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Study: Limiting Bidding On Spectrum Could Cost Billions

Posted by Soulskill on from the competition-isn't-cheap dept.

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.'"

43 of 140 comments (clear)

  1. Those who would trade a bit of freedom... by Anonymous Coward · · Score: 5, Insightful

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

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

    1. Re:Those who would trade a bit of freedom... by goombah99 · · Score: 5, Insightful

      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.

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    2. Re:Those who would trade a bit of freedom... by Drakonblayde · · Score: 3, Insightful

      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.

    3. Re:Those who would trade a bit of freedom... by goombah99 · · Score: 5, Insightful

      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.

      --
      Some drink at the fountain of knowledge. Others just gargle.
    4. Re:Those who would trade a bit of freedom... by msauve · · Score: 4, Interesting

      Managed spectrum is in no way "free market." It is a public resource, administered by the government, and naturally constrained. There is only flexibility in demand - supply is firmly fixed.

      As such, the value is not only what an entity is willing to pay, but also in what benefit the public will gain for allowing their resource to be used.

      A true free market attitude would be to support a spectrum commons.

      --
      "National Security is the chief cause of national insecurity." - Celine's First Law
    5. Re:Those who would trade a bit of freedom... by fredprado · · Score: 3, Insightful

      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.

    6. Re:Those who would trade a bit of freedom... by ebno-10db · · Score: 3, Insightful

      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.

    7. Re:Those who would trade a bit of freedom... by jensend · · Score: 4, Insightful

      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.

    8. Re:Those who would trade a bit of freedom... by sanosuke001 · · Score: 3, Interesting

      That was my first thought; maybe the better thing to do is create more competition in the market instead of allowing Verizon and AT&T to fuck us even harder. Like someone else said; the consumer is going to pay for the spectrum in the long run anyway; why not lower the cost of it (or lease it as another suggested) and lower everyone's phone bills. The less money we have to spend for cell service the more that goes to other businesses (ie. taxes; which would probably make up that made-up $12 billion figure eventually).

      --
      -SaNo
    9. Re:Those who would trade a bit of freedom... by DNS-and-BIND · · Score: 2, Insightful

      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.

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    10. Re:Those who would trade a bit of freedom... by symbolset · · Score: 2

      Oh my. The rational hand of disciplined governance ought to guide the invisible hand of markets? You're going to get a lot of hate. You are also right.

      Where you missed: "the gov't gets less revenue." You needed to put a "for now" at the end of that. As we know from Seward's Folly and the Louisiana Purchase, sometimes the people don't know the right course. Those investments are ripe now and paying huge dividends.

      Sometimes the public good is not having to waste the blood of patriots for stuff that can be bought with money.

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    11. Re:Those who would trade a bit of freedom... by Drakonblayde · · Score: 3, Informative

      No, my assumption is that someone other than AT&T/Verizon/T-Mobile being awarded the spectrum does not automatically equal public good.

      It still takes a fortune to build the infrastructure to support a wireless network. The argument being made here is that if one of the big providers were to acquire the spectrum, they'd take the cost out on their customers.

      Surely y'all aren't naive enough to believe that whomever acquires the spectrum *isn't* going to do the same. They still need to be competitive, which means they still need to make money, and so they're still going to charge rates that are within the ballpark of AT&T and Verizon. If they're significantly lower, then yes, it may force AT&T and Verizon to adjust their prices downward, at least in certain markets (I seriously doubt that any other likely purchasers are going to become players on a national level).

      Or, more likely, AT&T and Verizon adjust their prices to actually be lower, stealing the competitors customers, strangling their revenue, and eventually putting them out of business. AT&T and Verizon can afford to absorb a short term loss to deal with a competitor. Once said competitor is no longer an issue, prices go up again.

      You don't think this happens? You've never witnessed what happens when a Wal-Mart moves into an area that previously had none.

      In order to actually compete with AT&T and Verizon, you need to offer a superior product and superior service, at a better price. Good luck.

    12. Re: Those who would trade a bit of freedom... by Drakonblayde · · Score: 2

      That sounds good in theory, but in practice it's a lot harder to take it away once it's been handed out than it is to keep them from getting it in the first place.

      Which pretty much hamstrings the argument that wireless spectrum is a public resource to be allocated for the public good, doesn't it?

      Here's reality - the wireless spectrum is a commodity like any other, and once in the hands of a private entity, the public good has little, if anything, to do with it. Said private entity is going to attempt to exploit the resource in the name of revenue and profit just like AT&T and Verizon would.

      But wait, I thought revenue and profit were bad for the public good?

      I strongly suspect that once you get past the facade of rationality that folks who want to hinder AT&T and Verizon's ability to acquire spectrum, you'll find the primary reason for their opposition is something along the lines of "I really fucking hate AT&T/Verizon"

    13. Re:Those who would trade a bit of freedom... by Drakonblayde · · Score: 3, Insightful

      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.

