How the FCC Could Boost the Wireless Industry

The FCC needs to take measures to support the growing wireless telephone industry.

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Instagram is demonstrated on an iPhone on April 9, 2012, in New York.

Mr. Hahn is director of economics at the Smith School, University of Oxford and chief economist at the Legatum Institute. Mr. Passell is a senior fellow at the Milken Institute and the economics editor of the Legatum Institute's Democracy Lab. They are co-founders of Regulation2point0.org, a web portal on regulatory policy.

With the election approaching, it's once again silly season on public policy (it seems to last longer than Major League Baseball these days). Hardly anybody running for office says what he means, or expects anybody to remember what he said after the ballots are counted. And, of course, this dead-end street runs two ways: the chattering classes bearing sensible policy aren't likely to get through to policymakers until the electoral dust settles.

So rather than play the game as usual, offering up politically realistic policies in which all the rough edges have been removed or hidden, we're going to indulge ourselves. Let's imagine that a new set of regulators and assorted congressional committee chairs were ready to see the world of communications and information technology policy through fresh eyes. What would we say to them?

Our message is short: Regulators—this applies to all market regulators—should wake up and realize it's all about dynamic competition. That is, demoting market concentration and other measures of static competitiveness, and creating rules focused on encouraging risk-taking, investment, and innovation. Fostering this new brand of competition is nowhere more important than in communications and information technology.

[See a collection of political cartoons on the 2012 campaign.]

Ponder the simple graph borrowed from an article by one of us (Hahn) and fellow telecom nerds (Gerald Faulhaber and Hal Singer), published in the 2012 Federal Communications Law Journal.

Wireless industry market concentration, as measured by the Herfindahl-Hirschman Index, has been increasing. Yet wireless prices were falling over the same time. We're not suggesting that this (negative) correlation implies causation—that concentration drives down prices. But the graph does imply that, while there are certainly barriers to entry in these markets, increased concentration has not prevented competition and innovation from working their magic.

But you already knew that. Just think about the mobile phone you might have had in 1990, and compare it with the one your teenager craves today. No comparison, right? And think about what you could do with that cell phone then—e.g., use it for weight training—and the myriad uses provided by today's phones, ranging from GPS guidance to live football games on the run.

[See a slide show of the Best Apps for iPhone and iPad.]

So, if the Federal Communications Commission bought our version of reality, what could it do to ensure the mobile revolution proceeds at full-throttle?

Put investment and innovation first. The commission should declare its commitment to regulation that focuses on dynamic rather than static efficiency. That means, among other things, that it would only intervene when there is direct evidence of anticompetitive behavior—for example, price-fixing—rather than indirect evidence, such as rising industry concentration.

Pump up the airwaves. One way or another, the FCC needs to transfer underutilized, publicly held electromagnetic spectrum to private hands, ASAP. Almost as important, it should treat the secondary market in spectrum with benign neglect—for without ongoing trades in spectrum rights, innovation and competition will lag. To be sure, the commissioners would need a little help from Congress, here. But it's hard to see the political logic in saying no. Spectrum auctions would provide a triple dividend of sorts: billions for the Treasury, better (probably cheaper) wireless service, and—dare we say it?—jobs in the wireless industry.

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

Let a hundred flowers bloom. Spectrum users need maximum flexibility in trying new business models to match changing technology and changing tastes. In particular (now, anyway), telecoms need discretion to try out "congestion pricing," making it more expensive to use data-hungry apps like high-definition video when the systems are near capacity.

To borrow a phrase from Richard Epstein, these are "simple rules for a complex world." Now, if only the election were over—and the FCC showed the uncommon sense to listen to us.

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