Richard Thaler’s NYT Economic View column features Tom Hazlett (my colleague, and former chief economist as the FCC) proposal for auctioning off TV spectrum. Thaler points out:
These frequencies are very attractive on technological grounds. People in the industry refer to them as “beachfront property” because these low-frequency radio waves have desirable properties: they travel long distances and permeate walls. We have already allocated parts of this spectrum for mobile wireless, and the F.C.C. recently auctioned other parts for $19 billion. That has left 49 channels for over-the-air television.
Why is the current use of this spectrum so inefficient? First, because of the need to prevent interference among stations, only 17 percent of it is actually allocated by the F.C.C. for full-power television stations. (The so-called white space among stations is used for some limited short-range applications like wireless microphones.)
Second, over-the-air broadcasts are becoming a nearly obsolete technology. Already, 91 percent of American households get their television via cable or satellite. So we are using all of this beachfront property to serve a small and shrinking segment of the population.
Here’s how Professor Hazlett describes the problem in the introduction to his proposal:
The Federal Communications Commission’s digital television (DTV) transition is not nearly complete. The total bandwidth set aside for terrestrial digital video broadcasting — 49 channels allotted some 294 MHz — is worth over $100 billion in license value and at least ten times that amount in Consumer Surplus.2 But it contributes virtually nothing to society in its current configuration, a verdict that will not change if the FCC continues on its present path. The existing policy, which freezes TV stations in their current positions and then attempts to sprinkle in unlicensed devices in the “white spaces” surrounding them, blocks the flow of spectrum inputs to the wireless services consumers most desire to use.
The opportunities squandered are highly valued by consumers: more competition
among mobile voice and data carriers; innovative, spectrum-intensive applications for emerging platforms such as those supporting Blackberries, iPhones, and gPhones; broad expansion of machine-to-machine services as launched by OnStar, Kindle, health telemetrics vendors, and product monitoring devices. While the under-allocation of radio spectrum to mobile networks has been visible for some years,3 the crisis now looming is widely seen. The explosion in bandwidth usage by smart phone subscribers, a salubrious product of competitive rivalry between mobile carriers, is challenging network capacities even now – when high-bandwidth applications, such as audio and video streaming, are just beginning to take-off.
The solution? Thaler discusses Hazlett’s auction proposal:
Suppose we put this spectrum up for sale. (The local stations do not “own” this spectrum. They have licenses granted by the Federal Communications Commission.) Although the details of how to conduct this auction are important, they don’t make compelling reading on a Sunday morning. Interested readers should examine a detailed proposal made to the F.C.C. by Thomas W. Hazlett, a professor at the George Mason University School of Law who was formerly the F.C.C.’s chief economist.
Professor Hazlett estimates that selling off this spectrum could raise at least $100 billion for the government and, more important, create roughly $1 trillion worth of value to users of the resulting services. Those services would include ultrahigh-speed wireless Internet access (including access for schools, of course) much improved cellphone coverage and fewer ugly cell towers. And they would include other new things we can’t imagine any more than we could have imagined an iPhone just 10 years ago. But some compelling technology that could use these frequencies already exists, like wireless health monitoring — to check diabetics’ blood sugar regularly, for example — and remote robotic surgery that can give a patient in Idaho a treatment like that available in New York or Chicago….
Professor Hazlett estimates that $300 per household should do it: that amounts to $3 billion at most. Compared with the gains from selling off the spectrum, it’s a drop in the bucket. Or, as an interim step, we could reduce the number of channels available in a community from 49 to, say, 5.
Who would oppose this plan? Local broadcasters are likely to contend that they are providing a vital community service in return for free use of the spectrum that was put in their hands decades ago. Whether the local news or other programs are vital services is up for debate, but their value isn’t the issue, because they can be made available via cable, satellite and other technologies, including improved broadband. …
I KNOW that this proposal sounds too good to be true, but I think the opportunity is real. And unlike some gimmicks from state and local governments, like selling off proceeds from the state lottery to a private company, this doesn’t solve current problems simply by borrowing from future generations. Instead, by allowing scarce resources to be devoted to more productive uses, we can create real value for the economy.
Economists are fond of saying that there is no such thing as a free lunch. Here we have an idea that is even better than a free lunch: being paid to eat lunch. More paid-lunch ideas will be coming in future columns.
Check out Thaler’s column, and Hazlett’s proposal.
The broadcast networks’, and their local affiliates’, claim to this spectrum seems to grow weaker every time they seek to hold up cable systems for additional retransmission fees. It’s bad enough that they get the spectrum for free, but then to turn around and impose additional charges on rebroadcast seems like an indulgent double dip.
Mike – Isn’t there a collective action problem, though? Some local broadcasters may wish to retain the licenses while others are happy to part with them. But that means a hodge-podge of geographic coverage for the purchased licenses, which doesn’t work well for any national system of mobile telephony and so forth. And it’s not even possible to work with roaming agreements because the spectrum simply won’t be available for that category of use in certain areas.
If your main goal is to reallocate spectrum from lower to higher valued uses, the solution is to let the existing spectrum users — the local broadcasters — sell it and keep the proceeds. This would eliminate the politcal economy problem identified by Thaler. Of course, the treasury wouldn’t get its windfall. But the point of auctions and other market-oriented mechanisms is not to raise money for the treasury, it’s to efficiently allocate resources.