From Lottery to Oligopoly in Wireless Spectrum

For all its sleek iThing patina today, the origins of the wireless communications revolution had a decidedly Wild West feel. At the dawn of the cellular phone age, in the early 1980s, the federal government faced a crucial decision: who should get the rights to send signals across the public airwaves, potentially cracking the monopoly of the wired telephone companies?

At first, officials chose big cities to introduce the technology, conducting an endless bureaucratic procedure called “comparative hearings” in which they sought to select the best among rival bids. That proved so time-consuming that they soon turned to what seemed a more effective route: give away the rights to use the electromagnetic spectrum through a lottery. They were not prepared, however, for the gold rush that followed. Ostensibly committed to deliver cellular phone service wherever they won a license, many winners instead immediately sold the license to a bona fide phone operator. And they made a bundle. The only outfit that didn’t make any money from the process seems to have been the United States government. Now, Washington is back in the business of putting vast chunks of wireless spectrum on the market. It has learned an important lesson: since 1993, the Federal Communications Commission has leased spectrum to the highest bidder using Dutch auctions. From 2001 to 2010, it reaped a hefty $33 billion on behalf of taxpayers. But there is another lesson that the political system has not learned as well: how to foster competition.