Wireless Spectrum Auctions - Is There a Better Way?

I've been reading a lot lately about the possibility of voluntary spectrum auctions in the US. These voluntary auctions would be a little different than what's been done in the past. In previous auctions, all revenue gained has gone directly to the Treasury Department. The proposed voluntary auctions would allow the current owner of a piece of spectrum to keep a portion of the revenue from the sale. For the FCC to hold voluntary auctions, Congress would need to change current spectrum auction regulations.

Why is spectrum so critical now? There is is only so much capacity any communications channel can transmit and, with devices becoming more and more complex, bandwidths must keep rapidly rising.  To give some perspective on growth, Network Solutions predicts a growth of 30 times current usage in the next 5 years. Broadbandbreakfast.com breaks it down like this - a Motorola Razor (introduced in the fourth quarter of 2004) on the average uses about 8 megabytes (MB) of data per month. Compare that to a typical smartphone (like an iPhone) that uses approximately 900 MB a month and an average tablet (like an iPad) that uses 2 gigabytes per month. You can see where this is going....

Is there a more efficient way to sell existing spectrum? Perhaps. George Mason Law School Professor Thomas Hazlett has been questioning the FCC incentive auction plan for a while now. Back in December 2010, Hazlett was a panelist at a Telecommunications and Media Forum sponsored by the International Institute of Communications in Washington, D.C., At that time he recommended the FCC take a look at spectrum overlay licenses and allow parties to negotiate private agreements, rather than allowing the government to act as a middleman.

What does this mean? Here's piece of an article from The Journal of Economic Perspective (Volume 22, Number 1—Winter 2008) written by Hazlett.

Consider a television broadcasting service. Video transmitted over-the-air can cheaply deliver valuable content to households, but that simultaneously makes it difficult for another video signal to be transmitted on the same channel to standard TV sets in the area. The U.S. analog standard adopted by the FCC in 1941 delivers one program in a 6 MHz band. The same frequency space can, using digital formats, deliver five to ten pictures of similar clarity or, alternatively, one or two programs in high-definition. Alternatively, a single 6 MHz channel allocated TV band spectrum could economically be used to supply, say, broadband service connecting computer users to the Internet. The wireless broadband option is effectively eliminated, however, under the digital TV standard adopted in the United States, where TV stations (to retain their licenses) must transmit high- powered video broadcasts across the entire 6 MHz band.

Since transmission rules are fixed by law, a TV broadcaster will tend to emit too much power and to underutilize spectrum-saving techniques. Were the broadcaster to enjoy frequency ownership, on the contrary, it would profit by investing in improved receivers (allowing, say, both an over-the-air TV signal and two-way Internet access in the same band) or substituting TV signal delivery by cable and satellite.

The Hazlett Plan sure makes a lot of sense to me.