Auction Vs. Assignment: Funding The Promised First-Responder Network

Last March, the Washington, D.C.-based think tank the Phoenix Center circulated a policy bulletin outlining its framework to assess the relative benefits of having the U.S.  government either assign the 10 megahertz of spectrum in the pending  “D Block” to public safety or to re-auction the spectrum for commercial use. There were pros and cons to each approach, with the group concluding that the spectrum “provides $3.4 billion more in social benefits if assigned to public safety rather than to commercial use, even accounting for the expected auction revenues from that block.”

Translation: The spectrum would make more money if it just were assigned now than if the FCC went through the whole auction process again.

A new study released today by the Phoenix Center reiterates what its analysts believe are the problems behind the agency’s plan to re-auction the D Block for commercial purposes.

"We support those in government seeking ways to fix the federal budget, and spectrum auctions have proven a reliable revenue source," says Lawrence J. Spiwak, the study’s co-author and president of the Phoenix Center. "However, it is essential to consider the full financial effects of the allocation options to avoid being penny-wise and pound-foolish. Our analysis suggests that the American taxpayer is better served by having the D Block assigned to public safety."

Adds study co-author and Phoenix Center Chief Economist Dr. George S. Ford, "The D Block re-auction does not come close to fully funding a public-safety network. The better alternative is to move forward with voluntary incentive auctions to repurpose television broadcast spectrum."

According to the two authors, a re-auction of the D Block probably won’t  generate $3 billion in revenues; they point to a statistical analysis of auction data indicating that a 10-megahertz block of spectrum in the 700 MHz band must be unencumbered to produce $3 billion in revenues. However, the FCC’s National Broadband Plan envisions a number of significant encumbrances on the re-auction of the D Block that have reduced auction revenue in the past. The Phoenix Center finds that any expectation that auction revenues will reach $3 billion is "too rosy.”

Second, the Phoenix Center points out that revenues from a re-auction of the D Block won’t come anywhere near being able to fund the proposed nationwide public-safety network, estimated to cost between $10 billion and $13 billion. “Even if a re-auction of the D Block did bring in $3 billion of revenues, the Phoenix Center demonstrates that it offsets only about one quarter of the public safety network’s cost,” the report notes. “The D Block re-auction offers no other mechanism by which to generate funds for the remaining network construction and operating costs.”

Riding on that is the premise that public safety will need 20 megahertz of spectrum to do all it needs to do in a converged digital world. “If given only 10 megahertz today as a result of a re-auction of the D Block, then the additional 10 megahertz must be obtained from either future spectrum assignments or the capacity-equivalent thereof obtained via burdensome public-safety use of commercial spectrum,” the authors write.

They continue, “This alternate block of spectrum will not be contiguous to the existing 10-megahertz public-safety block as is the D Block, which has the effect of increasing the deployment cost of the public safety network by an estimated $4 billion relative to the D Block assignment. Filling the public-safety spectrum shortage with public-safety obligations on commercial providers could substantially reduce future auction revenues. Thus, the Phoenix Center notes that, even under the favorable scenarios (e.g., $3 billion in expected revenues), the re-auction of the D Block does not appear to pass a cost/benefit test.”

Here’s the kicker: The Phoenix Center thinks the only viable proposal to fund the public-safety network with auction revenue is a voluntary incentive auction for TV broadcast spectrum.

The voluntary spectrum-incentive auctions proposed for broadcast spectrum could break the stalemate on this vitally important issue regarding robust, reliable and resilient broadband communications for America’s first responders,î Ford and Spiwak conclude.

To read the complete Phoenix Center Policy Perspective No. 11-03: Re-Auction of the D Block: A Review of the Arguments,  click here.