, then we're not getting good value from allowing them to use our resource. So why do we continue to allow them to use it? If we have no choice but to continue to allow them to use it, then the resource is not really a public one to be used for the public good.

If we are getting good value from allowing them to use our resource, then why is it a bad thing to allow them more?

It truly sticks in my craw to have to have to play advocate for Verizon and AT&T, I loathe them as corporate entities, and they're some of our best customers (I work for a company that provides a very large amount of cell backhaul for Verizon, AT&T, and Sprint).

But this entire public good argument is horseshit. The reality, whether you care to admit it or not, is that wireless spectrum is a commodity like any other. The only thing the fixed supply does is drive prices up when demand increases. Whether or not it should be that way is an entirely separate argument.

Re:Those who would trade a bit of freedom...

[fuzzyfuzzyfungus]

If it's worth billions more to verizon then you can be sure versizon is going to extract many ties that from the citizenry. So in the end the govt would get more revnue but the people would have less money. I'd rather have the reverse. Moreover the competition may be good.

Honestly, the fact that spectrum auctioning is even being talked about in terms of its revenue value(I can see arguments being made that the 'auction' mechanism is a good one for identifying users most willing to pay, and ensuring that spectrum doesn't go unused, though such arguments need to face up to the empirical reality of examples like "Tons of crazy-useful stuff that we do in the shitty ISM band, not because it's good; but because it's available") suggests a level of conceptual failure that makes my head hurt.

If the government just wants to raise money, 'tax farming' by selling off public assets to the entities most capable of extracting monopoly rents in exchange for a slight premium over what they would otherwise sell for is pitifully inefficient. If they need money, suck it up and acknowledge that it's a tax. Accepting years of substandard and undercompetitive spectrum use in exchange for a bit of cash upfront is just nuts.

Re:Those who would trade a bit of freedom...

[TheEyes]

So, basically, we should give it to someone else because they might suck less.

I'm not real fond of that choice either.

No, we give it to someone else because then that someone else would have to compete with the incumbents, and the resulting competition will force prices down, as opposed to our current system of two enormous rent-seekers sitting on vast piles of spectrum, doing nothing with it, and forcing us to pay extorionate amounts for terrible service.

Dear Reporters

[Anonymous Coward]

Every time the government doesn't get every penny and ounce of blood it can out of everyone doesn't mean it's "costing" the government anything.

Re:Dear Reporters

[hawguy]

Every time the government doesn't get every penny and ounce of blood it can out of everyone doesn't mean it's "costing" the government anything.

Exactly - sky high spectrum auctions amount to a tax on the consumers that are forced to pay back the billions that the company spent to buy the spectrum. Encouraging more competition from smaller carriers by banning the big boys will likely save consumers many more billions than the government would have "earned".

From TFA:

But a policy to restrict the ability of Verizon Wireless and AT&T to bid on the spectrum would drive down the bidding during the auction and leave less money for a nationwide public safety network and the U.S. treasury

Why should spectrum auctions (i.e. my cell phone bill) pay for a public safety network?

Not really interested in what it costs government.

[rolfwind]

What does it cost society?

Well, that makes it easy

[Qzukk]

Is it worth 12 billion dollars to keep AT&T and Verizon from controlling the airwaves?

Does it build value?

[Okian Warrior]

The question to ask is: which way will build value?

If Verizon and AT&T will just sit on the spectrum doing nothing, then the government gets 12 billion extra and it will be wasted. The government doesn't do anything that's useful or valuable to the people any more - it only generates pointless bureaucracy and sweetheart deals. It's the aristocracy of "pull".

If players other than Verizon and AT&T will use the spectrum for new and innovative products, generate intellectual property (ugh! that word...) and add value to the economy, then the government gets 12 billion less which will go unnoticed (a minor drop in the bucket), but it will enrich America and perhaps generate tax revenue over time.

Let's give Verizon and AT&T a chance at the new spectrum. They kept the 200 billion we gave them to bring broadband to 86 million homes in America and did nothing, but that was a long time ago.

They wouldn't do that to us again, right?

Re:Telecoms Have Little To Do With the Free Market

[Arker]

It's not just wishful thinking, it's a gambit in an assault against our ideas. Anything that is done based on the idea that the free market is involved here is done on false premises and bound to fail. For which the nonexistent free market will be blamed.

The spectrum auction is a scam from beginning to end. The idea that anyone can own spectrum betrays a complete misunderstand of "own" and/or of "spectrum."

The best one could do is establish a customary right of occupation. By using the spectrum in question for something of value. If they dont use it they should lose it. If we ignore spectrum which is reserved but unused, there is suddenly a considerably greater supply.

The telecoms in this country are monopoly capitalists, not free marketeers, and this has been true longer than I have been alive. And I am a bit older than the average slashbot. This has only gotten worse over time. Their idea of competition is competing with other telecoms to see who can sway more congresscritters to their side. Just look at how many times the taxpayers (and ratepayers in monopolised/privileged districts, same thing) have paid for fibre coverage in the US. Enough to provide it border to border, sea to sea, several times over. What's the current percentage of us that have it? 10, 15%? And how many telecoms are still actively expanding coverage? Trick question, the answer appears to be 0.

Duopoly Profitable, Says Expert

[Bob9113]

could cost the U.S. treasury as much as $12 billion.

It's all in how you spin it, isn't it?

Flash: Duopolists willing to pay government $12 billion to extend duopoly. "Duopoly rents sure are nice!" says duopolist CEO, "We'd be happy to give the government a taste of the action." Film at eleven.

Re:Not really interested in what it costs governme

[girlintraining]

What does it cost society?

Well... you know how our mobile phone networks are utter shit compared to the rest of the world? Plan on that continuing. You know the limited range and speed of wifi? Expect more of the same. In short, the cost to society is that the status quo remains.

Now, what happens if we don't get more of the same? Well, there's a chance, mind you I don't know how much of one, that the above-referenced problems would get better, or go away entirely, and even do so affordably.

But let's be honest; there's $12 billion here that the government can put in its coffers, and everyone who agrees with this gets a fat contribution to their re-election campaign. Who the fuck cares about the cost to society? It's just there to serve the rich anyway... Keep eating your dog food, Citizen.