March 26, 1996
"Let's Get a Good Return on the Nation's Air Waves"
San Jose Mercury News
By Timothy Taylor
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EVEN THE most commonsensical suggestions from economists can take decades
to be implemented.
In the late '40s, transportation economists suggested that instead of collecting
bridge tolls from drivers heading in both directions, it was cheaper and easier
to collect a higher toll from drivers going in only one direction. The logic may
seem obvious. But it took nearly 20 years, until 1965, before one-way tolls were
first implemented in the United States on the Bay Bridge between San Francisco
A similarly sensible suggestion was made by Ronald Coase in 1959, in the course
of a career that brought him the Nobel Prize in economics in 1991. He argued that
instead of having the federal government allocate broadcast licenses through an
administrative procedure - effectively giving away valuable licenses for nothing
- it made more sense to sell the licenses.
Congress held hearings on the idea in the late 1950s, but not until 1993 was
the Federal Communications Commission given authority to auction off part of the
radio spectrum, which was to be used for personal communication services like
pagers, portable telephones and fax machines, and wireless computer networks.
Following procedures designed by the modern generation of game theory economists,
these auctions raised $10 billion for the government in 1994 and 1995, with more
In these auctions, the special interests were relatively weak because the industries
are so new. Nonetheless, political pressures meant that three licenses worth perhaps
$1 billion - covering New York, Los Angeles, and Washington, D.C. - were handed
out by the federal government for free to three separate companies rather than
being auctioned off.
The true test for auctioning the broadcast spectrum is now at hand, involving
the transition from the present analog television to digital broadcasting. Congress
is now holding hearings on the subject; legislation is likely to follow. The television
companies want for each station to receive, at no charge, a second channel for
digital TV. Their announced intention is then to broadcast in both formats until
the bulk of the American public switches to digital TV, at which point they would
surrender the spectrum they are using for analog broadcasts. No one knows just
how much money would be raised by auctioning off these broadcast rights, but estimates
run as high as $70 billion.
Naturally, the existing TV stations have started a public relations blitz to
head off such an auction. If they must pay for additional spectrum, they moan,
it will reduce their investment in digital technology. They will lack funds for
The TV stations have found allies among certain nonprofit, public interest
groupies, who are willing to give away the broadcast spectrum in exchange for
government rules that would require stations to show more of the uplifting, edifying,
and responsible programming that they think everyone should watch.
But if the government wants to subsidize high-minded television, or digital
TV technology, or the free viewing of certain events, surely there are more direct
and cheaper methods than handing out $70 billion of broadcast spectrum for free.
In addition, paying for a resource also tends to concentrate attention on using
Markets and auctions are quite good at making these sorts of decisions, since
they force businesses to think seriously about their capabilities and resources,
and what their customers will pay for.
After decades of waiting, auctioning off the spectrum is an idea whose time
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