    14. Re:Those who would trade a bit of freedom... by fuzzyfuzzyfungus · · Score: 5, Insightful

      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.

    15. Re:Those who would trade a bit of freedom... by symbolset · · Score: 2

      Yeah, this is starting to look like the classical problem for which the solution is "torches and pitchforks".

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    16. Re:Those who would trade a bit of freedom... by Drakonblayde · · Score: 2

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

      I'm not real fond of that choice either.

    17. Re:Those who would trade a bit of freedom... by TheEyes · · Score: 3, Insightful

      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.

    18. Re:Those who would trade a bit of freedom... by symbolset · · Score: 2

      Considering how much the current oligopoly sucks, I'm quite OK with you (alt A: retraining them for useful work) (their own Option B) lining them all against a wall and executing them by firing squad.

      The people who choose option B aren't worth saving anyway.

      --
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    19. Re:Those who would trade a bit of freedom... by VortexCortex · · Score: 2

      All the data towers are doing the same shit. They could be standardized, funded by tax money directly (instead of a 100 billion handout that just disappears). If the spectrum belongs to the people then let us just have it completely. Dedicate a bandwidth for cellular use according to the people's demand, then saturate it with capability to provide service. The access could be leased to the carriers, and our devices could frequency hop to whatever chanel was noise free. New competitors could lease the access at the comparative prices to existing carriers. Need more towers in a given region? Gee, that exactly matches the population density. Huh. Telcos could lobby for more towers in a given area if they think they need them, and they'd all be on the same side instead of competing with incompatible protocols.

      Governments should own the backbone, or mandate it be shared. Look at the energy market for a workable solution: Power brokers opened up competitive prices for the little guys. If it'll work for poles with wires on them, it'll work for wireless poles too.

      That'll never happen though because of the "Free Market", and "regulatory capture", and [insert whatever other corruption you want to throw in]. Protip: In a true free market, whomever could afford the biggest antenna would always win by drowning out the little guys.

    20. Re:Those who would trade a bit of freedom... by Grave · · Score: 2

      This is pretty much what I've been preaching now for years. Infrastructure that is vital to the public good and that requires the use of a physically limited resource, such as roads or power lines, is already expected to be government owned. Why is radio spectrum not treated the same way at this point?

  2. Dear Reporters by Anonymous Coward · · Score: 3, Insightful

    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.

    1. Re:Dear Reporters by hawguy · · Score: 4, Insightful

      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?

    2. Re:Dear Reporters by ebno-10db · · Score: 2

      I fail to see the point of what pot of gold it is plucked from.

      Fairness. I see no reason to impose a tax specifically on how much one uses a cell phone (this from someone who rarely uses his dumb phone). You're the one who pointed out everyone potentially needs the public safety network, and I don't think that potential need is proportional to how much you use your cell.

  3. How is cellular allocation done elsewhere? by ebno-10db · · Score: 3, Interesting

    How is cellular spectrum allocation done in other countries, and how many carriers do they have? Knowledge of any other country is appreciated. I've long wondered how it would be in cellular with an old Ma Bell (AT&T pre-divestiture) style monopoly. Part of me likes the competition idea, but with spectrum so limited and cellular infrastructure so expensive to build, it seems awfully wasteful. It's not quite a natural monopoly, but it verges on it.

    1. Re:How is cellular allocation done elsewhere? by elbonia · · Score: 3, Interesting

      In Europe it's pretty much Vodafone and T-Mobile which also makes the EU a duopoly. There was a recent auction in the Netherlands that turned into an all out bidding war which actually sent the stocks of the telcos there down sharply. The price of the auction is just passed down to consumers through prices increases, reduction of services, or added fees. So while the treasury may lose $12 billion that amount wont be passed on the consumer so it's a wash. It's probably better for everyone to limit AT&T and Verizon and make sure there's more competition.

    2. Re:How is cellular allocation done elsewhere? by zyzko · · Score: 2

      There are two basic models, auction and beauty contest. Those who favor auctions usually point out that for "common good" auction is better, because even if it yields huge sums of money to the government which may be seen as a tax prices are (when the money is a lump sum, not percent of revenue or profit) always going to be as high as the consumer is willing to pay for a service. The advocates of beauty contest say that it gives a better chance to newcomers and favors large scale adoption of new technologies more quickly.

      I'm not entirely in favor of either, the key part is to make the auction fair and have boundaries or the beauty contest relevant in terms of what must be implemented (not too strict, not too lax) and evaluate properly. Where I live, Finland (and I think this applies to Sweden at least partially as well) we have one of the lowest cell service prices (well below UK and US, Hong Kong and other very dense areas do beat us) and we have had a hybrid model where there has been elements of both in place for bidders, depending on the situation (economic, need to get new technology implemented, politics, you name it) the auction sum or the beauty contest criteria has been the more relevant factor. We now have 3 separate nationwide networks and several virtual operator on top of those (some "cheap labels" of the network owners, some operators renting the airspace and providing cheaper and/or different service than the network owning carrier).

