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The Spectrum Auction: How Economists Saved the Day

vgkvit 10y ago
It seems quite generous to say they "saved the day" when in actuality they granted a handful of monopolists complete control over what was previously a public resource.
- bluedevil2k 10y ago
  No, they created a competitive open market for spectrum. Any company can bid in the auction, it doesn't have to be a telecom "monopoly". Private equity will be bidding, Google will be bidding. The unspoken truth about when spectrum auctions was handed out by the government is that crony-ism played a huge part, and led to inefficient allocation of spectrum. Another debate can be had about the just finished reverse auction - should the government pay these tv stations (think your local ABC station) money to buy back the spectrum they were given for free?
  - bnfjrjjfjhm 10y ago
    The notion of granting permanent exclusive right of way to anyone is decidedly non-optimal. What was once the most efficient use for that spectrum may no longer be the case, but now you have to fight monopoly forces in order to achieve efficient use. If spectrum were an infinite resource, sure grant permanent ownership, but it's not infinite. One spectrum grant precludes someone else from having access to wireless spectrum. A much more efficient means would have been automated auctions for 12 month leases, combined with broadcasters having the capability to automatically switch to different channels as their spectrum portfolio changes.
    - refurb 10y ago
      Ummm... it's not permanent ownership, it's a limited duration license.
    - pdabbadabba 10y ago
      Sounds like you would like the 3.5 GHz "citizens band." https://www.fcc.gov/rulemaking/12-354 https://www.fcc.gov/rulemaking/12-354
    - dang 10y ago
      Please don't create batches of new accounts to use only for a comment or two. This breaks the fundamentals of the community here: HN threads are for individuals engaging in conversation. Anonymity is fine, of course, but there needs to be some sort of identity for people to relate to. Otherwise we might as well have no usernames at all, which would be an entirely different site. It's particularly bad to do this within a single conversation.
      - nkkjcfhb 10y ago
        >It's particularly bad to do this within a single conversation Ordinarily I would use the same account for at least a few threads, but you're not making this easy with all the new filters
  - pdabbadabba 10y ago
    Google will not be bidding. http://www.fiercewireless.com/wireless/google-won-t-bid-fcc-s-600-mhz-incentive-auction http://www.fiercewireless.com/wireless/google-won-t-bid-fcc-... But this doesn't necessarily undermine your broader point about the competitiveness of the auction. There are 62 qualified bidders. Most will probably not compete meaningfully with the Verizons of the world, especially in large markets where prices may be very very high. But some may.
- dforrestwilson1 10y ago
  To be fair, Wheeler's FCC has been aggressive about targeting the telecom monopolies and giving TMUS and S a good chance to compete.
davidf18 10y ago
Selling spectrum to cell phone providers such as Verizon simply results as a "hidden" tax as that cost is passed along to the pubic who uses cell phones (just about everyone). This implicit tax makes for an inefficient market as it makes cell phone use more expensive than it should be and thus limits the use for productive purposes while making it much more expensive for those with low incomes to be able to use this now essential technology.
- chillydawg 10y ago
  No, it means that the company most willing to exploit the spectrum will win and buy it. Ultimately, that's a win for the market as resources will be optimally allocated (assuming profit is what you want to optimise for).
- pdabbadabba 10y ago
  Do you have a good alternative to propose? The beauty-contest model didn't seem to work out too well, because regulators have a relatively poor ability to determine in advance who will best use the spectrum, and the process disproportionately rewarded those who were well represented at the FCC. The lottery system eliminates the latter problem, but greatly exacerbates the former. In either case, one could rely on secondary market transactions to reallocate spectrum to more optimal uses, but this would impose a 'hidden tax' at least as high as simply auctioning the spectrum in the first place.
  - davidf18 10y ago
    I propose using the model which had been in place for allocating spectrum to television and radio (over the air) broadcasting. I'm not certain why this was down voted. "no taxation without representation." Implicit taxes should be made explicit. There are many resources such as mining leases for minerals, metals, oil & gas, coal, etc. that are leased out to firms at below market values. There are no auctions for the mining of public lands. Why make the distinction with spectrum, a new one at that, since as I have pointed out, TV stations and radio stations were given spectrum for free with caveats to report the news. Meanwhile this tax makes use of the spectrum far more expensive that it otherwise would be creating a politically induced scarcity and artificially raising prices -- a market inefficiency -- that makes it harder for the poor and elderly who might are generally on a fixed income to use data on smartphones and to use smartphones altogether.
bluedevil2k 10y ago
It should be noted that while the US forward auction is extremely complicated, with dozens of bidders and hundreds of regions, most national spectrum auctions are much easier. They typically have 3 or 4 bidders and 4-8 bands for sale, run the ascending auction described in the article, and last a few days at most. The only countries where you'll see package bids (aka a combinatorial auction) is in the richer Western nations.
- dforrestwilson1 10y ago
  Partly this is because the TV broadcast stations are sitting on a lot of valuable cell phone spectrum. Not all spectrum is equivalently good quality for cell phone usage.
deleted 10y ago
[deleted]
goodmachine 10y ago
The design of the UK spectrum auction of 2000 should be mentioned here. As well as being pretty interesting from a game-theoretic standpoint, at $34bn raised, it was the largest auction since AD 195, at least by the reckoning of the designers: http://www.nuff.ox.ac.uk/users/klemperer/biggestpaper.pdf http://www.nuff.ox.ac.uk/users/klemperer/biggestpaper.pdf A colleague who worked on the auction design for the ELSE Centre at UCL ran some test auctions on student subjects with the premise that buyers were bidding for the rights to operate a diamond mine, with a guaranteed (and astronomically large) return. In experiments, bidders were explicitly warned to save some of their budget over for picks and shovels so they could actually extract the diamonds, should they win. When it came time to bid, the students did not heed this advice... and nor did the telcos.
- davidf18 10y ago
  All the auction does is create a "hidden tax" for cell phone users since all the company does is pass the costs on to the rate payers. Since cell phones and smart phones are not a luxury but are now essential, it is a regressive tax on the poor. I wouldn't be proud of this. I would rather have seen the spectrum given to the cell phone providers the way that spectrum was originally given to radio and TV broadcasters in the US.
  - ThrustVectoring 10y ago
    From an economics perspective, taxing the airwaves is just as efficient as a land-value tax. The market response to something being taxed is to not make as much of it. As long as the tax is set such that the land or spectrum is still worth using, it's the closest thing to a free lunch. And it's not as if taxing the spectrum changes how much more money cell phone companies would get at different prices.
    - davidf18 10y ago
      It is in the best interest of the government to make the key resource of cellular Wi-Fi as cheap as possible to encourage use just as it is with wire-line internet providers. When Google Fiber comes to a city, the prices of competitors drop and the data speeds increase. The spectrum auction which is passed on as an invisible tax creates the opposite effect of that desire. It is an essential resource in today's world, so this tax is not only implicit and invisible, it is also regressive, adversely affecting the poorest the most. > And it's not as if taxing the spectrum changes how much more money cell phone companies would get at different prices. Actually, cell phone providers could make more revenues through increased use of spectrum at lower prices. Consumer, cell phone provider both win when there is no auction and the spectrum is given out as it originally was in the US with radio and TV spectrum.

