Bad Spectrum Analysis
Proposed FCC auction rules would benefit the big Internet content guys at the expense of taxpayers and consumers.


Phil Kerpen

Big-government fever, rampant for months in Congress, now appears to have spread to the Federal Communications Commission, which may be poised to include an onerous regulation of wireless phone service in its rules for an upcoming spectrum auction.

Auctions are a very efficient way of allocating scarce public resources, such as spectrum. The particular spectrum in question, 60 MHz of the prime 700 MHz band, is very desirable to wireless phone companies since it can penetrate walls and travel long distances. It is so valuable, in fact, that experts project auction proceeds will come in anywhere from $10 billion to more than $20 billion.

Unfortunately for taxpayers and consumers, FCC chairman Kevin Martin is circulating draft auction rules that impose strict “open access” restrictions on a large portion of what is to be auctioned. These restrictions, cheered on by and others on the angry left, would prevent wireless companies operating on that spectrum from managing the devices and applications they support. These restrictions effectively would turn a carrier operating on that spectrum back into an old-fashioned common carrier — a regulated utility that would provide a convenient platform for companies like Google and Skype (“Use your computer to call any phone number, anywhere in the world.”) who want access to spectrum without having to pay for it.

All of this is a wireless version of the so-called “network neutrality” fight that’s been raging for years. Internet content companies resent paying for network infrastructure, even though their services could not exist without the physical networks on which they run. Content companies want these aggressive regulations to ensure that the full costs of infrastructure are placed directly on consumers.

The FCC’s Martin has talked about how his proposed rules will prevent wireless companies from disabling voice-over-Internet-protocol (or VoIP) functionality in their handsets, which many carriers do to prevent data traffic (which VoIP is) from cannibalizing revenue from voice minutes. But a company required to offer VoIP would have no way to pay its costs other than to hike prices for services. There is no free lunch.

Moreover, if that were an efficient business model, FCC rules to rig the auction would be unnecessary. Google (the farthest thing from a charity case) or some consortium of content companies could bid for spectrum like everybody else. Instead, these companies want the rules to require the type of network that would benefit them the most.

Clearly, the proposed FCC auction rules would benefit the big Internet content guys at the expense of taxpayers and consumers. Consumers would be left with less-meaningful choices than if one of the highly competitive wireless carriers won this spectrum and used it to compete for customers with innovative services. Taxpayers, meanwhile, would be on the hook to cover billions of dollars lost in auction revenue — monies slated for deficit reduction, public safety communications equipment, and for easing the transition when television broadcasters vacate the analog 700 MHz spectrum and go all-digital in February of 2009.

Competition and freedom ultimately produce the best results for consumers. The FCC should proceed with the auction without undue restrictions, and thus allow this high-quality spectrum to be put to its best use.