The Spectrum

U.S. Eyes Windfall From Waves Auction

By | Updated June 7, 2016 12:50 PM UTC

The U.S. government expects to reap billions of dollars from selling something we can’t see, taste or weigh: the spectrum. Some of these invisible electromagnetic waves carry radio, TV broadcasts and, increasingly, YouTube videos to our smartphones. With demand exploding, mobile capacity is being strained. So mobile operators have been eyeing TV signals, since they go far and penetrate buildings. Now the Federal Communications Commission is arranging an auction to transfer some TV bandwidth to mobile use. The goal is to increase competition and service. Some TV viewers could end up paying the price.

The Situation

The FCC has invited television stations to give up their airwaves so it can sell them to the highest bidders for use by wireless devices. The agency will share the earnings from this first “incentive auction” with stations. On May 31, the agency began to suggest offering prices to TV stations; later 99 bidders can make offers for the airwaves. The sale is expected to net the government between $10 billion and $40 billion, money that will mainly be used to reduce the federal budget deficit. Mobile operators have been beseeching the U.S. government to free up enough airwaves to meet soaring demand from smartphone users and other wireless customers. The number of U.S. wireless devices doubled over a decade to reach 355 million in 2014. Video accounted for 50 percent of total mobile data traffic in 2012; by the end of 2014 it was 55 percent. Without more mobile bandwidth, users could suffer more dropped calls and crashed applications.

The Background

In the 17th century, Isaac Newton observed that sunlight passing through a prism split into a rainbow of colors; he called this a spectrum (for specters or ghosts). The entire electromagnetic spectrum ranges from tiny waves shorter than an atom (high frequency), to miles in length (low frequency). Different frequencies have different qualities, with some carrying more information and some going farther. Together, they form a sort of real estate in the sky. The neighborhood was wide open when the Italian radio pioneer Guglielmo Marconi in the 1890s showed how to send signals wirelessly over distances. Radio soon flourished with little regulation, at first mainly for ship-to-ship communication. In 1912, after radio interference blocked an iceberg warning for the doomed Titanic, the U.S. Congress established federal authority over airwaves. Later the government began assigning, without fee, licenses that granted exclusive use over certain frequencies. Applicants were winnowed through hearings or lotteries. In 1994, the FCC began assigning airwaves via auctions. Countries from India to Brazil have also used auctions to dole out portions of the spectrum. Europe’s frenzied 2000 and 2001 auctions reaped nearly $100 billion but left the overpaying mobile providers hobbled by debt, leading to bankruptcies and government bailouts.

The Argument

The U.S. government sees mobile technologies as a way to spread high-speed Internet access to more people and has endorsed the spectrum auction. Seven percent of Americans own a smartphone but don’t have fixed-line broadband service at home or any other easy access to the Internet. Smaller nationwide carriers T-Mobile and Sprint have persuaded the FCC to prevent the dominant providers, AT&T and Verizon, from bidding on some frequencies to ensure that the biggest companies share the available airwaves. When it blocked AT&T’s purchase of T-Mobile in 2011, the U.S. Justice Department said that four national carriers were needed to keep the wireless market competitive. TV stations that sell spectrum can move to other frequencies, perhaps sharing with another broadcaster. Though most TV viewers watch via cable or satellite, critics say stations dropping off the air will hurt the roughly 15 percent of Americans who only get free over-the-air TV broadcasts. And scores of public television stations operated by financially strapped local governments and universities could close or reduce their reach, since the auction money may be too good to pass up.

The Reference Shelf

  • The U.S.’s frequency allocation chart shows how the radio spectrum is currently divided.
  • The National Broadband Plan that laid out the case for the incentive auction in 2010.
  • A statement about the auction from FCC Chairman Tom Wheeler, and an FCC Web page that explains how it will work.
  • FCC staff summary of the incentive auction.

First published Nov. 30, 2015

To contact the writer of this QuickTake:
Todd Shields in Washington at tshields3@bloomberg.net

To contact the editors responsible for this QuickTake:
Elizabeth Wasserman at ewasserman2@bloomberg.net
Anne Cronin at acronin14@bloomberg.net