TV Spectrum Deal a Win-Win for Washington

Congress brings in much-needed revenue by auctioning off airwaves to wireless telecom carriers.

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Robert Hahn is director of economics at Oxford's Smith School, chief economist at the Legatum Institute, and a senior fellow at the Georgetown Center for Business and Public Policy. Peter Passell is a senior fellow at the Milken Institute in Santa Monica and the editor of its quarterly economic policy journal, The Milken Institute Review. They co-founded Regulation2point0.org, a web portal on economic regulation.

Who says Congress never does anything? In what amounts to the legislative equivalent of a multi-carom trick shot in billiards, the House and Senate have cobbled together a complex deal in which a hefty chunk of airwaves now controlled by television stations will be auctioned off to wireless telecom carriers for an estimated $25 billion.

We like it; actually we love it. But there are a few troubling aspects to this triumph of political log-rolling. Read on.

Almost everybody in Congress saw some virtue in extending both unemployment benefits and the payroll tax cut. The economics is a no-brainer: the fragile recovery will benefit from the ongoing stimulus, and almost all of the money will go to folks who really need it. But to vote for it, establishment Republicans—especially those in the House who must worry about Tea Party challengers—needed political cover.

[See a collection of political cartoons on the economy.]

Meanwhile, thanks to the exploding demand for bandwidth-hungry smartphones and tablets, the wireless carriers face serious shortages of spectrum to carry their signals. For years, they've been pressing Congress and the FCC to reallocate spectrum assigned to local TV stations that has been gathering dust ever since over-the-air TV went digital. But the stations and their allies on Capitol Hill have been resisting because they wanted something (hint: it's color is green) in return for giving up turf they've controlled for more than half a century.

Miracle of miracles, the stars aligned. Congress agreed to force the sale of the spectrum, assigning $15 billion of future proceeds to partially offset the extra spending on unemployment benefits, and another $1.75 billion to TV stations as compensation for their loss of squatters' rights. To cement the deal, another $7 billion will go to build a state-of-the-art public safety communications network that states and localities have been yearning for since 9/11.

Telecoms get the spectrum needed to deliver on their promises of whiz-bang wireless features. Police and firefighters get better emergency communications capacity. TV station owners get their ransom. Politicians get to hang tough on deficits without becoming vulnerable on the Grinch factor. And, of course, the unemployed get a leg up on their mortgage payments. As our Jewish grandmothers probably never said, "What's not to like?"

[Read Hahn and Passell: FCC Should Allow Verizon, AT&T a Fair Bid for Wireless Spectrum]

The payments to the TV stations are a bit hard to swallow. But, considering how hard it is to make broadcasters do anything they don't want to do, the country's probably getting off easy.

And the availability of more spectrum for wireless is certain to heat up the simmering controversy over whether the industry leaders—Verizon and AT&T—should face restrictions on how much spectrum they can buy. FCC Chair Julius Genachowski would apparently like to handicap the progress of the most successful providers by limiting their access to spectrum sold in future auctions. Like many other economists, we think he's probably wrong—that the benefits of open auctions in terms of assigning spectrum to its most valued uses likely outweigh the costs—but it would be useful to see more research on this issue.

No matter where you stand on this issue, though, it's important to keep your eyes on the prize(s). Repurposing spectrum from obsolete uses is enormously important if we are to maintain the rapid pace of innovation in wireless telecom. And, hey, it's nice—better than nice—to boost responders' communications capacities and to feed the unemployed as part of the bargain.

  • See a collection of political cartoons on the budget and deficit
  • Read the U.S. News debate: Should Congress Extend Federal Unemployment Benefits?
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