Auction Experts Tout Bidding for USF Subsidies
Auctions can be a workable, effective way to disburse universal service subsidies, panelists at a Progress & Freedom Foundation seminar said Thurs. “Our knowledge of how to run auctions in complex situations has grown,” said Stanford U. Economics Prof. Paul Milgrom, considered a national expert on the design of govt. auctions. “I'm astonished how far we've come in auction design since the 1970s,” added Vernon Smith, George Mason U. economics professor and auction expert.
Sign up for a free preview to unlock the rest of this article
Communications Daily is required reading for senior executives at top telecom corporations, law firms, lobbying organizations, associations and government agencies (including the FCC). Join them today!
“The most common argument for auctions” is that “regulators can be less efficient,” Milgrom said: “Nobody knows all the relevant costs of service so a decentralized market process has advantages [while] regulators may pay unnecessarily high subsidies.” Reverse auctions have to be carefully designed, but can be very workable to select among multiple providers for universal service subsidies as long as they're customized and transparent, said Shyamal Ghosh, ex- dir. of the Indian Dept. of Telecom, which ran a reverse auction for rural basic service in 2004 and is starting one now for mobile service infrastructure. Ghosh said the Indian process was part of a telecom reform that included extending basic service to all villages in the country.
Something has to be done to improve the efficiency of the USF’s $4.3 billion “high-cost” program that subsidizes service in rural areas, said Dennis Weller, Verizon chief economist who recently proposed a reverse auction structure for the rural program. The growth in competitive rural providers is causing the high-cost fund to grow out of control, he said. A reverse auction is a “logical way to deal with this [because] it “allows you to select the most efficient provider, ensures the best terms for the public and is an open process,” Weller said. Seeking the lowest bids is “the normal way for the government to buy products and services,” he said. “It provides a way to assign value to items not commonly traded [and] brings market forces to bear on universal service.” Reverse auctions are basically “procurement auctions,” said PFF’s Scott Wallsten, who moderated the program.