Spectrum overhaul long overdue

A critical telecommunications debate over spectrum will soon come to a head. In the run-up, however, all sides seem to have forgotten what the debate is, at its core, supposed to resolve.

That core issue can be understood by asking, what is the most important task one undertakes every day? From an economic perspective, it is the allocation of scarce resources. For most people, it’s how one allocates one’s time. For most CEOs it’s allocating the human and financial capital of the firm.

{mosads}Governments are no different. Every day, the decisions made in D.C. that matter most are those that allocate the collective resources of our government to address those problems that, as Lincoln said, only government can address. The budget debate is the most obvious example, but many policy decisions boil down to a judgment to allocate resources in ways that foreclose an alternative allocation.

Allocation is not a one-time event. Past decisions are always revaluated. Every enterprise has a mechanism that enables it to reallocate resources as circumstances change. Presumably no one would argue that we should base today’s budget decisions on the realities of 1955. Yet that is one of the most prevalent arguments made in the spectrum debate. 

Other than human ingenuity, spectrum is probably the single most important input into the broadband ecosystem, and certainly the most important asset controlled by the government. Over the last 70 years government has allocated all of it, but technologies and markets change. The question we should be debating is, what process should we use to reallocate spectrum to achieve our country’s purposes?

There are only four alternatives. First, we can assume the original government allocations were perfect. It sounds absurd, but boiled down, that is what some current license holders argue — that no change should be entertained, that the original number of broadcasters in every city was is still perfect, despite the many changes in the market since that original allocation.

Second, we can let all spectrum license holders sell their licenses for any use. This idea has ideological attractiveness but many practical problems — different uses in similar frequencies in adjacent markets would likely lead to chaotic inefficiency. As a recent letter from 112 economists pointed out, such a scheme would retard economic growth by creating friction in the efficient development of a market for spectrum and would make it more difficult to invest in next-generation networks, a result that would make it impossible to retain world leadership in mobile broadband. 

Third, we can rely on the current law, which gives the Federal Communications Commission the power to reallocate by administrative fiat. This raises the question of whether to rely solely on the judgment of the agency, which on allocation decisions is by its nature likely to be overbroad and risks a long administrative and legal process. The FCC in the past 25 years has successfully reallocated spectrum, but most experts agree that the easy reallocations are over and future reallocations by administrative means would be much more contentious and lengthy.

Fourth, we can use market forces to drive the reallocation by enabling existing holders to return voluntarily all or part of their spectrum to the market, and share in the proceeds of a government-run auction. This would result in an efficiently organized, market-driven relinquishment of frequencies, thus leading to a timely reallocation of economic assets reflecting new market realities. 

Those are our choices — our only choices. While I favor the fourth alternative, my point today is that all of the discussion — whether there is a spectrum crisis today, tomorrow or in 2020, exactly how much spectrum we are going to need for iPads, the future role of femtocells, potential repacking plans and all other related issues — ignores the key question: how do we, not next year, but over the next decades, enable an ongoing reallocation of spectrum to improve our country’s well-being? That is the debate we need to have and the decision we need to reach.

Levin, a fellow at The Aspen Institute, led the team that wrote the FCC’s National Broadband Plan.