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Congress is counting on big spectrum auctions to reduce the deficit. Don't hold your breath
December 28, 2005
Reuters has an interesting story today about the costs associated with relocating the wireless communications of the Department of Defense, the Department of Justice, and several other federal agencies to different bands of the radio frequency spectrum. The agencies are giving up their current slots, located around the 1700 MHz and 2000 MHz bands, to free up 90 MHz of spectrum to be auctioned off to commercial operators by the FCC. Considered "beachfront spectrum," these bands are ideal for companies to offer high-bandwidth mobile services like video and Internet access.
The cost of the relocation, according to the National Telecommunications and Information Administration (NTIA) : almost $936 million. That figure is actually lower than industry estimates, which range into several billion dollars.
These estimates are also relevant to the long-awaited auction of what's known as the upper-700 MHz band, now owned by broadcasters and considered even more prime real estate for third-generation mobile services. These are the "loaner" bands being held by broadcasters until the shift to fully digital TV service takes place, sometime in the next few years. (For a terrific backgrounder on the whole DTV/spectrum situation, see IEEE Spectrum magazine's October issue.) Over the next 12 months the FCC will nearly double the amount of spectrum currently available to wireless providers – and Congress is counting on those sales to help reduce the record federal budget deficits.
Part of the revenue from the auction of the valuable 700 MHz spectrum is to be used to reduce the deficit -- by as much as $4.8 billion according to the House of Representatives.
That's a laudable goal, but the out-of-control spectrum auctions of the late 1990s, which helped bankrupt more than one operator, indicate that counting on selling off radio frequencies to offset rampant government spending is a fool's remedy. The biggest spectrum flame-out was NextWave, which filed for bankruptcy in 1998 after bidding almost $5 billion for 63 wireless licenses in a previous round of auctions.
Estimates of the actual value of the spectrum to be sold off range from $10 billion (from the Congressional Budget Office) to $50 billion (a widely quoted figure from the New America Foundation). Part of that revenue will go to subsidize the remaining households that lack digital TV receivers; part will probably never be paid, thanks to cash-strapped operators overstretching to grab valuable RF real estate. One company that won big in the 2001-02 auctions of small slices in the 746-806 MHz range, Pegasus Communications Corp. (NASDAQ: PGTV), is already facing severe financial difficulties and will probably never use the licenses it bought.
All in all, the release of huge swathes of spectrum over the next year or so will be a great thing for the wireless industry and for users. Counting on the auctions to produce windfalls for the government, though, is treading into dangerous, and familiar, territory. Everybody involved ought to know better.
— Richard Martin, Senior Editor, Unstrung
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