Earlier this year, NERA Economic Consulting published a white paper claiming that making an additional 400 MHz of licensed spectrum available would deliver $2.6 trillion in combined GDP benefits and consumer surplus.
While the headline number grabs attention, this recent data has already been fact-checked and debunked by industry analysts, but it’s worth emphasizing some of the serious methodological flaws that result in inflated estimates that further undermine the credibility of NERA’s calculations. Policymakers should approach the NERA numbers with considerable caution—and demand a more balanced view that accounts for real-world timelines, market variability, and a more complete understanding of economic trade-offs.
Here are three key problems with the study that should give policymakers pause.
1) Overstates consumer surplus estimates based on questionable auction valuation data
NERA’s estimate of consumer surplus benefits hinges on a $1.07 per MHz-pop valuation drawn from recent C-Band and 3.45 GHz auctions. However, even one of NERA’s own authors has published projections that put that value closer to $0.41 per MHz-pop for future auctions. NERA can’t have it both ways. Using this more conservative estimate slashes the estimate of surplus gained if the benefits accrue indefinitely from $1.5 trillion to $541 billion.
NERA also assumes that these consumer surplus benefits will be realized in perpetuity and that they will be realized immediately, ignoring the actual time it takes to make spectrum available, hold an auction, and deploy services. If, for example, this more realistic estimate of auction revenues is employed, it is assumed more appropriately that the consumer surplus benefits will only start being realized six years from now and that the benefits are discounted over ten years rather than indefinitely, the estimate of the consumer surplus benefits falls to just $188 billion. In other words, a mere 12% of what NERA projected in its report.
2) Inflates GDP benefit estimates based on unrealistic timelines and a failure to discount future benefits
The remainder of NERA’s estimated benefits relate to GDP gains. However, these estimates totally ignore the fundamental economic principle of present value. Also, as with the consumer surplus estimates, NERA assumes these GDP gains will start to be realized immediately.
- When the timeline is adjusted and these GDP benefits are discounted over 10 years, the estimated GDP benefits drop from $1.1 trillion to $336 billion. That’s a massive 67% downward correction—and a big red flag that calls into question the study’s exaggerated conclusions and overall methodology.
- When combined with the consumer surplus corrections discussed above, NERA’s overall estimate falls from $2.6 trillion to $524 billion.
3) Ignores costs and opportunity losses associated with spectrum clearing
Finally, NERA’s analysis of net benefits also completely ignores the costs incurred in clearing spectrum for licensed use, both in terms of time and money. For example, Department of Defense estimates suggest that relocating current users could cost at least $250 billion. That deduction alone further shrinks the net benefits, yet NERA is silent on this point.
Meanwhile, a separate study from Wi-Fi Forward finds that removing 700 MHz from unlicensed use—often used for Wi-Fi—could cost the economy $1.4 trillion in present value over just three years. That’s the type of trade-off the NERA study doesn’t even acknowledge if spectrum is taken away from one commercial use to serve the interests of CTIA’s members.
Bottom line
While there is little debate that strategies to unlock more commercial spectrum, whether through spectrum allocation and design choices enabling exclusive use, shared use, or unlicensed use, can create economic value, NERA’s trillion-dollar benefit projections in support of carrier preferences rely on overly optimistic assumptions, questionable math, and one-sided analysis. Policymakers should approach these numbers and projections with caution and a critical eye.
