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The IoT needs more wireless spectrum

Bret Swanson | June 4, 2015
Two big waves in the wireless world are driving the need for more spectrum, the radio signals that carry data to our phones, tablets and other mobile devices.

For the last several years, T-Mobile and Sprint, the third- and fourth-largest U.S. mobile firms, have argued for special set-asides of spectrum to help boost business. They've argued they are spectrum-poor compared to AT&T and Verizon, although on a per-subscriber basis they actually own more. 

In particular, T-Mobile and Sprint have argued that their relative lack of "low-band" spectrum in the 600-800 MHz range makes it difficult for them to compete. Sprint and T-Mobile, which own most of their spectrum in the mid- and high-bands, said low-band spectrum is more useful because of its greater coverage of broader geographic areas. They successfully lobbied the FCC to tilt the incentive auction rules in their favor, making it more likely they will obtain low-band spectrum at discounted prices than in a free and open auction. 

Now, however, they are back for more. In a new campaign, they want the FCC to reopen the incentive auction rules and double down on the preferential treatment. 

The foundation of their case, however, is suspect. We argued at the time that mid- and high-band spectrum, because they enable greater capacity, are more valuable than commonly assumed. And there is now more hard evidence for this view. 

The record-setting sums bid in the AWS-3 auction early this year demonstrate conclusively the value of mid-band spectrum. In fact, Goldman Sachs says the $41 billion AWS-3 auction was a game changer. It "reset our understanding of where value is stored within the sector," Goldman writes. "The valuations bid for these mid-band' frequencies were not only more than 2x what we had expected, they flipped on its head the conventional wisdom that low-band coverage' spectrum is the most valuable." Not only is mid-band not orphan spectrum, it is perhaps now the most valuable type of spectrum. 

Perhaps recognizing the fault in their spectrum-poor arguments, the smaller firms now argue that they deserve access to generous portions of all types of spectrum, even spectrum they declined to bid on in the past — and at a discount. But how far should Washington agencies go to take from some firms and give to others to erase any perceived differences among market competitors? We might as well just adopt a full-scale industrial policy, dispense with auctions and secondary markets altogether, and go back to command-and-control government spectrum allocations. The very reason for the incentive auction is to repurpose old TV spectrum that is now grossly underused precisely because it was parceled out by the government decades ago under a top-down, Washington-knows-best system. Ronald Coase, the father of spectrum auctions, is no doubt looking down in disbelief. 

The problem is not just that Washington is picking winners and losers in an un-auction, though that is bad enough. The real threat is that this micromanagement could collapse the incentive auction altogether by reducing bidding, and thus prices, and thus the willingness of the TV broadcasters to participate and relinquish their airwaves to higher-value uses. According to a new Brattle Group study, the U.S. wireless industry narrowly defined already accounts for $400 billion of annual economic activity. But wireless increasingly will underpin most of the economy, from healthcare to transportation. 

A real auction is the surest route to achieving that 500 MHz objective — and launching the next waves of mobile innovation.

 

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