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Economics and Common Sense Deprecates the Common Argument for Lower Spectrum Prices

Outside of China, very few governments would expect a saving in spectrum costs would mostly go to investment. Corporations have other priorities, including advertising and executive salaries. Stockholders come above everything at most companies.

Rarely would even 1/3rd of the saving go to capital spending. The U.S. under Trump had a massive tax cut, worth literally billions to Verizon and AT&T. Verizon actually cut investment. AT&T’s increase in capex was far lower than the tax saving. Investment levels in telecom are primarily based on technical improvements and competitive need. Only a modest amount of an increased profit will go to capital spending.

Thomas Noren, Ericsson’s respected chief of 5G, should not have said, “Operators need to be allocated spectrum on friendly terms. It needs to be allocated, not for the benefit of the taxman, but for the benefit of building out and supporting the network,” unless he had a plan to make sure it would be spent on “building out and supporting the network.” Noren can be expected to echo the ideas of customers spending billions with Ericsson.

Goldman Sachs reports that in the U.S. in 2018, “Share buybacks total more in 2018 than capital expenditures, ...Repurchases hit $384 during the first six months, a 48 percent jump from the same period in 2017. The third quarter has seen no letup, with the total year-to-date buyback level now at $762 billion through mid-September, putting the trend easily on pace to top the $1 trillion.”

Regulators, analysts, and reporters need to look past the advocacy.

I replied to Noren’s comment with the following.

“Chris Noren’s comments are probably off-base. “Operators need to be allocated spectrum on friendly terms. It needs to be allocated, not for the benefit of the taxman, but for the benefit of building out and supporting the network.” Does Noren mean to say that governments will set a regulation that requires the companies to allocate the savings to increased investment? China might, but Europe? Alternately, does he think telecom operators will allocate all, or even most, of their saving to investment? I don’t see any evidence here that private companies will act very abnormally and spend the savings on increased investment. Without evidence, I would expect the companies would spend most of the money on shareholders or other priorities, such as advertising. A century of economists researching “the incidence of a tax” does not suggest that companies getting what amounts to a negative tax would ordinarily go to increased investments? Am I wrong?

By Dave Burstein, Editor, DSL Prime

Dave Burstein has edited DSL Prime and written about broadband and Internet TV for a decade.

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