Spectrum Auctions at the FCC: A Lesson for Utilities?

Fortnightly Magazine - October 15 1997
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When the fanfare dies down, winners face the same challenge as with any new start-up but may enjoy more options than incumbent licensees.

The Federal Communications Commission's auctions of spectrum should concern two types of energy utilities: those who participate in the auctions and those who don't.

Initially, these auctions were viewed as a spectacular new regulatory tool (em able to raise billions of dollars for the public, without troubling the overburdened taxpayer. As of late, however, a dark side has emerged. Bidders have cried fraud. Companies unable to pay up on overly aggressive bids have left the FCC holding the bag. The irrational exuberance that greeted the initial spectrum auctions appears to have rightly faded.

Before it was granted auction authority, the FCC had often used lotteries to award licenses when applicants filed more than one application to serve the same area. Applicants with the good fortune to win licenses, most notably in cellular telephone lotteries, often became millionaires. Licensees selected at lottery often had no intention of operating a communication service. News of the fortunes to be made in FCC licensing soon reached the scam artists, who charged exorbitant fees to process applications. Fraud had become a huge problem. Congress favored auctions as a way to generate funds and alleviate administrative burdens at the FCC that had delayed the process and denied new services to the public.

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