Incentive Auctions

Background

The FCC’s spectrum agenda includes unleashing mobile broadband spectrum, freeing spectrum for unlicensed use and laying the groundwork for voluntary incentive auctions.

Spectrum is the invisible infrastructure on which our mobile networks depend and is a national resource used for all forms of wireless communication – from the radio broadcasts in your car to the cell phone in your pocket to the Wi-Fi router in your home.

Commercial uses of spectrum change over time with consumer tastes and the development of new technologies. As new uses arise – such as mobile broadband – spectrum must be shifted from historic uses to accommodate them.

The Numbers Behind the Spectrum Crunch

Mobile-broadband dependent smartphones are outselling PCs worldwide – 101 million to 92 million in the 4^th quarter of 2010.
Smartphones consume 24 times as much data as traditional cell phones, while tablets can use as much as 122 times the data. Analysts forecast a 35X increase in mobile broadband traffic over the next 5 years.
In 2010, consumers worldwide downloaded 5 billion mobile apps, up from just 300 million in 2009—a more than 16-fold increase. Subscriptions to mobile data services have increased by 40% in the latest six-month period of FCC reporting.
The number of subscribers to wireless carriers rose by 20 million to 294 million nationwide in the last year alone. If this trend continues, the United States could have more than 300 million wireless consumers by early 2012.
Within the next few years, we will face a spectrum deficit—demand for spectrum will exceed the available supply.
The President has called for a near doubling of the spectrum available for wireless broadband and has identified mobile broadband as a key element of his strategy for American innovation.

Accelerating Mobile Broadband Opportunities

The FCC is moving on multiple fronts to realize the opportunities of our wireless future. The Commission is working to remove obstacles to robust and ubiquitous deployment of 4G mobile broadband, such as regulatory barriers related to the placement of wireless towers. It’s been estimated that removing red tape and expediting approval processes could result in $11.5 billion in new broadband infrastructure investment over two years.

The FCC has already accomplished the following to meet the spectrum challenge:

Opened up 25 MHz of wireless communications services spectrum for mobile broadband.
Released the “TV white spaces” for unlicensed use by the public – the largest amount of unlicensed spectrum in 25 years – to enable innovations such as Super Wi-Fi-enabled technologies.
With NTIA, identified bands of Federal spectrum for potential reallocation to mobile broadband.
Allowed greater terrestrial use of 90 MHz of mobile satellite services spectrum for mobile broadband.

But we still need more spectrum to meet the imminent spectrum crunch. Today, there is inadequate spectrum available to meet growing demand for mobile broadband, and the historic process of reallocating spectrum for new uses has taken between 6 and 13 years.

Incentive Auctions: Needed to Free-Up Additional Mobile Broadband Spectrum

The FCC has successfully auctioned commercial licenses to use spectrum since the mid-1990s, raising over $50 billion for the U.S. Treasury and driving growth of the wireless industry to over $150 billion in annual revenue, with mobile phone penetration now at over 90% of the population. GAO and others have recognized auctions as the most efficient, effective and market-based means of assigning spectrum licenses.
With authority from Congress, the Commission would run the next iteration of auctions – voluntary incentive auctions. An incentive auction is a voluntary, market-based tool to compensate existing spectrum licensees for returning their licenses to make spectrum available for innovative new uses like mobile broadband. The FCC would auction the spectrum that licensees voluntarily return for wireless broadband services, with licensees retaining a portion of the auction proceeds.
The voluntary incentive auction proposal is an incentive-based, market-driven path to tackle America’s spectrum crunch and would provide a capital infusion for licensees that choose to participate with some or all of their spectrum, strengthening their economic position.
Estimates show that the revenue potential of voluntary incentive auctions could reach $30 billion, much of which could be applied to deficit reduction. Based on past experience, some estimate that the consumer benefits of freeing up spectrum for mobile broadband would be 10 times higher than the value that spectrum generates at auction. An auction market value of $30 billion would translate to broad consumer benefits of $300 billion.
Incentive auctions are a cornerstone of the White House’s Wireless Innovation and Infrastructure Initiative and are recommended in the National Broadband Plan. However, the FCC requires additional authority from Congress to implement them.
The U.S. House of Representatives’ fiscal year 2012 budget states that “[e]xtending and expanding the auction authority would enable the [FCC] to conduct voluntary incentive auctions that would encourage private entities to vacate under-utilized spectrum and make it available for re-auction—and could generate more than $24 billion over 10 years.”
Voluntary incentive auctions have been endorsed by, among others, the CEOs of major American companies and 112 leading economists, including Nobel laureates, former members of the White House Council of Economic Advisers, and former FCC Chief Economists from across the ideological spectrum.

Voluntary Incentive Auctions Needed to Promote U.S. Businesses and Job Growth

Small and large businesses would reap the benefits of more spectrum, resulting in greater investment and more U.S. jobs. FCC analysis estimates economic value creation of more than $100 billion in just the next five years by meeting the near-term need for spectrum.
There is also tremendous social value in making more spectrum available: more mobile broadband spectrum will drive breakthroughs to improve education through mobile learning, enhance health care through life-saving remote diagnostics and promote energy efficiency by supporting the smart grid.
According to the High Tech Spectrum Coalition, over the next five years, investments in 4G wireless technologies will create 205,000 U.S. jobs.
Analysts project tablet sales of 55 million worldwide this year, making it a $35 billion dollar industry.
By 2015, analysts project that mobile apps will generate $38 billion in global annual sales.
Mobile online shopping grew to $4 billion in sales worldwide in 2010, up from $1.4 billion in 2009.