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Brooks Wilson's Economics Blog: A Broadband Free Lunch?

Wednesday, March 10, 2010

A Broadband Free Lunch?

(HT to the Drudge Report)  The Federal Communications Commission is considering a plan to allocate spectrum to free or very low cost broadband Internet service nationwide ("U.S. considers some free wireless broadband service").  The Reuters article suggests that the provision of this service is some sort of free lunch by not mentioning tradeoffs.
WASHINGTON (Reuters) – U.S. regulators may dedicate spectrum to free wireless Internet service for some Americans to increase affordable broadband service nationwide, the Federal Communications Commission said on Tuesday.

The FCC provided few details about how it would carry out such a plan and who would qualify, but will make a recommendation under the National Broadband Plan set for release next week. The agency will determine details later.

One way of making broadband more affordable is to "consider use of spectrum for a free or a very low cost wireless broadband service," the FCC said in a statement.
What is the tradeoff?  At a time of imposing deficits, the FCC could auction off the spectrum to the highest bidders lowering the deficit.  Companies with winning bids value the spectrum more presumably because they can repackage it and sell services to end users.  One function of markets is to allocate goods and services to those who value it most.  An auction achieves that goal but a government give away does not.  There is not such thing as a free lunch and this lunch is paid for by taxpayers and consumers who would be happy to buy products utilizing the spectrum that the government plans to give away.  
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