Archive for the ‘encouraged growth’ Category

Preserving the cyberspace boom

July 27, 2007

Steve Forbes
The Washington Times
July 27, 2007

Just a few years ago home sellers in many parts of the country enjoyed competitive bids from potential buyers willing to pay astronomical prices.

That real estate boom is clearly over, but there is still a red hot market for real estate in the nation’s communications spectrum. A prime slice of that real estate will be sold at auction next January and the sale could generate as much as $15 billion, most of which would go for deficit reduction.

Spectrum is the highway system of airwaves that carry communications traffic through the atmosphere at different frequencies. Over the last 15 years the Federal Communications Commission has auctioned off spectrum licenses to the highest bidder. These auctions have generated billions of dollars for the U.S. Treasury and encouraged growth, competition and innovation in the market.

The prizes on the block this time would be slices of the 700 MHz spectrum, aptly described as the last piece of beachfront real estate in cyberspace. This spectrum is ideal for the wireless broadband connections needed to accommodate a new generation of high-speed online services. So the January auction should be the best ever, unless we get an 11th-hour injection of old-fashioned regulation into this free-market process.

Auction rules now being mulled by the FCC are complicated and restrictive enough to reduce what any qualified bidder is willing to pay. A third of the spectrum would be earmarked for so-called “open access” requirements. A wireless carrier buying a license for this spectrum would be saddled with requirements to sell capacity on its network to any content provider, quite likely at prices set by government fiat.

This kind of backdoor Internet regulation is just another flavor of the “net neutrality” approach that some members of Congress are trying to impose on the country’s wired broadband networks. It’s a great deal for giant online content providers like Google who would get a mandated below-cost ride for their premium services, but it can only discourage investment in broadband capacity that’s essential to national economic growth. The proposed auction rules also contain ill-conceived minimum price requirements that amount to a signal of how little the government is willing to accept.

Congressional Budget Office estimates that the auction would generate as much as $15 billion and private estimates of considerably more were based on an open, unrestricted auction. Some experts believe the regulatory restrictions the FCC is considering could reduce the sale price as much as 50 percent.

Clearly that would be a bad break for the U.S. Treasury and taxpayers. But the scariest part is the uncertainty these open access rules would bring to the communications market and the rest of the economy. Competitive markets accept risk as a cost of doing business, but they loathe uncertainty — especially when it’s artificially created by government rules. Have we already forgotten the chaos set off by the Byzantine network-sharing mandates created by the Telecom Act of 1996? They led to paralytic regulatory and legal battles and helped set the stage for the telecom/dot-com bust of late 2000.

In view of all this, why would the FCC even consider cluttering up the auction with open access regulations? The standard rationale is that this would somehow spur innovation and competition, but that is contradicted by the history of the communications market, not to mention the reality of free-market economics.

In the U.S. communications market, the overall growth of innovation and competition over the last 20 years has been driven by the decline of regulation and restriction. This is no time to reverse that trend.

Steve Forbes is president and chief executive officer of Forbes, Inc. and editor-in-chief of Forbes Magazine.**Used without objection.