Two Cheers for the FCC's Mobility Fund Reverse Auction
Posted: 2 Apr 2013 Last revised: 24 Apr 2013
Date Written: April 1, 2013
Abstract
The United States held its first competitive bidding, or “reverse auction,” for universal service funds in September 2012. In general, in a reverse auction providers bid the subsidy they believe they need to provide a specified service in a given area, and the regulator funds the firms that ask for the smallest subsidies.
While it is far too early to investigate whether this national auction generated improvements in mobile voice and broadband service in underserved areas, it is not too soon to evaluate the auction itself. This paper investigates the outcome of the Mobility Fund Phase 1 Auction (Auction 901) and considers what we could learn from it for universal service and future reverse auctions, such as the upcoming incentive auction, which aims to reallocate spectrum from broadcasters to those who place a higher value on it.
The analysis, based on data from all auction participants, suggests that this one-time expenditure should be considered a qualified success. Perhaps most importantly, it demonstrated that the FCC can run an effective reverse auction and demonstrated that allocating subsidies based on cost-effectiveness measures has the potential to dramatically increase the bang for the buck we get from universal service expenditures.
The analysis also yields certain lessons. Most notably, the auction highlighted the difficulty in generating participation. The FCC handled this problem well, but must continue to think hard about how to encourage participation in the future, such as the upcoming incentive auctions or the second Mobility Fund auction.
Additionally, the pay-as-bid feature of the auction may be problematic, especially in the much larger upcoming Mobility Fund Phase II. The FCC should consider employing other auction mechanisms more likely to induce firms to reveal their true estimates of the subsidies necessary to provide service.
Keywords: telecommunications, universal service, auctions, mobile
JEL Classification: telecommunications, universal service, auctions, mobile
Suggested Citation: Suggested Citation