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Goo Goo Goggles: 700MHz Spectrum Auction and the U.S. Taxpayers

Scott Cleland claims the open access rules on 700MHz spectrum triggered by Google’s bid fleeced the US taxpayer by $7bn.

I don’t buy it, even as a signed-up fully-paid network neutrality opponent.

Firstly, the numbers ignore economics. If the C block was encumbered, that would raise the prices of the A and B blocks. So you need to take a much smaller differential as to the cost of the encumbrance.

Look at it this way. Say you’re hungry, as is your friend, and there’s three fruit in the market. A tasty apple, a yummy banana, and a mouldy pear. You and your friend don’t want to eat fungus, so you each bid $1 for an apple and banana respectively in the fruit market.

Now imagine the pear was perfect. Supply goes up, demand remains constant, prices come down. You pay $0.80 for each fruit, for a total of $2.40. You won’t pay $3, because fruit isn’t so scarce any more, so you don’t need to bid so high. So the “loss” from the mould was $0.40, not $1.

The next problem is that it confuses the American taxpayer with the American public. That money not paid by telcos to the treasury can now be invested in networks, and lower prices. Some will go to shareholders, but not all.

OK, so what if there’s some residual, lower number, like $2bn? Well, it can still be a good deal.

We don’t really know what the best way of allocating spectrum is. The ISM bands that WiFi sits in have given us an unexpected bounty of goods. A lot of clever people have done all kinds of analysis on the matter, but I’m sure none would say that it’s a closed issue. That such uncertainty exists, means there’s value in hedging it. The taxpayer has bought some option value in having a diversity of spectrum rules. Reasonable people could differ over the value of that option. But it’s not zero. Maybe it’s even more than $2bn. And possibly a lot more than $7bn.

We shall see.

By Martin Geddes, Founder, Martin Geddes Consulting Ltd

He provides consulting, training and innovation services to telcos, equipment vendors, cloud services providers and industry bodies. For the latest fresh thinking on telecommunications, sign up for the free Geddes newsletter.

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Scott Cleland  –  Apr 8, 2008 5:36 AM

Please find my rebuttal at http://www.precursorblog.com/node/704

Scott Cleland
Chairman, NetCompetition.org

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