The Economic Implications of Restricting Spectrum Purchases in the Incentive Auctions

Abstract

This paper contains two chapters on the economic impact of proposed FCC restrictions on participation in the 2015 spectrum auction, which would limit access to additional spectrum by large incumbent Internet Service providers (ISPs). The first chapter by Holtz-Eakin and Bazelon reports that such restrictions could reduce FCC auction revenues by as much as $12 billion or 40 percent, which in turn could mean that the FCC would be unable to purchase the full amount of spectrum being made available by broadcasters. They further report that this large shortfall could lead to a series of declining revenues and fewer frequencies allocated, and jeopardize funding for the new national network, FirstNet, planned for the exclusive use of public safety personnel. The second chapter by Shapiro reports that restricting auction participation by large, relatively-efficient incumbent ISPs would shift spectrum resources towards less efficient mobile carriers. This shift also would force the large incumbent carriers to deploy more costly responses to fast-rising consumer and business demand for bandwidth, raising prices and thereby slowing the transition to 4G technologies. Further, the slower transition to 4G would dampen the employment growth that should otherwise follow from the adoption of more advanced Internet technologies. Shapiro estimates that those effects could more than 118,000 jobs by 2017.