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The FCC Spectrum Auction: A Great Idea, If It's Done Right

In order to cover the cost of extending the payroll tax cut, Congress has made a significant policy decision in an unrelated field: It has chosen to auction off spectrum. The move will raise revenue and help ensure efficient allocation of limited spectrum—a resource increasingly in demand due to the growing use of devices like smartphones and iPads. Will the auction work?

A 2011 paper on spectrum auctions says they have been “remarkably successful in assigning and pricing spectrum.” But, the authors write, there’s a wrinkle: An auction that awards spectrum to the highest bidder may not actually be efficient, “because the bidders’ private values for the spectrum may differ from social values as a result of market structure issues.” Established firms often make high bids in order to keep up-and-coming competitors from accessing spectrum. So in order to guarantee the most efficient possible allocation, it may be necessary to exclude certain actors from the auction. Unfortunately, as the Times reports, the current auction bill forbids the F.C.C. from doing just that: There is “a provision in the bill, pushed aggressively by broadcasters, that […] prohibits the F.C.C. from excluding from the auctions companies like AT&T and Verizon, which already hold large chunks of spectrum for their networks.” Hopefully that provision will get dropped, leading to a smarter allocation of spectrum—and ultimately, faster mobile speeds and economic growth.