Roadmap for a Voluntary Incentive Auction of Educational Spectrum in the 2.5 GHz Band

Posted by | March 27, 2019 | Broadband Internet | No Comments

The complete paper, Roadmap for a Voluntary Incentive Auction of Educational Spectrum in the 2.5 GHz Band, can be downloaded in PDF format by clicking HERE. This blog post contains the executive summary only (with footnotes omitted).

Executive Summary

It has been sixty years since Ronald Coase developed his titular theorem while considering whether the allocation of spectrum resources should be determined by market forces rather than government predictions. The once novel idea of harnessing the power of competitive bidding (i.e., auctions) to allocate spectrum rights has since become the norm for assigning spectrum licenses at the Federal Communications Commission (FCC) and throughout the world. After years of success with auctions, the FCC has repeatedly concluded that competitive bidding is a more efficient mechanism for licensing spectrum than “any previously employed methods.” The FCC has nevertheless proposed to grant new Educational Broadband Service (EBS) licenses suitable for next-generation 5G services using “filing windows,” one of the “previously employed” methods for allocating spectrum rights that are less efficient than auctions.

This paper concludes that the FCC should instead hold a voluntary incentive auction to assign new licenses for the EBS “white spaces” and spectrum reclaimed from incumbent EBS licensees, because:

  • buy zithromax boots An incentive auction would maximize the educational value of EBS spectrum by converting the leasing scheme’s implicit and inefficient subsidy into an explicit needs-based subsidy for educational broadband

The implicit subsidy in the EBS leasing scheme is economically inefficient, largely duplicative of the agency’s E-rate program for subsidizing educational broadband connections, and conducive to waste, fraud, and abuse.

EBS licensees have lower incentives and less expertise in managing valuable spectrum resources than commercial wireless operators, and the broadband benefits EBS licensees are receiving could be provided through alternative subsidy mechanisms. For example, in exchange for commercial use of its spectrum, a school board whose FCC license would be worth up to $157 million at auction is currently receiving an educational use benefit that amounts to $0.02 per K-12 student per month that can only be used to buy retail wireless broadband services from Sprint.

The EBS leasing scheme is not needs-based. More than 20 post-secondary educational institutions that hold EBS licenses have an endowment that is worth more than $1 billion—e.g., Emory University, whose $7.292 billion endowment equates to $515,165 per student. The vast majority of these elite institutions are leasing their spectrum rights to commercial operators to pad their budgets while K-12 students in rural and underserved areas struggle against the Homework Gap.

Pricing data from previous FCC auctions indicates that EBS licensees’ spectrum rights would be worth from 1.8 to 14.5 times more, on average, if the spectrum was sold on a commercial basis through a voluntary incentive auction. For example, EBS spectrum the School Board for Pinellas County, Florida is leasing for a total of $16,725,656 over a thirty-year period would be worth from $32,939,861 to $157,059,121 at auction (2 to 9.3 times more than the total lease payments).

  • History, economic theory, and empirical evidence demonstrate that incentive auctions are more efficient than secondary market transactions.

The secondary market for mobile spectrum licenses exhibits significant transactions costs, including bargaining problems (e.g., holdouts) and uncertainty about the final cost of assembling a broad spectrum footprint through piecemeal negotiations with multiple licensees. Congress granted auction authority to the FCC in 1992 as a remedy for these inefficiencies, and the greater efficiency of auctions was the basis for transitioning broadcast licenses to mobile use through the very first incentive auction in 2016. The FCC should not turn its back on auctions now. Granting new EBS licenses using filing windows and new flexible-use rights through fiat would promote the same economic inefficiencies that have plagued earlier efforts to assign spectrum rights without a competitive bidding process while relying on secondary market transactions to correct the resulting deficiencies in the initial distribution of spectrum rights.

This paper also proposes measures that are intended to maximize the voluntary participation of EBS licensees in an incentive auction while honoring existing spectrum leases. To accomplish this, the FCC should clarify that (1) it has legal authority to adopt spectrum licensing policies that impact the terms and conditions of existing spectrum leases, (2) any lease terms or conditions that could prevent EBS licensees from participating in an incentive auction are inconsistent with the FCC’s spectrum licensing and secondary markets policies, and (3) EBS licenses for spectrum that is sold in the incentive auction cannot be renewed. With these appropriate and limited clarifications, honoring existing spectrum leases would not prevent the FCC from holding a successful EBS incentive auction.

In addition to these measures, the paper suggests that the FCC (1) adopt county-sized geographic license areas for new EBS licenses, (2) consider reconfiguring EBS licensees’ circular geographic service areas based on the weighted MHz-pops methodology it recently adopted for the 39 GHz band, and (3) consider conditioning the T-Mobile-Sprint merger on the voluntarily termination of the new company’s lease rights with respect to the sale of EBS licenses to third-parties.

A voluntary incentive auction is the FCC’s best option for maximizing efficient and effective use of EBS spectrum and would have the added benefit of eliminating a duplicative and inefficient subsidy program for educational broadband. If the FCC were to instead adopt the filing-window approach, it would support past skepticism of the agency as an “economics-free zone” and deal a body-blow to the credibility of the agency’s new Office of Economics and Analytics.