A Proposal of "White Space Auction"

I wrote an article with Lixin Ye of Ohio State University that proposed reverse auctions that enable the government to buy the spectrum from incumbents. This mechanism could be applied to UHF band in Japan.

Japanese government (MIC) plans to stop the analog broadcasting in July 2011. But there are 130 million TVs in Japan, of which only 30 millions have been switched to "DTV-ready". As 10 million DTVs are sold per year, at least 50 million analog TVs would remain in 2011. It would be very dangerous politically for the MIC to scrap the 50 million TVs that would outrage vast numbers of audience.

In the United States, the FCC had to put off the deadline in 2006. And if it stops the analog broadcasting in 2009, there would remain approximately 6 million people whose TVs black out, because more than 80 per cent of audience watch cable TVs, according to NY Times. If the FCC issues $80 coupons for all of them, it would cost $480 million. However, it can be easily compensated by the auction fee of 100 MHz for $19.6 billion, according to WSJ.

The situation is worse in Japan, because the MIC refused to adopt spectrum auctions. If the MIC issue $80 coupons for 50 million TVs, it would cost $4 billion. The MIC is struggling to compensate it with the "spectrum usage fee" mainly paid by mobile operators. But the fee amounts to only $500 million per year, and mobile operators are strongly opposing such unfair income transfer from mobile users to TV stations.

So our mechanism can be applied to the white spaces. The MIC can auction the cost of converters to the entrant for white spaces. It isn't a spectrum auction but an usual auction of state-owned assets such as real estates. If entrants buy at 150 MHz for $4 billion, the cost per MHz will be $26.6 million, much cheaper than the cost of 700 MHz auction, $196 million/MHz.

Indeed it's "bribing" TV stations who should pay the cost of transition, but it would be more efficient than the simultaneous broadcasting that occupies both digital and analog bands, as the Coase Theorem suggests. Of course the TV stations that would be subsidized by entrants should open the white spaces as fast as possible. And they should pay other costs such as setting up antennas.

This is a tentative proposal, but it would be better for consumers, entrants, and incumbents than the wasteful simultaneous broadcasting.