Revenue-Centric vs. Growth-Centric: The Case of Super WiFi Networks

by Reihan Salam

The Federal Communications Commission is seeking to enable super WiFi networks that would span entire neighborhoods, and eventually entire cities, to allow a wide range of users to gain low-cost or even free access to wireless communication. As Cecilia Kang reports, however, not everyone has embraced the idea. FCC Chairman Julius Genachowski, in an email to Kang, maintains that “freeing up unlicensed spectrum is a vibrantly free-market approach that offers low barriers to entry to innovators developing the technologies of the future and benefits consumers,” and local governments and consumer advocates are enthusiastic about the potential boon to low-income households, tourists, students, and small businesses. 

Yet freeing up unlicensed spectrum for the creation of super WiFi networks (and much else, presumably) would represent a loss of revenue:

Some Republican lawmakers have criticized Genachowski for his idea of creating free WiFi networks, noting that an auction of the airwaves would raise billions for the U.S. Treasury.

That sentiment echoes arguments made by companies such as AT&T, T-Mobile, Verizon WirelessIntel and Qualcomm, in a letter to the FCC staff late last month, that the government should focus its attention on selling the airwaves to businesses.

The question is whether or not we should care. What I find amusing about this argument from revenue is that it almost perfectly parallels arguments about tax rates, in which conservatives tend to oppose a revenue-maximizing approach, and for good reason. Consider the following from Arpit Gupta:

Although few economists believe that the U.S. is above the revenue-maximizing rate, and that therefore cutting taxes would increase tax revenue, maximizing revenue should not be the sole consideration in deciding tax rates. Higher tax rates carry costs even when they raise revenue for the government. As long as the elasticity of taxable income is higher than 0, any increase in taxation will result in a lower measurable amount of economic activity and reduce the amount of reported income. Additionally, the closer we are to the top of the Laffer curve, the harder it is to raise tax revenue by increasing taxes. The top of the Laffer curve is best regarded as the upper limit of feasible tax rates rather than as the optimal rate. [Emphasis added]

That is, it is possible that while an auction of the airwaves Genachowski intends to set aside for super WiFi networks “would raise billions for the U.S. Treasury,” the gains in the form of consumer surplus, in encouraging tourism, in spurring broadband providers that currently face minimal competition to offer improved service, in giving low-income households a low cost alternative to traditional telecom providers, etc., would generate tens of billions for the U.S. economy, and that the resulting increase in measurable economic activity will in turn generate some non-trivial increase in revenue.

So why would Republican lawmakers focus on static revenue gains that flow from auctioning this particular slice of spectrum, given that other slices of spectrum will already be allocated via auctions? This presumably reflects a (mistaken) belief that supporting the interests of the most powerful telecom incumbents is the best way to encourage growth. But it does not reflect the kind of dynamic perspective that emphasizes the importance of fostering entry and competition in encouraging growth, and that is a shame.

This is not to say that the super WiFi networks proposal is flawless. (Jerry Brito reminds us that’s not even a proposal as such.) It does, however, serve as a reminder that revenue gains shouldn’t be the only yardstick by which we evaluate policy initiatives.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.