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Auction Set-Asides Shortchange Consumers

The next tidal wave in mobile data is coming. Not only did traffic grow 70% last year on a global basis, it is on track to increase nearly tenfold by 2019, per Cisco Systems. All carriers will need more spectrum to provide fast, reliable service. But spectrum is a limited resource, and purchasing and deploying it takes time.

That’s why it’s critical to identify spectrum (especially holdings of government agencies, some 60-70% of useable spectrum) that could be repurposed for commercial mobile use. In the meantime, the next big opportunity to acquire spectrum will be the Federal Communications Commission’s incentive auction next year.

It took the FCC 60 years to hold its first spectrum auction, and the incentive auction will be by far the most complex yet. Previous auctions have successfully repurposed needed spectrum for mobile broadband and raised billions of dollars to fund important societal needs, such as FirstNet, the long-awaited national broadband safety network. If there is one takeaway from previous auctions that should be applied here, it is that rules that pick winners and losers before bidding begins will compromise the auction.

The FCC is expected to make an announcement about bidding rules this summer. Among other things, it will decide how much spectrum will be set aside for certain favored bidders to acquire spectrum at below-market value. The FCC already green-lighted setting aside 30 MHz of spectrum per market, but is now being lobbied by T-Mobile to increase the set-aside. Sprint, Dish Network, and others are pushing for the increased set-aside, too — both on their own and under the banner of Save Wireless Choice, their newly created advocacy group designed to mask their corporate interests.

The set-aside is proffered under the old trope that the largest bidders should be restricted to give a leg up to the “little guys,” which in this case includes the likes of Sprint, T-Mobile and Dish — hardly little or in need of subsidies. But if we look more closely, strategies like this can backfire at significant costs that not only harm competition, but also shortchange all Americans by failing to allocate spectrum efficiently.

Competition means there are winners and losers. It’s not the job of the regulators to compensate for poor management. Companies like Sprint, T-Mobile, and Dish don’t need subsidies. There’s enough cash flow to purchase spectrum and build infrastructure.

Roslyn Layton is a Ph.D. fellow at the Center for Communication, Media and Information Studies at Aalborg University in Copenhagen and a visiting fellow at the American Enterprise Institute.