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FreedomWorks is opposed to efforts underway that would undermine the auctions that have been used to allocate spectrum by the Federal Communications Commission (FCC). Spectrum auctions have worked well to allocate this scarce resource in ways that provide great benefits to consumers, yet there have been recent attempts to place new restrictions on the use of spectrum and re-jigger the auction in a way that lets regulators rather than markets pick winners and losers. A recent study by Jeffrey Eisenach, Chairman of Criterion Economics, highlights some of the pitfalls of one such proposal. For example, the study finds that public safety may be required to pay $9 billion over a six-year period for the winning bidder to be financially viable.
In particular, Eisenach assess the risks of a proposal by Frontline Wireless that would create an auction that bans existing wireless carriers from participating while imposing new restrictions on the final use of the spectrum on auction. Namely, it would create a wholesaler that would not be able to sell to consumers directly, and it would establish an “open access” rule for use of the new spectrum. Additionally, public safety and wireless consumers would both share the network, with public safety paying access charges to Frontline.
“The Frontline proposal is a significant departure from the current auction system that has allowed market forces to efficiently allocate spectrum resources,” said Wayne Brough, chief economist at FreedomWorks. “Not only does this proposal take important questions about resource allocation out of the marketplace, but it also leaves important questions about financial viability unanswered.”
The report by Eisenach demonstrates the need for due diligence before even considering whether to abandon the spectrum auctions with new regulatory allocations of spectrum that place new conditions and constraints on how that spectrum is being used. As the author notes, many important risks have not been sufficiently evaluated. Because Frontline’s proposal would require public safety and taxpayers to become “investors” in its business model, due diligence is required. His own estimates suggest that the public safety “access charges” necessary for the plan to work would exceed 30 percent of public safety’s six-year budget on first-responder communications. At the same time, there has been little effort to demonstrate that the project is commercially feasible.
“The spectrum auctions, by and large, have been a huge success that captures market forces when allocating important and scarce resources,” said Brough. “The Frontline proposal is a step backwards that introduces new regulations on spectrum without any measure of financial viability. Due diligence is especially important when taxpayers may be left holding the bag.”
Dr. Wayne Brough is available for comment on the study. Contact Adam Brandon at (202) 942-7698. Dr. Jeffrey Eisenach is available at (202) 448-9029.
The Eisenach study is available at: http://www.freedomworks.org/informed/issues_template.php?issue_id=2859