Guest Blog: It's Worth It!

4/03/2012 09:50:37 AM

A guest blog from Coleman Bazelon, principal of The Brattle Group, Inc.

NTIA recently estimated it would cost $18 billion to clear federal spectrum users from 95 MHz of prime spectrum to make the frequencies available for wireless broadband.  This is a bargain.  According to NTIA’s report, $18 billion would completely free up the entire 1755 MHz — 1850 MHz band of prime spectrum, but those frequencies would be worth at least that much at auction.  The Principal of Spectrum Reallocation — that spectrum should only be reallocated if worth more in the new use than the cost of making the spectrum available-suggests that this is a reallocation that should go forward.

The need for additional frequencies for mobile broadband networks has been apparent for years.  With the introduction of the iPhone-and the realization that smart phones consume 25 times the bandwidth of “dumb” phones-forecasts of demand for spectrum based services have far outstripped the ability of available spectrum to support those services economically.  The introduction of the iPad — and the realization that tablets consume a further 5 times the bandwidth of smart phones — has only exacerbated the mismatch between spectrum supply and demand.

The recently enacted Jobs Bill provides for the reallocation of some specific bands and authorizes incentive auctions in the TV bands.  Before payments to broadcasters, the sale of 120 MHz of UHF spectrum is expected to raise as much as $35 billion.  Such high prices for usable broadband spectrum are evidence of the chasm between demand and supply.  But the Jobs Bill provisions are not sufficient to quench the thirst for more spectrum.  The price of spectrum will not fall to zero, and the demand to reallocate more frequencies will still exist.

Some might argue that future reallocations from the television bands would be worthwhile.  This case would be weakened if demand for frequencies could be met elsewhere.  The federal frequencies identified in the NTIA report provide an opportunity to fulfill some of the demand for future spectrum.  Even allowing for a significant discount in value to account for spectrum supplied through the Jobs Bill and differences in the quality of frequencies, the spectrum identified by NTIA would raise more than $20 billion.  (Some of those frequencies would be paired with other bands, but the contribution to value from the federal 95 MHz would still exceed $20 billion.)  The consumer welfare benefit to spectrum is typically thought to be at least 10 times higher than its total value, suggesting that $20 billion in auction receipts would result in $200 billion in value, or more, to U.S. consumers.  Although this auction will not be a huge money maker for the government after paying to clear the federal users, it would benefit society immensely.