For the first time in five years, the Federal Communications Commission (FCC) has announced its intentions to vote on authorizing the sale of 160 MHz of spectrum, heralding the return of spectrum auctions following a several-year drought. This move comes almost a year after Congress passed the One Big Beautiful Bill (OBBB), which both reauthorized FCC spectrum auctions and required the various agencies charged with spectrum management to identify at least 100 MHz for auction by this time next year.
Ahead of the Commission’s vote, analysts highlighted that releasing this new band of spectrum could add billions of dollars to the US economy, create millions of new jobs, and generate between $30 billion and $75 billion for the Treasury. Nevertheless, these various prospective benefits point to the challenge and importance of spectrum auction design. Namely, while a spectrum sale raises revenue for the US Treasury, the broader economic benefits of releasing more spectrum into the marketplace are what matter. The FCC should not focus on maximizing the revenue implications of the auction, but should instead focus on structuring the sale to optimize the benefits it provides to consumers, businesses, and the economy.
The electromagnetic spectrum refers to the various bands of energy waves that underpin modern communications and information technologies to convey information between devices. As such, the spectrum represents the lifeblood of the modern information economy. The management of this vital resource has, since 1927, been under the “command and control” of the FCC. For decades the FCC determined the allocation of spectrum through a highly inefficient process of “beauty contests” wherein prospective users would have to make their case to the Commission that theirs was the best use for a particular bandwidth. Unsurprisingly, these hearings and other non-market allocation processes the Commission devised were mired by all manner of chicanery and cronyism.
The decision by Congress in 1993 to authorize the use of auctions introduced a much-needed dose of economic rationality to US spectrum policy. However, owing to bureaucratic inertia and congressional inaction, the FCC’s authorization to conduct auctions expired in 2023, once again leaving much of this valuable resource idle. Thus, the OBBB’s reauthorization of auctions is a welcome improvement from the past several years of spectrum policy.
The reopening of spectrum auctions goes a long way toward shifting spectrum to higher-valued uses, as growing demand from wireless providers, internet/cable providers, artificial intelligence, and low-Earth orbit satellite constellations all continue to compete for existing bands. Much of the spectrum to be sold comes from what is referred to as the “upper C-band,” running roughly from 3.98–4.14 gigahertz (GHz), which is currently allocated for use by satellite operators and aviation users. A CTIA-commissioned study that examined the economic benefits of mid-band spectrum reallocation estimates that each additional 400 MHz tranche of spectrum will, on average, yield approximately $264 billion in GDP, 1.55 million new jobs, and a direct benefit to consumers between $320 and $480 billion.
However, here lies a tension in spectrum policy. The primary value of auctions is in the benefits they create for consumers by shifting scarce spectrum from low- to higher-valued uses, as these are revealed by what consumers actually pay for wireless services and devices in retail markets. Their use as a means to generate revenue for the government is of decidedly secondary importance, yet much of the public campaigning around auctions, as well as much of the professional advice rendered to the FCC, focuses on this particular aspect. This can be seen in the media coverage of the FCC’s previous 2.5 GHz auction, which cast the $428 million earned by the government as underwhelming.
Since the price of a license represents the present value of the profits that can be earned from owning it, the price paid to the FCC at auction can be inflated by, for example, limiting the amount of bandwidth auctioned or setting high minimum prices. Such policies may maximize the revenues earned by the FCC, but at the cost of hurting consumers by limiting competition in the marketplace. Thus, the emphasis on public finance considerations risks biasing auction design in directions that harm consumers.
As economists have repeatedly emphasized, the FCC should auction spectrum rights with an eye toward market efficiency, not maximizing auction revenue. Ideally, this would mean granting licensees full property rights over the spectrum they purchase rather than restricting them to specific uses under the current licensing regime. Presently, the FCC auctions “flexible use licenses,” which, while providing licensees with greater discretion over how they can use the frequencies under their control, constrains the use of specific bandwidths to the production of specific services. For example, the 1993 legislation authorizing auctions provided for the sale of bandwidth for use by Personal Communication Service networks only, limiting firms’ ability to reallocate these bands as communications technology evolves. The FCC should avoid these issues by allowing private actors to own particular bandwidths outright. Doing so would allow licensees to determine the highest and best use of their spectrum based on changing market conditions rather than arbitrary regulatory constraints.
Economists have shown that restricting the use of spectrum licenses limits consumer gains from auctions by restricting the extent of market competition. Moreover, full property rights would enhance the flexibility of spectrum markets, allowing users to shift band deployment as technology and demand evolve. Barring this, the FCC should simply get as much bandwidth on the market, in as short a time as possible, allocating spectrum to where it provides the largest benefit to society writ large.
The return of spectrum auctions is a welcome development in spectrum policy. However, whether the benefits of the FCC’s proposed sale will generate the most value possible for consumers will depend critically on how the Commission conducts the sale. A wrongheaded focus on maximizing revenue risks biasing policy in a direction that will limit market competition, thus harming consumers. Maximizing consumer welfare and enabling the fullest utilization of the airwaves requires that auctions be conducted to enhance efficiency in wireless markets rather than be narrowly focused on generating revenue.
Markets in spectrum gave rise to the efflorescence of cellular and digital technologies enjoyed by many today. Keeping that revolution moving requires that full property rights to the spectrum be provided to the innovators and companies that will put them to use.
