Spectrum Is Too Valuable To Give Away

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The New York Sun

Next month, dozens of businesses will bid billions of dollars for spectrum in the Federal Communications Commission’s Advanced Wireless Services auction. Meanwhile, two new companies, M2Z and Cyren Call, want to get spectrum the old-fashioned way: via a giveaway.

The M2Z proposal is rather simple. Rather than hold an auction and award the spectrum to a company that valued it most, the FCC would give M2Z 20 Mhz of spectrum. In return, M2Z would offer the public a free, advertiser-supported “broadband” service, and M2Z would give the U.S. Treasury 5% of all revenue from the service. M2Z claims it would offer service to 95% of the American population within 10 years of license, helping the administration reach its goal of making broadband services available to all.

M2Z is backed by Kleiner Perkins, Charles River Ventures, and Redpoint Ventures. They promise to raise at least $400 million to build out the M2Z network should it be granted a free nationwide FCC license. Committing $400 million to M2Z is easy when the company seeks to obtain for free a license that is easily worth a few billion dollars in the open market.

Cyren Call, backed by a Nextel cofounder, Morgan O’Brien, asks Congress to let it manage a public-safety “trust” of 30 Mhz of spectrum. This would be a dominant share of the valuable spectrum scheduled to be returned by television broadcasters. Congress has already twice accounted for the billions of dollars that it hoped to collect for the same spectrum: once for an auction in 2001 that never materialized, and now for an auction scheduled in 2008.

Because it would give priority to the public safety community, Cyren Call claims that it should be allowed to manage the spectrum for free rather than bid for the right through an auction. Congress and the FCC have already allocated 24 Mhz of the returned broadcaster spectrum for public safety. Cyren Call would expand the available spectrum for public safety purposes, and it would sell services to commercial users on a secondary basis over the same spectrum. While perhaps pursuing a noble purpose, Cyren Call would occupy spectrum worth several billions of dollars and will have paid nothing for it.

M2Z and Cyren Call have similar business plans. They both promise to help the government with high-priority policy objectives: ubiquitous broadband deployment in the case of M2Z and public safety service in the case of Cyren Call. In return for helping the government with policy objectives, the companies want the government to treat them differently – much better – than other companies. Indeed, M2Z and Cyren Call want the government to let them use assets worth billions of dollars at the same time that other companies prepare competitively to bid billions of dollars for similar assets in government auctions.

Before 1994, the government had no means to decide who should get a license when more than one party applied. The government resorted to lotteries or, worse, comparative hearings where each applicant was evaluated based on subjective criteria in proceedings that could last for years. Congress authorized spectrum auctions in 1994 precisely to escape the unseemly business of choosing which companies to award valuable spectrum licenses on the basis of nonfinancial terms.

Some spectrum licenses, such as those for most satellite services, cannot be assigned by auction. But the spectrum licenses that M2Z and Cyren Call seek must be assigned by auction under current law. Now, M2Z and Cyren Call want to turn back the clock to the bad old days when licenses were awarded not on the basis of an auction but on the basis of political favoritism. Both M2Z and Cyren Call have crafted clever stories about a method to meet a political objective, and in return for that creativity each seeks an asset worth billions of dollars assigned without competition.

Rather than give a license to M2Z or Cyren Call, the FCC should continue to follow the law and offer these licenses at auction. The government can craft new policy objectives, such as a free wireless broadband service or additional services for public safety users, as conditions for new licenses assigned at auction. Auctions and new policies are not mutually exclusive.

A former FCC commissioner, Mr. Furchtgott-Roth is president of Furchtgott-Roth Economic Enterprises. He can be reached at hfr@furchtgott-roth.com.

The New York Sun

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