Bidding Restrictions Could Lower Consumer Welfare by $230 Billion
To deal with the looming spectrum crunch, Congress passed the Middle Class Tax Relief and Job Creation Act of 2012, which would, through reverse auctions, compensate TV stations for giving up broadcast airwaves and, through forward auctions, allow wireless service providers to repurpose the spectrum for broadband services. However, in writing auction rules, the FCC chose to restrict bidding by the two largest wireless providers, AT&T and Verizon, in the hopes that spectrum would be distributed more evenly amongst smaller providers.
In doing so, however, the FCC has likely jeopardized the success of the auction.As ACI’s new ConsumerGram (Corporate vs. Consumer Welfare: Who Will the FCC’s Auction Rules Help?) shows, restrictions on competitive auctions will lead to lower bids for wireless spectrum. That, in turn, will mean that less spectrum would be repurposed to wireless broadband services, which means that consumers will potentially face spectrum rationing, poor service quality, higher prices and an increased reliance on data caps.
In short, by making the wireless auction less competitive and by favoring some competitors over others, the FCC’s decision means that wireless broadband consumers lose. As this ConsumerGram shows, the resulting consumer welfare loss will amount to roughly $23 billion for every television channel that is not repurposed because of rules that limit competition in the auction.
So what must the FCC do? The FCC’s auction bidding system needs to be competitive. To accomplish this, the FCC needs to reconsider its rules or, at a minimum, set an auction target price that is sufficiently high as not to trigger these auction bidding restrictions.
If the FCC does not do this, its restrictions will benefit only a few corporate winners, but leave millions of consumers as the big losers. In short, the repurposing of scarce spectrum should be about helping consumers, not some competitors.
About the Author
Steve Pociask is president of the American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization. While he is a member of the FCC’s Consumer Advisory Committee (CAC), the views expressed in this ConsumerGram are solely his own and do not necessarily represent the views of the CAC or its members.