It seems quite generous to say they "saved the day" when in actuality they granted a handful of monopolists complete control over what was previously a public resource.

bluedevil2k 10y ago
No, they created a competitive open market for spectrum. Any company can bid in the auction, it doesn't have to be a telecom "monopoly". Private equity will be bidding, Google will be bidding. The unspoken truth about when spectrum auctions was handed out by the government is that crony-ism played a huge part, and led to inefficient allocation of spectrum. Another debate can be had about the just finished reverse auction - should the government pay these tv stations (think your local ABC station) money to buy back the spectrum they were given for free?
- bnfjrjjfjhm 10y ago
  The notion of granting permanent exclusive right of way to anyone is decidedly non-optimal. What was once the most efficient use for that spectrum may no longer be the case, but now you have to fight monopoly forces in order to achieve efficient use. If spectrum were an infinite resource, sure grant permanent ownership, but it's not infinite. One spectrum grant precludes someone else from having access to wireless spectrum. A much more efficient means would have been automated auctions for 12 month leases, combined with broadcasters having the capability to automatically switch to different channels as their spectrum portfolio changes.
  - refurb 10y ago
    Ummm... it's not permanent ownership, it's a limited duration license.
  - pdabbadabba 10y ago
    Sounds like you would like the 3.5 GHz "citizens band." https://www.fcc.gov/rulemaking/12-354 https://www.fcc.gov/rulemaking/12-354
  - dang 10y ago
    Please don't create batches of new accounts to use only for a comment or two. This breaks the fundamentals of the community here: HN threads are for individuals engaging in conversation. Anonymity is fine, of course, but there needs to be some sort of identity for people to relate to. Otherwise we might as well have no usernames at all, which would be an entirely different site. It's particularly bad to do this within a single conversation.
    - nkkjcfhb 10y ago
      >It's particularly bad to do this within a single conversation Ordinarily I would use the same account for at least a few threads, but you're not making this easy with all the new filters
- pdabbadabba 10y ago
  Google will not be bidding. http://www.fiercewireless.com/wireless/google-won-t-bid-fcc-s-600-mhz-incentive-auction http://www.fiercewireless.com/wireless/google-won-t-bid-fcc-... But this doesn't necessarily undermine your broader point about the competitiveness of the auction. There are 62 qualified bidders. Most will probably not compete meaningfully with the Verizons of the world, especially in large markets where prices may be very very high. But some may.
dforrestwilson1 10y ago
To be fair, Wheeler's FCC has been aggressive about targeting the telecom monopolies and giving TMUS and S a good chance to compete.

