Special Privilege Triumphing Over Economics, Efficiency, Fairness
Here are excerpts from an excellent article in the May 7, 2001 issue of The Industry Standard. For more information visit www.thestandard.com
by J.H. SniderWhy are the airwaves -- medium of so much potential commerce -- so poorly managed in the United States? The rapidly growing demand for spectrum, or a range of frequencies, is creating tension between doing what's fair and doing what's economically effi- cient. Yet Congress, which is the arbiter of spectrum disputes, has never been very good at making difficult decisions.
The spectrum shortfall is a relatively new problem. In the past, a continuous stream of new technology expanded the range of usable spectrum into a wide open frontier of higher and higher frequencies. The frequencies at the bottom end of the spectrum in demand because they are capable of carrying more information were allocated to the most popular applications: radio and television. When higher frequencies became usable, they were allocated to new applications such as direct-broadcast satellite TV.
With the spectrum frontier constantly expanding, Congress could avoid difficult political trade-offs between the privileged interests of existing spectrum licensees (the "incumbents") and those representing new services and entrepreneurs. Use all you want, the thinking went -- we'll find more. This worked reasonably well as long as the frontier was open. Unfortunately, It has closed; and it has closed at a time when demand is skyrocketing.
This at first might not seem like a very big problem. By law, the spectrum belongs to the public, and most licenses are limited in duration and constrained to particular applications. Why not let the market sort things out by terminating those licenses and awarding new ones via auction? The answer is that spectrum incumbents are politically powerful (no member of Congress wants to take on his or her local broadcaster) and would strongly oppose such a proposal. The going rate for 1 MHz (a measure, like bits per second, of information-carrying capacity) of unencumbered low-frequency spectrum serving the entire U.S. public is about $1 billion. TV station owners have the rights to 402 MHz of such spectrum, which they won't give up without a fight.
Not wanting to take on incumbents, Congress faces a painful trade-off between efficiency (how much consumer welfare can be squeezed from the spectrum) and equity (equalizing benefits to different groups). For example, if demand for broad-band Internet services greatly exceeds demand for HDTV, allowing broadcasters the flexibility to meet this demand would increase efficiency but harm fairness by making the companies the beneficiaries of unprecedented government largesse. No politician wants to be seen giving billions of dollars, even in the form of spectrum rights, to a bunch of fat cats. [Progress Report note -- actually, politicians have repeatedly given billions of taxpayer dollars to fat cats. The politicians don't mind as long as the taxpayers don't stay angry for very long. Politicians expect taxpayers to have short attention spans. See the Corporate Welfare Shame Site.]
Torn between efficiency and fairness, Congress has chosen to do nothing. Pressure is already mounting for legislators to address spectrum mismanagement. But only when the pressure reaches crisis levels will the configuration of political forces leading to the current catch-22 spectrum politics be overturned.
We had a spectrum crisis in 1996 and the result was a giveaway of $110 billion in spectrum to fatcats. Will next time be any different? What's your opinion? Tell your views to The Progress Report:
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