Increasing Spectrum for Broadband: What Are the Options? Lawrence J. White Stern School of Business New York University Lwhite@stern.nyu.edu Presentation at NBER, Cambridge, MA, July 26, 2010

Overview Recent TPI paper The expanding demand for mobile broadband The problem of the supply of spectrum The 3 potential sources of supply Under-utilized government spectrum Broadcast TV spectrum Mobile satellite services spectrum Proposals for freeing up spectrum from each source Conclusion

Recent TPI paper “Increasing Spectrum for Broadband: What Are the Options?” Thomas M. Lenard, Lawrence J. White, and James L. Riso

The expanding demand for mobile broadband The expansion of wireless broadband is a bright spot in the U.S. economy New uses and services Predictions that the number of users will double between 2008 and 2013 More spectrum is needed

The problem of the supply of spectrum Most spectrum is locked into narrow uses by “command-and-control” regulation Flexibly licensed spectrum accounts for only a small fraction of all spectrum The unavailability of more spectrum for wireless broadband will mean Slower expansion Higher prices Delay in new services Loss of consumer satisfaction Loss of potential government revenues from auctions

Where can additional spectrum come from? Freeing up government-held spectrum Broadcast TV spectrum Mobile satellite service spectrum

Government-Held Spectrum

The dilemma Difficult to know whether government-held spectrum is being used efficiently Strong suspicion of inefficiency Difficult to motivate government agencies to consider the opportunity costs of spectrum The absence of a market context The absence of a profit motive Spectrum licenses, once obtained, are a free good Budget re-allocations could net-out the extra revenues from any sale of surplus spectrum So why not just hold on to it?

Freeing up government-held spectrum in the short run NAS study to provide a census of government-held spectrum and likely sources of surplus spectrum Government task force to recommend spectrum package for auctioning Annual NTIA reports on likely surplus spectrum OMB becomes a skeptical auditor of government-held spectrum Agency incentive programs for employees to economize on the use of spectrum Agencies should pay opportunity costs for any new/additional spectrum

Freeing up government-held spectrum in the long run (1) Use the model of the Government Services Administration GSA owns or leases buildings Government agencies lease space in GSA buildings Agencies pay market-oriented rents to GSA GSA returns surplus to U.S. Treasury

Freeing up government-held spectrum in the long run (2) A “Government Spectrum Ownership Corporation” should take possession of all government-held spectrum All agencies would have annual leases, perpetually renewable at the option of the agency The GSOC would charge annual rental rates that approximate opportunity costs, return surplus to Treasury OMB’s annual budget negotiations with agencies would recognize GSOC rents but not adjust one-for-one Agencies would have the appropriate incentives to economize on spectrum Surplus GSOC spectrum could be auctioned

Broadcast TV Spectrum

Availability Broadcast TV currently uses 294 MHz of spectrum Less than 10% of all U.S. households exclusively use over-the-air broadcasts The current market value of that spectrum (for TV broadcast use) is about $12 billion The market value of that spectrum if auctioned for alternative uses could be $60-$120 billion The value of the new services for consumers would likely be 10 times these amounts How to free up this spectrum?

Freeing up broadcast TV spectrum Retain only standard-definition video stream; or Retain only VHF (2-13) over-the-air channels; or Subsidize the transition of all over-the-air viewers to MVPDs Lifetime subscriptions would cost about $9.3 billion Federal government revenues from spectrum auctions would be more than adequate Need to prevent current MVPD subscribers from canceling so as to qualify for subsidy Hold reverse auctions in which MVPDs bid for blocks of transitioning viewers

Who would get the windfall from auctioning the broadcast TV spectrum? Option 1: Incumbent broadcasters keep their (now flexible) spectrum Government clears and auctions the “white spaces” Government also gains tax revenues from increased broadcaster profits Option 2: The government clears the spectrum and auctions it Incumbent broadcasters are given transferable auction vouchers

Mobile Satellite Service Spectrum

Availability About 154 MHz of spectrum Underutilized

Freeing up MSS spectrum Allow it to be flexibly used How will the windfall be shared?

Conclusion There are large social gains to devoting more spectrum to mobile broadband There are 3 prominent potential sources of spectrum for more flexible licensing Under-utilized government spectrum Broadcast TV spectrum Mobile satellite service spectrum Freeing up spectrum from these sources is feasible Consumers gain, incumbents gain, federal government revenues increase This is truly a “win-win” opportunity that should be seized