WhyDom

It is important for Americans and for the U.S. regulatory policy that spectrum be purchased and used, not purchased and under used.  Under utilization prevents competition and growth of broadband penetration.  The problem with the FCC spectrum auctions, reflected in the highly politicized upcoming 700 MHz auction, is that many of the more recent auctions have been won by the market leaders but the U.S. consumers have not been afforded the opportunity to use the spectrum.   It has been under utilized.

WiFi - which everyone knows of because it has been so widely utilized - is unlicensed and was not auctioned. This makes common sense. Small technology providers were able to sell to small buyers in the 2.4GHz bandwidth. When bandwidth is sold to very large providers, only a few of the largest technology vendors are able to sell to the largest service providers and owners of the bandwidth. WiMax might be a reality today if more of the bandwidth was provided to small ISPs.

One should note that the licensed 2.5GHz spectrum, which can and is used by WiMAX- -another broadband technology –has been in the hands of the RBOCs for many years and was barely used. The RBOC’s were busy competing with CLEC’s and cable companies providing DSL and not focused on WiMAX. Some of this 2.5 GHz spectrum was recently sold off to Clearwire for $300m after sitting idle for many years.

Cell phone spectrum was originally provided for free without an auction.  The Bell system was given, for free, 824-894 MHz, in 1971 (old UHF TV channels 82-70) to use for the first Advanced Mobile Phone Service (AMPS followed by TDMA) system. The first trial took place in Chicago in 1978, 7 years after the 1971 FCC decision to move forward.  Because of the expense of owning a cell phone and the slow growth of the early adopters, the FCC did not think there would be more than 1,000,000 users and that the service would not be in demand by service providers.  Thus, the FCC gave away the spectrum hoping to encourage demand and believing the service providers were providing a necessary but low margin service.  The duopoly of cell phone service was created by the FCC in 1981 by awarding the spectrum to new “non-wireline” (the “A” cellular license) entrants in each territory for free.  These were mostly existing radio service providers like paging companies.  For “wireline” monopolies, a raffle was created for the “B” wireline spectrum.  The ILEC’s in each MSA had one raffle ticket and were awarded spectrum by the FCC, if the ILEC won the raffle, for free.

Auctions only started happening after this point when the FCC realized that the “A” and “B” holders where buying up each other’s licenses to create a nationwide coverage free of expensive roaming charges and with more POP’s. The government had given away the spectrum for free and was missing out on a revenue source.  One must not forget the history of innovation. The FCC gave spectrum out to the current cellphone market leaders for free, without auction.