Economists Say ‘Flexible’ Incentive Auctions Law Would Give Best Return
Congress should be vague in legislation authorizing voluntary incentive auctions at the FCC, said commission and outside economists and consultants at a Technology Policy Institute lunch Monday. While the economists opposed forcing broadcasters and other holders to give up their spectrum, they said it’s not a good idea also to make the repacking process voluntary. Some urged the FCC to address competition in auction rules due to increasing consolidation in the wireless industry.
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"We don’t know right now what the best way [is] to do” voluntary incentive auctions, said FCC senior economic advisor Evan Kwerel. “We need a lot of flexibility [from Congress] to figure it out.” The commission will develop rules through a “collaborative” process taking into account views of industry and academics “to get the best design that meets the objectives that Congress sets for us,” Kwerel said.
The FCC understands auctions and is best suited to make the rules, said Karen Wrege, senior auction consultant for Power Auctions. “The legislation should leave the design details out.” Lawrence Ausubel, economics professor at the University of Maryland, agreed: “It’s not only easier to write vague legislation; it’s also better. … There are a lot of delicate aspects of this operation, and poorly drafted legislation could simply stop this valuable program dead in its tracks."
Congress could “screw up” if legislation imposed restrictions like requiring certain types of stations to maintain over-the-air broadcasts, said Peter Cramtom, an economics professor at the University of Maryland. Another mistake would be to specify a percentage of auction proceeds going to the U.S. Treasury, he said. That could “cause enormous harm” because it may force the government to withhold spectrum from the market just so it can meet the percentage. “Since we don’t know what the supply and demand curve looks like, Congress is in no position to make a judgment about what fraction of the revenues should go to the Treasury,” he said.
While giving up spectrum should be voluntary, repacking should be mandatory, the economists agreed. “It accomplishes absolutely nothing if some broadcasters express a willingness to clear and we're left with a checkerboard of spectrum,” said Ausubel. The FCC already has authority to force TV stations to move “as long as they give them an equivalent channel,” Kwerel said. But Ausubel suggested placing explicit FCC repacking authority in voluntary auctions legislation anyway. “That seems like the most vulnerable spot where there could be lawsuits,” he said. “While I believe they already have this authority, who knows what the court of appeals will think."
Broadcasters will give up spectrum for the right price, said Wrege. Some broadcasters right now may say they oppose incentive auctions “at any price” because they don’t want to move, she said. “But if Congress passes this … it provides an opportunity for broadcasters to really decide whether or not it’s worth it, whether or not there’s a price at which they would rather not do over-the-air broadcasts,” Wrege said. “I believe there’s a price.” To encourage broadcasters, the auction process must be simple and spectrum holders must know they will be compensated, she said.
Legislation should include a “must carry" clause saying broadcasters who give up spectrum will not lose their right to be carried on cable and satellite networks, Ausubel said. “If anything is done to make broadcasters hesitant about participating, it’s the fear that giving up over-the-air broadcasting is going to have the result of forfeiting their must-carry rights on the vehicles with which people actually watch their shows,” cable and satellite, he said.
"Basic economics” says that an AT&T/T-Mobile combination would reduce the amount of money that Verizon and AT&T will pay for spectrum in auctions, Ausubel said. “They're going to bid less because there are fewer of them,” he said. To counter that, there could be “greater reliance on reserve prices in the auction than there was in the past” and “greater need for competitive measures to encourage active bidding by a third and fourth firm,” he said. Cramtom agreed that the FCC should address competitive issues in its auction rules. Two carriers owned most 700 MHz spectrum, he said. “We need to have more than a duopoly."
The FCC process to make incentive auction rules could take two years, said Cramtom and Wrege. Kwerel refused to guess a time frame, but said the FCC will go through its normal rulemaking process. “I don’t think we want to rush this thing,” he said. The FCC doesn’t want to be “dilatory,” but “it takes time to do things quickly.”