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More on “Incentive Auctions” for the Reallocation of Spectrum

1 noviembre, 2011

Some of our readers have requested me to write a bit more about “incentive auctions”. A couple of additional lines in this interesting topic follow.

The US Federal Communications Commission (FCC) has recently proposed the use of “incentive auctions” for the reallocation of radio spectrum from broadcasting to telecommunication services. According to the FCC, this process of reallocation will be instrumental to solve, at least partially, the “spectrum crunch” that the US economy will be facing during the coming years. The incentive auction mechanism that the FCC is proposing to implement is based in two core principles: (a) the voluntary return of spectrum by broadcasters in exchange for a share in the revenues generated by the public auction of this spectrum and, (b) the non-voluntary repacking (band relocation) of all the broadcasters that operate in the spectrum band targeted. One of the key features of the FCC proposal is that any costs associated with the process of band relocation will be paid directly by the government. The FCC mechanism for the repurposing of radio spectrum is particularly innovative, although some questions still remain to be solved. On the one hand, it is clear that the revenue sharing coefficient between broadcasters and the Federal Government cannot be efficiently determined, ex ante, to the auctioning process. However, the fact that there is some degree of uncertainty about revenue sharing may reduce the power of the incentives given to broadcasters for participating in the incentive auction in the first place. On the other hand (and depending on the number of operators that enter regionally into this mechanism), there is a risk that the process of repacking will lead to different band plans across the country, which may impact the cost of providing services across regions.

Incentive auctions are quite a hot topic now in the US telecommunications policy. It would be interesting to analyze some of the challenges that the implementation of incentive auctions may raise in the context of the Latin American economies.

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One Comment leave one →
  1. 2 noviembre, 2011 10:47 AM

    Dear Victor,
    Your last sentence is particularly interesting! In Brazil, the privatization of the telecom companies had the sole purpose of generating high revenues to the government to deal with the public deficit. As a matter of fact, this approach has always been the main focus of all the privatization policy in Brazil, even though no one involved would admit it. I suspect this has just recently changed.
    Specially in the telecom industry, the design of pro-competitive regulation ex ante may lead to considerable gains in the welfare. Of course, this would come at the expenses of lowering the price of the assets. This seems to be what the US government is planning to do.
    Do you think this would work in Latin America? What about the other readers? Any views to share?
    Regards,

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