By Mark Jamison

With all the global leadership and economic problems the US faces, you might think Congress would act swiftly to reauthorize a program that has established the US as a recognized world leader and raised over $230 billion for the US Treasury without raising taxes. Unfortunately, you might be wrong.

The House Committee on Energy and Commerce is sitting idly
on H.R. 7783—a bill that would extend the Federal
Communications Commission’s (FCC) authority to conduct radio spectrum auctions,
which is set to expire on September 30, 2022.

It’s easy for Congress to drag its feet on this issue.
American leadership in radio spectrum auctions is well-known across the globe,
but not in the US, and the topic sounds esoteric. So I’ll break the topic down
into digestible pieces and explain America’s leadership role.

What Is Radio Spectrum?

When you use mobile phones, Wi-Fi, or any other form of wireless communications, the information you send and receive travels over radio waves. Different waves have different properties depending on wave frequency, called hertz, which is the measure of how many waves pass a given point in a second. Some frequencies travel along the ground, and some penetrate buildings, rain, and clouds; others do not. Because of these different properties, governments allocate different parts of the radio spectrum for different purposes. For example, FM radios work on frequencies between 88 megahertz (MHz—millions of waves per second) and 108 MHz.

Who Gets to Use Radio Spectrum?

When people try to use the same radio waves at the same time, interference occurs. This is somewhat synonymous to multiple people talking loudly at the same time in the same room: There’s lots of noise, but no one can hear. Since about the time of Guglielmo Marconi, who discovered radio waves, governments have used radio licenses to grant some spectrum users exclusive rights to specific bands of radio frequencies.

Until the mid-1990s, governments chose licensees using comparative selection, also called “beauty contests.” Essentially, a government would announce plans to issue a license and invite interested persons to submit applications describing the amazing things they would do with the license. Applicants would spend lots of money on consultants, attorneys, and lobbyists, and sometimes develop partnerships with friends and families of powerful politicians. The applicant that did the best marketing would win the license.

Why Have an Auction?

Auctions help ensure that the applicants that receive licenses
are also the ones that will best serve customers. The beauty contest is a form
of competition, but marketing, lobbying, and political maneuvering are the
determinants of success. With an auction, the license goes to the applicant
that is willing to pay the most, which, absent problems with market power, is
also the applicant that believes it will create the most customer value in the
marketplace. Auctions put the focus on customers.

Auctions also put money in the US Treasury rather than in
the pockets of the lawyers, consultants, and lobbyists involved in beauty
contests. Given that, you can see why some in Congress might be tempted to drag
their feet on auctions.

Why Is the US a World Leader in Radio Spectrum Auctions?

Because of Evan Kwerel. Kwerel is an FCC staffer who wrote a paper with Alex Felker in 1985, suggesting that the FCC use auctions rather than beauty contests. They cited the work of Nobel Prize–winning economist Ronald Coase and showed that auctions would give the US Treasury substantial amounts of money. This resonated with Congress, and in 1993, it authorized the FCC to use auctions. (Congress then re-extended the FCC’s auction authority for another 10 years in 2012.)

Mr. Kwerel, who received the
Paul A. Volcker Career Achievement Medal in 2021, led the FCC’s effort to
develop its auction processes, working with many of the world’s top economists and
challenging them to improve their theories. These economists included Paul
Milgrom and Bob Wilson, who shared a 2020 Nobel Prize in economics. After winning
the prize,  Milgrom wrote,
“Evan’s individual contributions were so major that it would have been
appropriate for him to share this prize.”

What Can Be Done?

Congress should renew the FCC’s authority to conduct radio
spectrum auctions, but this time without a sunset provision. H.R. 7783 provides only an 18-month extension. Given
that US auctions have unambiguously improved efficiency and brought money into the US
Treasury without raising consumer prices, perhaps a good strategy for
our legislators would be to extend the authority indefinitely and take pride in
our global leadership role.

The post Congress Should Act Promptly to Reauthorize Radio Spectrum Auctions appeared first on American Enterprise Institute – AEI.