Yesterday, I posted why the proposal in the House Republican Spectrum Reform discussion draft makes no sense economically. For those who would argue that it does, I reply: then it ought to run both ways. In every auction, the FCC ought to be required to present two options: the licensed option for individuals and the unlicensed option for “collective” bidding.
As it stands, the statute seems to say that it is always fine to chose an auction of exclusive licenses to bestow upon the favored few, but whenever the FCC thinks making spectrum generally available to the public via an unlicensed allocation is a good idea, suddenly we are all “Whoa! Letting the public use the public airwaves? That socialism. Better let big companies like AT&T and Verizon have a chance of bidding on whatever they want first.”
But if this is economics, rather than ideology, it cannot possibly make sense from an economic perspective to say: “it is always rational to select an auction for license, but if you are even thinking about unlicensed better require the unlicensed folks to show there’s a market.” The premise of the Bykowsky paper on which the bill proposal is based, and on which allocation by auction is generally based, is that “the market” will do a better job of allocating the resource efficiently (in the absence of transaction cost and in the presence of sufficient information to make rational decisions as to future value — to which we have now added a collective action problem of mamoth proportions, but lets gloss over that). Well, if we accept this premise, it does so all the time. If the “unlicensed auction” is efficient in the case where the FCC’s initial determination is that unlicensed would be the better allocation for this specific band, then it must equally be true that where the FCC’s initial determination that licensed spectrum is better suited to the band.
Look at how many low performing auctions, such as the upper and lower band pager auction last year could be improved by allowing hordes of new bidders to purchase the “Unlicensed” option. Even major auctions would — if this theory is correct — be improved by including the “unlicensed collective” as an option. Why shouldn’t Google, MS, Dell, etc. have the right to bid collectively for NYC or any other market on all the reclaimed spectrum under the “collective bidding” rule for unlicensed (which is different from having Google, MS or Dell bid individually, and in competition with each other, for exclusive licenses to convert to private commons. Remember, this is about the efficiency of chosing an allocation type, where the Bykowsky paper proposes industry factions should bid for rules).
After all, if this theory is valid, it is ALWAYS more efficient to make the determination on the nature of allocation via auction. And it means more bidders, so more revenue, right? Otherwise, the proposal is merely a mechanism for privileging a single industry segment with a particular business model or an ideological exercise divorced from fundamental economics. If it is efficient to auction the TV white spaces between a collective unlicensed bid and potential individual licensees, it is efficient to take that portion of the reclaimed broadcast spctrum designated for exclusive licenses and permit collective unlicensed bids.
Sauce for the ulicensed goose is equally good, or bad, as sauce for the licensed gander.