    3. Re:How is cellular allocation done elsewhere? by zyzko · · Score: 2

      I would not say Orange is insignificant and there are others, some national or operating in a small area with a large market share and grand plans for expansion (the Sonera part of the last company I linked is the former Finnish national post & telecom office, which was split up as a several private companies in 1990s - the "Telecom" part then became Tele and further Sonera which spent billions of euros on auctions for an example in Germany for 3G licenses, which never did anything and both Sonera and Telia still being minority-owned by Finnish and Swedish governments their actions have spurred a lot of discussion on how to handle "taxpayers money").

  4. Not really interested in what it costs government. by rolfwind · · Score: 5, Insightful

    What does it cost society?

  5. Well, that makes it easy by Qzukk · · Score: 5, Insightful

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

    --
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  6. About that $12 billion figure by marbux · · Score: 2

    That $12 billion projected loss for the government is a double-edged sword. Presumably, it represents but a fraction of what the two companies would charge users for use of the spectrum in a pure duopoly market. Preserving competition may mean less revenue for government in this situation, but helps hold the duopolists' prices down. So the public benefit is there.

  7. That's cheap by saleenS281 · · Score: 2

    $12 billion up front is a HELL of a lot cheaper than the cost to taxpayers should we end up with even less competition in the wireless market than we currently have. Just look at Frontier communications for an example of what happens when a company is allowed to own a market (rural "broadband" in their case).

  8. Is it just me by Miros · · Score: 2

    Or does this story dismiss its own relevance at the end?

  9. Does it build value? by Okian+Warrior · · Score: 4, Insightful

    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?

    1. Re:Does it build value? by schnell · · Score: 2

      They kept the 200 billion we gave them

      Are you sure it's 200 billion? The author you cite seems to have thought it was $30 billion. Wait, no, it was $200 billion. Ah, sorry, now it's $300 billion. Maybe it's inflation?

      Not saying that the American public wasn't shortchanged by the Baby Bells - back in the day when they actually existed, I never encountered a more anticompetitive group of oligarchists in all my career. But let's not necessarily keep repeating this "OMG telcos stole $200 billion" meme without a little more quantification and justification.

      --
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  10. Make leases non-permanent by Mike_K · · Score: 4, Interesting

    Here is a simple way to make telecoms move on the spectrum they are sitting on: make the lease non-permanent.

    If each lease lasted, say, 15 years, and had to be rebid, say, 5 years before the lease expires, the incentive to sit on spectrum would diminish greatly. The prices that companies are willing to pay for spectrum might diminish somewhat, but not utilizing spectrum would start costing real money, and new competition would have a chance to enter the market every now and then.

    The problem with the current system is that obtaining a lease to spectrum gives companies a permanent monopoly on the spectrum forever, which decreases the incentive for competition. The spectrum is a sunk cost and delaying utilization of it is merely a loss of revenue, but not a direct cost.

    m

    1. Re:Make leases non-permanent by ebno-10db · · Score: 4, Interesting

      It could even be done on a shorter term basis. There is no technical reason that spectrum couldn't be dynamically allocated amongst carriers. It's easy to build base stations that can operate over an entire band and then tell them to only use certain frequencies. Forget the bidding, or even charging for the spectrum (the customers just wind up paying for it anyway), and periodically adjust how much spectrum each carrier is given in a certain area to reflect the load on their system. If a competitor grabs some of an entrenched company's customers (perhaps by some nefarious technique like better service or lower prices) then just give some of the entrenched company's spectrum to the upstart. That would allow real competition.

  11. Re:Telecoms Have Little To Do With the Free Market by Arker · · Score: 4, Insightful

    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.

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  12. Duopoly Profitable, Says Expert by Bob9113 · · Score: 4, Insightful

    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.

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  13. Re:Not really interested in what it costs governme by AvitarX · · Score: 2

    Really? I would think the only thing at&t and Verizon care about is the cost to society.

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  14. Re:Not really interested in what it costs governme by girlintraining · · Score: 3, Insightful

    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.

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  15. no, it saves billions by stenvar · · Score: 2

    AT&T and Verizon are operating as near monopolies right now. Not letting them bid may lose a bit of revenue to the government, but it saves people a lot more money in charges and contracts by making the market more competitive.

  16. Re:What's in the best interest of the population? by currently_awake · · Score: 3, Interesting

    The best outcome would be a government run national cellphone service, run as a not for profit. Add unlocked phones and free tethering and you've got a winner. I know Americans are allergic to government run anything, but it works well for roads.