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An Insider's View of FCC Spectrum Auctions

Feb 1999
Working Paper
98-002
By  Evan Kwerel, Gregory Rosston
After a long period of awarding spectrum licenses inefficiently, changes in the budget and budgetary process coupled with increases in the value of the spectrum for non-broadcast use led Congress to allow the Federal Communications Commission to award licenses through competitive bidding. Contrary to the perceived view of government bureaucracies as excessively cautious, the FCC used the newfound authority to adopt a novel approach to auction design-simultaneous multiple round auctions. The innovative auction design would not have been adopted without the successful collaboration between government economists and academic economists, who helped to formulate and refine the design so that decision makers at the FCC could be convinced that the novel technique was both superior and practical. The FCC's implementation of competitive bidding was not only rapid as mandated by Congress, but also much less costly than outside alternatives and allowed the integration of spectrum policy decisions and auction design. Experience from several auctions has led to a number of open questions and refinements. The FCC is trying to replicate the success with the original auction design by facilitating dialog between the agency and outside auction experts in order to address these issues. The lessons from the auctions process should guide policy makers as they propose and implement future programs. Development of a constituency is necessary even for the efficiency enhancing programs. Once a program is in place, collaboration between government and leading academics can push these programs to further increase the public interest and withstand criticism normally leveled at government agencies. In addition, continued flexibility and willingness to re-examine a program is possible depending on the intrenched interests.