How to Free Up Government Held Spectrum in the Face of Increasing Budgetary Pressure

Although the demand for wireless broadband is burgeoning, the lack of available spectrum to meet consumer demand is choking future economic progress.  As I have previously noted, Federal agencies, especially the Department of Defense (DoD), don’t face normal marketplace pressures to economize their use of this precious resource.  While the potential societal gains of reallocating federal spectrum for commercial use are likely in the hundreds of billions of dollars, attempts at addressing this problem have met many roadblocks.  Today, I’m offering another idea for consideration: the option of allowing agencies to free up some of their spectrum holdings in exchange for budgetary relief.  While I still believe the imposition of Agency Spectrum Fees is the best course of action, this new proposal represents a compromise between differing carrot and stick approaches.  And it is particularly timely today, as many of these federal agencies face increasing budgetary pressure.

Unlike their Federal brethren, private users of spectrum, thanks to various FCC reforms, better face the “opportunity costs” of their spectrum use.  Over the years, the Commission, on a bipartisan basis, has given these licensees the option to use spectrum for varying purposes, sell it to other users, and deploy new technologies.  The most recent example is the so-called incentive auction for broadcast spectrum, which concluded a few months ago.  Bidders for mobile broadband spectrum licenses essentially bought out some broadcasters, paid to repack others, and produced substantial savings for taxpayers.  The winning bids totaled approximately $20 billion and freed 70 megahertz for new wireless broadband services.

In addition, this voluntary approach generated two straightforward and often overlooked benefits.  First, the licensees themselves decided the value of the spectrum to their enterprise and whether selling it would make them better off – a usually reliable tool to promote efficiency and consumer welfare.  Second, the voluntary nature of this process shortens the timeline for repurposing spectrum.  Overcoming political obstacles to past spectrum reassignments often took decades.  For example, some reallocation efforts have taken 15 years or more.[1]  In contrast, Congressional action officially started the most recent endeavor in 2012 and the incentive auction should be completed in a little over three years from now.               

Understandably, bringing market forces to bear on federal use of radio spectrum has not been as easy, and thus far, reform efforts have failed to get sufficient traction.  Federal agencies are not profit-making entities.  If or when they free spectrum for commercial use, there is no guarantee that they will get any of the auction revenues generated.  It’s one reason “carrot” approaches have lagged, despite laudable efforts by Congressional leaders, including Senator John Thune (R-SD) and Representatives Brett Guthrie (R-KY) and Doris Matsui (D-CA).  At the same time, some consider the incentives offered to government agencies to be fairly paltry (e.g., five or ten percent of auction revenues) and not worth the time and effort.  In fact, I’ve heard some contemplate that it could take somewhere in the neighborhood of thirty to fifty percent of gross auction revenues to pique an agency’s interest, which seems a highly unlikely scenario.  In the case of the DoD, the largest federal user of spectrum, it is also difficult for outsiders to craft a potential “win-win” deal because even a large percentage of auction proceeds would be small in comparison to its overall budget and the costs to execute its mission.

At the same time, it’s not lost on me that Agency Spectrum Fees, and other “stick” approaches, such as giving the General Services Administration more authority over federal agencies’ use of spectrum, have not been warmly embraced.  This is in part because setting fees can be challenging, although not impossible.  Likewise, agencies are not interested in ceding administrative control over what they see as their asset, not the general public’s.  In other words, why favor reform when you don't have to do so?

A New Proposal

To bring about some systemic efficiencies to Federal agency spectrum holdings, I suggest that federal agencies be permitted to use their spectrum holdings to offset the annual budgetary caps and sub caps.  This would mean that, in achieving its respective budget limits, a federal agency could substitute the market value – as determined by an average of Congressional Budget Office and Office of Management and Budget estimates – of their surrendered spectrum to offset other cuts or even expand its spending options.  It amounts to a spectrum-for-cash swap.

This option may be most attractive for the DoD, which faces direct budget caps imposed by law.  In operation, it would force its leadership to evaluate all its budget priorities and operations against the others, including whether net savings could be achieved by vacating or sharing spectrum with the private sector.  In some cases, DoD might be able to use more efficient technology to reduce its spectrum footprint and still generate net savings.  For example, what if DoD’s Office of Spectrum Policy and International Engagements might determine that the cost of making particular radar facilities more frequency agile would be more than offset by the budgetary relief received from the resulting cleared spectrum.  Importantly, the benefits to the DoD would be immediate.