The Benefits of Spectrum Auctions for Wireless Consumers, Providers, and Federal Agencies April 2019 Executive Summary Since their introduction, the use of auctions to grant spectrum licenses to the commercial wireless industry has been a win-win for America’s wireless consumers, wireless providers, and in many cases, federal agencies. Auctions have provided speed, certainty, efficiency, and economic rationality to the distribution of spectrum resources. For the past fourteen years, innovative legislative tools and funding instruments—like the Spectrum Relocation Fund (SRF)—have supplemented spectrum auctions by enabling federal agencies to more quickly and efficiently relocate their operations from current spectrum to free these frequencies for commercial use. Under this system, relocated federal agencies receive funding from auctions to cover their relocation costs and to explore future research and development. This complementary combination of spectrum auctions and relocation funds has worked well for both federal agencies and commercial stakeholders, allowing for incredible commercial innovation and investment in the wireless ecosystem. However, the current system could be improved in small but important and impactful ways. Policymakers should enhance the flexibility and funding made available to federal incumbents to allow for future spectrum reallocations. In addition, enhanced flexibility and funding will provide much needed and improved equipment, cybersecurity, and more efficient and interference-free federal spectrum use. For example, targeting two specific blocks of spectrum (1300-1350 MHz and 1780-1830 MHz) currently held by federal agencies would potentially deliver $54.7 to $56.7 billion in new revenue, a portion of which could be used to help federal entities improve existing spectrum management systems and equipment. For these two bands, even the low end of projections would bring in roughly three times the costs (up to $7.9 billion) of transitioning affected incumbent federal agency users to modern and more efficient communications systems. 1 Auctions Have Been Successful and Beneficial For Both Commercial and Federal Entities Since the first spectrum auctions in the early 1990s, the Federal Communications Commission’s (“FCC” or “Commission”) competitive bidding (or auction) process for spectrum licenses has been a complete policy success for the U.S. for several reasons, including revenue raised, speed, and aligned incentives. As of April 2017, the Commission had completed 88 spectrum license auctions and the total amount of proceeds collected for government use and deficit reduction exceeded $114 billion.1 Most recently, the Commission auctioned 28 GHz spectrum licenses, raising more than $700 million in additional revenue at the end of 2018,2 and is currently conducting an auction of 24 GHz spectrum licenses. Notably, while significant and beneficial, the positive effects flowing from auctions are not limited to raised revenue. The use of competitive bidding has also increased the speed of licensing while simultaneously granting a bundle of rights to licensees that are exclusive (entitled to protection from interference) and flexible (allowing licensees to freely innovate). This combination of speed and aligned incentives has enabled the U.S. wireless industry to invest substantially in the wireless ecosystem. In 2016, the wireless industry as a whole contributed over $475 billion to the U.S. economy, supporting 4.7 million jobs.3 And the wireless industry accounted for 2.6 percent of total U.S. gross domestic product, generating $1 trillion dollars in economic output, making it equivalent to the 24th largest economy in the world (larger than 87 percent of the world’s economies, including such nations as Norway, Hong Kong, and Ireland).4 Before auctions were used to assign spectrum rights, the FCC used several other approaches to spectrum management, including comparative hearings and lotteries. Policymakers in the U.S., have long held that spectrum rights should be assigned to parties that put it to the best use for society as a whole.5 Over time, it became clear to regulators that neither comparative hearings nor lotteries could achieve that goal due to significant inefficiencies in the systems.6 In contrast, economic theory and results have made clear that auctions are the best way to efficiently and effectively assign spectrum rights.7 Auctions also allow greater aggregate competition