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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 and Oakland.

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 to come.

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 local programming.

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 it wisely.

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 has come.

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