Use of Designated Entity Preferences in Assigning Wireless Licenses

Abstract

The Federal Communications Commission (FCC or Commission) was granted the power to auction licenses for use of the electromagnetic spectrum in the 1993 Omnibus Budget Reconciliation Act in which Con­gress added section 309G) to the Communications Act.1 Congress mandated the new auction policy on the grounds that new telecommunications services were to be deployed quickly, but also that licenses be assigned to "a wide variety of applicants, including small businesses, rural telephone companies, and businesses owned by members of minority groups and women." In general, auctions have been a faster and less costly means of license assignment than previous FCC methods. As the auction process has progressed, however, it is apparent that the mandate for speed and effi­ciency clashed with the preference programs established to facilitate the ownership mandates.

This Article attempts to isolate the delays in license allocation and in the provision of consumer services that are directly associated with the FCC spectrum auction, preference programs for so called "designated entities". This Article then estimates the consumer costs associated with those delays and compares those costs to the quantifiable benefits of the preference programs-such as subsidies to producers and enhanced auc­tion revenues for the government. In other words, the Article constructs the framework for a social welfare analysis to assess changes in both producer and consumer welfare as well as the amount of deadweight loss-the amount that is not captured by either telecommunications producers or consumers-associated with the preference program structure.

Keywords: spectrum, spectrum auction, designated entities, auction design, FCC, telecommunication, bidding credit

JEL Classification: K2, K23, L51, L52, L9, L96