Report: Putting Mid-Band Spectrum into Licensed Use Adds Billions to Economy

On January 23, CTIA published a report, "The Economic Impact of Each Additional 100 MHz of Mid-band Spectrum for Mobile." 

The report, prepared by NERA, identifies the serious looming shortfall of mid-band range (1 GHz to 7 GHz bands) spectrum for licensed use in the face of sharply rising demand – and it goes on to estimate the tremendous economic benefits that result from putting more spectrum into licensed use:

[T]he wireless industry is rapidly approaching a spectrum deficit that will result in network congestion, thereby hindering the continued growth fueled by the wireless industry. Projections indicate that wireless operators will need at least 400 MHz of additional spectrum by 2027 to meet the needs of the U.S. economy, a deficit that will continue to grow to over 1400 MHz by 2032.

…

We estimate that each additional 100 MHz of mid-band spectrum to mobile will generate $264 billion of GDP, about 1.5 million new jobs, and about $388 billion in consumer surplus. The impact of 400 MHz of mid-band spectrum would be $1.1 trillion of GDP, 6.18 million new jobs, and about $1.5 trillion in consumer surplus. Beneficial effects would continue to accumulate beyond 400 MHz, and we estimate that by 2028 even 400 MHz of new 5G spectrum will not be enough to keep up with consumer demand.

The report traces the economic benefits of allocating mid-band spectrum for wireless use, including better mobile and fixed wireless access (FWA) for consumers and business employers, as well as support for industries that rely on mobile connectivity or serve the wireless industry.  

 

Reallocating spectrum occupied by federal agencies for licensed commercial use will require Congress to reauthorize the FCC's authority to conduct spectrum auctions and issue licenses to bid winners. Restoring that authority should be a top priority of the 119th Congress. Achieving this result and maximizing the economic benefits of licensed spectrum use also likely will depend on Congress and the Trump Administration finding ways to accelerate or revamp the existing National Spectrum Strategy to get lower 3 GHz and other spectrum ready on a much faster timetable.  

Architects of FCC Spectrum Auctions Win 2020 Nobel Prize in Economics

The Free State Foundations offers its congratulations to Paul Milgrom and Robert Wilson, the winners of the 2020 Nobel Prize in Economic Sciences. Milgrom and Wilson's "best-known contribution" is their work in the field of spectrum auctions.

Today it seems rather obvious: auctions serve as an efficient and workable tool to leverage market forces in order to put scarce spectrum resources to their best and highest use. Simply put, those who bid the most, value it the most.

But a number of factors – differences between private (subjective) and common valuations, imperfect information, license coverage areas, and more – once posed challenges to the effective use of auctions in the spectrum context.
Thanks to their work in auction theory, however, the Commission was able to transition to auctions, to the benefit of consumers of telecommunications, the U.S. Treasury, and industry.

Thus, prior to the first spectrum auction designed twenty-five years ago by these two Stanford University professors and frequent collaborators, the FCC relied upon a lottery system – and, before that, so-called "beauty contests" – to determine how spectrum would be distributed.

As the prize committee explained:

[H]ow do you design an auction that achieves the efficient allocation of radio-frequency bands, while at the same time benefitting taxpayers to the greatest possible extent? ... Milgrom and Wilson – partly with Preston McAfee – invented an entirely new auction format, the Simultaneous Multiple Round Auction (SMRA). This auction offers all objects (radio frequency bands in different geographic areas) simultaneously. By starting with low prices and allowing repeated bids, the auction reduces the problems caused by uncertainty and the winner's curse. When the FCC first used an SMRA in July 1994, it sold 10 licences in 47 bidding rounds for a total of 617 million dollars – objects which the American government had previously allocated practically for free.

Between 1994 and 2014, SMRAs run by the Commission generated over $120 billion in revenues. 

FCC Should Conduct Regulatory Impact Analyses

This week, the Mercatus Center at George Mason University published a new paper by Jerry Ellig, the chief economist at the FCC. The paper is titled “Why and How Independent Agencies Should Conduct Regulatory Impact Analysis.” Earlier this year, the FCC, an independent agency, established the Office of Economics and Analytics, which is a step in the right direction towards improving its economic analysis of proposed rules.

Here are some of the steps Jerry Ellig recommends for regulators:

• Avoid “ready-fire-aim” rulemakings, in which decisions are made first, and then economists are expected to produce a cost-benefit analysis that supports those decisions. 

• Ensure the independence of economists (and other analysts) and give them incentives to conduct objective analysis. For example, have economists work in a separate office or bureau, and make sure they are not supervised by the policy staff who write the regulations that the economists will evaluate. 

• Establish agency-wide standards for regulatory impact analysis that outline the topics that the analysis must cover and establish expectations for quality.

• Explain how the economic analysis affected decisions about the regulation. 

• Invite the Office of Information and Regulatory Affairs (OIRA) to review the regulations and the accompanying analysis, just as it does for executive branch regulations. 

Improving the quality of economic analysis at the FCC will be an important topic of conversation at the Free State Foundation’s March 27 Telecom Policy Conference titled “Connecting All of America: Advancing the Gigabit and 5G Future.” Neomi Rao, Administrator at OIRA, will be giving a keynote address and likely will discuss how regulatory impact analyses help create effective policies.

See the rest of the agenda here and make sure you register!

Opposing the FCC's Use of Economics and Analytics Raises a Red Flag

Yesterday, the FCC voted to establish the Office of Economics and Analytics, which will help ensure that economic analysis is deeply and consistently incorporated as part of the agency’s regular operations. The decision was a party-line vote with Commissioners Clyburn and Rosenworcel dissenting, but why would any Commissioner vote against the FCC using more economics and analytics?

In a September 2017 blog, I said that opposing a cost-benefit analysis for proposed regulations is a red flag:

It is important that the FCC perform this cost-benefit analysis, because agencies, independent or not, should analyze how new rules will impact innovation, investment, job creation, and economic activity. It is reasonable to question the methodology that an agency uses when assessing the costs and benefits of a regulation. However, if an interested party offers only criticism of an agency proposal to conduct a regulatory CBA, this is likely a signal that the interested party fears that the costs will outweigh the benefits, invalidating its policy position.

I think the same rationale applies for anyone who opposes the FCC’s action to create the Office of Economics and Analytics. It will be important for consumers, businesses, and policymakers to question the methodology and results that this office will produce in the future, and I fully expect all Commissioners, at some point, to disagree with a methodology used by the office. However, opposing the implementation of additional uses of economics, analytics, and data science at the FCC raises a red flag.