An Engineering and Economic Analysis of the Prospects of Reallocating Radio Spectrum from the Broadcast Band through the Use of Voluntary Incentive Auctions
44 Pages Posted: 17 Jan 2012
Date Written: September 24, 2011
Voluntary incentive auctions for the spectrum currently occupied by television broadcasters should be an important part of meeting exploding demand for radio spectrum. Despite recent allocations of licensed spectrum and demand management techniques for wireless carriers, such as WiFi offloading and innovative pricing schemes, significant amounts of additional spectrum will be required to satisfy growing demand on wireless broadband networks. Based on the Principle of Spectrum Reallocation, additional frequencies should be reallocated to high-valued wireless broadband uses whenever such uses are more valuable than the existing uses of spectrum bands. Voluntary incentive auctions, where proceeds from auctioning the reallocated spectrum compensate existing licensees, ensure that spectrum will only be reallocated when it is more valuable in its new use. This paper focuses on reallocation of a portion of the television broadcast band via a voluntary incentive auction process.
We perform a detailed analysis of repacking television channels so as to minimize the required compensation needed to induce current broadcasters to return their UHF broadcasting licenses. The costs of repacking - based on new equipment needed for an existing broadcaster to continue broadcasting to the same service area on a different channel - are estimated to average $885,500 per full power station and $267,375 per low power station. Based on our calculations, this is a total of $775 million for all stations. Each repacked station would remain on its existing tower, thus minimizing or eliminating any concerns about replicating the coverage of the original broadcast signal.
Broadcasters who choose to take the opportunity to return their UHF licenses in exchange for compensation in an incentive auction have several alternatives to continue broadcasting - they could co-broadcast with another broadcaster, obtain a license to broadcast on VHF channels, modify their coverage area or negotiate to have their programming carried on non-broadcast video delivery systems. In fact, there are several broadcast platforms that have with substantial viewership that do not rely on VHF/UHF transmissions. These include cable, satellite and internet video services such as Hulu. Our analysis forecasts the expected compensation that could be required to induce broadcasters to participate in an incentive auction. We estimate conservatively that the upper bound of total payments to broadcasters could be as high as $15.2 billion to clear 120 MHz.
Our forecast of auction revenues is based on previous comparable auction results, adjusted for changing market conditions. In particular, we adjust for the added supply of spectrum created from these incentive auctions as well as the change in spectrum value over time. We estimate that the auction of 120 MHz of spectrum currently occupied by TV broadcasters would raise $40.0 billion.
In sum, we expect that voluntary incentive auction of the broadcasting spectrum band would transfer 120 MHz of highly valuable spectrum to wireless broadband uses and raise $24.7 billion for the U.S. Treasury (after paying the reserve auction winners from the gross proceeds). This transfer would reallocate spectrum to uses with a far greater benefit to the U.S. economy than the current uses. At the same time, every broadcaster whose bid is accepted will receive compensation at least as high as the value the broadcaster has placed on its current license. Repacked stations will receive new equipment to replace old at no expense to the broadcaster.
The estimated value of this spectrum to wireless firms - $40.0 billion - is only a fraction of the social value created by reallocating spectrum currently used for television broadcasting to wireless broadband uses. The long run benefits from more wireless broadband at lower cost is far more important to American society than the government revenues. The benefit to consumers is estimated to be 10 to 20 times the value of the spectrum to producers.
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