The 2016 wireless spectrum auction was supposed to be a win-win endeavor – bringing in tens of billions for taxpayers, while allowing innovative telecommunications companies to make use of a valuable resource. Unfortunately, the auction was a huge disappointment due to poor policy decisions on the part of President Obama’s FCC Chairman Tom Wheeler.
Only a year ago, as the auction began, USA Today reported that industry analysts expected revenues of $30-$45 billion, with all proceeds going to the US Treasury to pare down this year’s deficit. Bloomberg estimated $33 billion in revenues and a 2015 broadcast industry study went further, projecting $84.9 billion.
But in the end, it wasn’t even close. The auction raised just $19.8 billion. That dismal performance was far less than even the Congressional Budget Office’s modest $25 billion projection from 2015. And less than half of this total will go to the US Treasury.
For taxpayers, the final auction numbers are a multi-billion dollar punch to the stomach, especially compared with what a successful auction would have raised.
The worst part is that this dismal result was entirely predictable. Its roots stem from the FCC’s infamous 2015 vote to regulate broadband as a public utility – a vote spearheaded by Mr. Wheeler.
When Wheeler’s FCC dramatically expanded regulation over the internet’s operation, the value of the auction’s wireless spectrum plunged.
And lest proponents try to mitigate how extraordinary this FCC action really was, there is Chairman Wheeler’s own response at the press conference immediately after the vote. When a reporter asked him to define the FCC’s new “general conduct rule” over the internet, he replied, “We don’t really know. We don’t know where things will go next. We have created a playing field where there are known rules, and the FCC will sit there as a referee and will throw the flag.“ [Emphasis added].
The economic harm the FCC’s action did to U.S. broadband improvement was apparent within weeks. Predictably, smaller ISPs were the first to feel the pain and pull back from broadband improvements. By late spring 2015, the Commission had received multiple reports of spiraling legal and compliance costs among smaller internet providers that curbed their broadband deployment.
Rural and underserved areas were especially hard hit. Increased compliance costs from the FCC’s regulations caused a rural Illinois ISP to stop a planned speed upgrade from 3 Mbps to 20 Mbps. A Washington State ISP shelved plans to expand broadband into unserved areas. And in Arkansas, an ISP serving underserved communities had to scale back deployment due to higher regulatory costs
These problems then spread through the industry, causing slower internet deployment and delayed improvements. As current FCC Chair Ajit Pai, whose alarms on these issues were largely ignored, told an industry group recently, the FCC’s decision to regulate the internet produced “the first-ever decline in broadband investment outside of a recession.” Economist Hal Singer notes that while the U.S. economy has generated jobs since 2015, the computing and telecom industry lost 29,000 jobs since the FCC’s action.
The result is clear to everyone. This auction should have brought tens of billions into the US Treasury. Instead, taxpayers got a billion-dollar disappointment.
For Congress and regulators, this is another important reminder that regulating our capital-intensive internet with rules from the 1930s is a fool’s errand. As the auction’s poor revenues show, the results will be lost jobs, less investment and fewer people getting access to quality broadband.