Jerry Brito

Buying or pacifying?

In a blog post entitled “Buying regulation,” Susan Crawford wonders about the legality of the FCC reserve price scheme for the 700 MHz rules. (I.e., as long as the $4.6 billion reserve price is met for the much coveted C Block, then open access rules will apply. If the reserve price isn’t met, then the rules go away.) Crawford asks,

Think about it. How can the FCC condition regulations … on the payment of money? And then have the rules dissolve if it doesn’t get the money? This is such a pure quid pro quo - it’s government for sale. Completely screwy. But how do you say “completely screwy” in legalese?

Well, it is certainly a creative gambit by Kevin Martin to make Google put their money where their mouth is, and I don’t have an opinion about whether it’s technically legal. That said, I’m not sure it’s exactly a “quid pro quo.” It’s not as if the highest bidder gets their preferred rules applied to the spectrum block. One can conceive of AT&T, for example, winning the auction at a price above $4.6 billion and therefore being subject to rules it dislikes. What I think the scheme is meant to do is pacify Congress by addressing the concern that given the restrictive rules the spectrum block might fetch much less than the many billions Congress is anticipating (and probably has already spent).

October 8, 2007 | Comments |

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    The price of $4.6 billion for the C block seems arbitrary; as always, the FCC faces the economic calculation problem. How can the government know the true market value of the spectrum without market pricing signals, before the auction has occurred? $4.6 billion is just an estimate, and I would be interested to know how exactly the FCC came up with that number. If the value of the block turns out to be less than $4.6 billion, then the reserve pricing scheme will let the owner decide whether to allow any application or service. And if the 700mhz spectrum is worth more than the reserve price, open access rules will still artificially depress the value, meaning taxpayers lose. The FCC is finally figuring out that open access rules mean less money in government coffers, so at least there’s some chance that whoever wins the auction will have real ownership rights. But instead of setting a reserve price, the FCC should abandon these restrictions to make sure the spectrum is put to its most economically valuable use. And if the FCC's goal is to pacify Congress, there's no better way than to generate as much revenue as possible from the upcoming auction.

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