Supporting Markets And Innovation Through Spectrum Auctions

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Steve Buyer Former Congressman
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The Federal Communications Commission (FCC) has scheduled a major auction of wireless spectrum for early 2016. That auction cannot come soon enough. Mobile broadband Internet access, whether on smartphones, tablets or across the “Internet of Things,” depends on spectrum. The demand for essential spectrum resources is skyrocketing.

The auction will also be the FCC’s chance to address a decades-old problem: the lack of effective market competition in the wireless sector. This problem stretches back to the 1980s, when the government gave legacy telecom companies free low-band spectrum to develop their networks. The market-disrupting effects of this handout continue today – Verizon and AT&T, the descendants of those companies, hold 73 percent of all U.S. low-band resources.

Without access to low-band spectrum, smaller carriers lack the critical input resources they need to compete. Rural Americans are hit hardest by the resulting lack of competition. Carriers cannot provide effective rural coverage without low-band spectrum, so many rural Americans have limited options when it comes to wireless providers because the U.S. telecommunication market is effectively a duopoly. Whenever and wherever the two major telecommunications carriers act as one in the market, anti-competitive methods, modes and practices weigh upon new market entrants and begin to cause investment distortions, with consumers bearing the brunt of higher prices, less innovation and lower-quality customer service.

For its part, the FCC is more than happy to intervene when competition lacks in the telecom sector; it has tried rate regulation, unbundling, interconnection requirements and other monopoly-era rules to simulate market dynamics. However, this artificial competition to battle the oligopolies is not a substitute for the real thing. We need facilities-based competition and the unbundling of network elements to deploy state of the art infrastructure and propel cutting-edge technologies.

Republicans have long championed the creation of facilities-based competition with a technology-neutral policy instead of competition by regulation; however, Republicans have been pragmatic enough to recognize that given the concentrated state of the telecommunications market in America, new market entrants must be protected until the federal courts address this competitive issue. The FCC will need to promote competition. Smaller carriers need access to the low-band spectrum resources to build out the kinds of wireless networks that can travel long distances and reach deep inside of buildings. This approach is the only way to ensure genuine, sustainable free market competition, expanded consumer choice and lower prices.

Competition increases investment, fosters innovation and creates jobs. If we want the benefits of competition to take hold, we need to correct the market failure evident in the current disparity in low-band spectrum holdings. The upcoming spectrum auction offers us an opportunity to do just that.

Competitive wireless companies need auction rules that permit greater access to low-band spectrum in the face of a highly concentrated market. The upcoming auction represents a critical turning point for the industry – and consumers. We can take a major step toward continued innovation, investment and economic growth in mobile broadband by adopting auction rules that diversify spectrum holdings and incentivize facilities-based competition in the wireless market.

Steve Buyer is a former Republican congressman for Indiana, where he served on the House Committee on Energy and Commerce from 2001-2010. He is the managing partner of the Steve Buyer Group.