davidf18 10y ago

Selling spectrum to cell phone providers such as Verizon simply results as a "hidden" tax as that cost is passed along to the pubic who uses cell phones (just about everyone). This implicit tax makes for an inefficient market as it makes cell phone use more expensive than it should be and thus limits the use for productive purposes while making it much more expensive for those with low incomes to be able to use this now essential technology.

chillydawg 10y ago
No, it means that the company most willing to exploit the spectrum will win and buy it. Ultimately, that's a win for the market as resources will be optimally allocated (assuming profit is what you want to optimise for).
pdabbadabba 10y ago
Do you have a good alternative to propose? The beauty-contest model didn't seem to work out too well, because regulators have a relatively poor ability to determine in advance who will best use the spectrum, and the process disproportionately rewarded those who were well represented at the FCC. The lottery system eliminates the latter problem, but greatly exacerbates the former. In either case, one could rely on secondary market transactions to reallocate spectrum to more optimal uses, but this would impose a 'hidden tax' at least as high as simply auctioning the spectrum in the first place.
- davidf18 10y ago
  I propose using the model which had been in place for allocating spectrum to television and radio (over the air) broadcasting. I'm not certain why this was down voted. "no taxation without representation." Implicit taxes should be made explicit. There are many resources such as mining leases for minerals, metals, oil & gas, coal, etc. that are leased out to firms at below market values. There are no auctions for the mining of public lands. Why make the distinction with spectrum, a new one at that, since as I have pointed out, TV stations and radio stations were given spectrum for free with caveats to report the news. Meanwhile this tax makes use of the spectrum far more expensive that it otherwise would be creating a politically induced scarcity and artificially raising prices -- a market inefficiency -- that makes it harder for the poor and elderly who might are generally on a fixed income to use data on smartphones and to use smartphones altogether.

bluedevil2k 10y ago

It should be noted that while the US forward auction is extremely complicated, with dozens of bidders and hundreds of regions, most national spectrum auctions are much easier. They typically have 3 or 4 bidders and 4-8 bands for sale, run the ascending auction described in the article, and last a few days at most. The only countries where you'll see package bids (aka a combinatorial auction) is in the richer Western nations.

dforrestwilson1 10y ago
Partly this is because the TV broadcast stations are sitting on a lot of valuable cell phone spectrum. Not all spectrum is equivalently good quality for cell phone usage.

deleted 10y ago

[deleted]

goodmachine 10y ago

The design of the UK spectrum auction of 2000 should be mentioned here. As well as being pretty interesting from a game-theoretic standpoint, at $34bn raised, it was the largest auction since AD 195, at least by the reckoning of the designers: http://www.nuff.ox.ac.uk/users/klemperer/biggestpaper.pdf http://www.nuff.ox.ac.uk/users/klemperer/biggestpaper.pdf A colleague who worked on the auction design for the ELSE Centre at UCL ran some test auctions on student subjects with the premise that buyers were bidding for the rights to operate a diamond mine, with a guaranteed (and astronomically large) return. In experiments, bidders were explicitly warned to save some of their budget over for picks and shovels so they could actually extract the diamonds, should they win. When it came time to bid, the students did not heed this advice... and nor did the telcos.

davidf18 10y ago
All the auction does is create a "hidden tax" for cell phone users since all the company does is pass the costs on to the rate payers. Since cell phones and smart phones are not a luxury but are now essential, it is a regressive tax on the poor. I wouldn't be proud of this. I would rather have seen the spectrum given to the cell phone providers the way that spectrum was originally given to radio and TV broadcasters in the US.
- ThrustVectoring 10y ago
  From an economics perspective, taxing the airwaves is just as efficient as a land-value tax. The market response to something being taxed is to not make as much of it. As long as the tax is set such that the land or spectrum is still worth using, it's the closest thing to a free lunch. And it's not as if taxing the spectrum changes how much more money cell phone companies would get at different prices.
  - davidf18 10y ago
    It is in the best interest of the government to make the key resource of cellular Wi-Fi as cheap as possible to encourage use just as it is with wire-line internet providers. When Google Fiber comes to a city, the prices of competitors drop and the data speeds increase. The spectrum auction which is passed on as an invisible tax creates the opposite effect of that desire. It is an essential resource in today's world, so this tax is not only implicit and invisible, it is also regressive, adversely affecting the poorest the most. > And it's not as if taxing the spectrum changes how much more money cell phone companies would get at different prices. Actually, cell phone providers could make more revenues through increased use of spectrum at lower prices. Consumer, cell phone provider both win when there is no auction and the spectrum is given out as it originally was in the US with radio and TV spectrum.