During more than three decades as a Federal Communications Commission economist, Evan Kwerel has been a key driver of America’s wireless revolution, establishing the first-ever competitive auctions to allocate public airwaves for the transmission of sound, data and video across the country while raising billions of dollars for the government.
The market-based FCC auctions of electromagnetic spectrum, the radio frequencies that carry voices between cell phones, television shows from broadcasters and online information from one computer to the next, were conceived and implemented by Kwerel based on many of the theories of 2020 Nobel Prize-winning economists Paul Milgrom and Bob Wilson.
Since the early 1990s, a total of 107 FCC spectrum auctions have generated more than $200 billion in revenue for the government.
“Evan has been at the forefront of one of the most significant innovations the FCC has undertaken: the assignment of spectrum—the wireless airwaves we all enjoy—through auctions,” said former FCC Chairman Ajit Pai.
“For decades, the FCC held what were called ‘beauty contests’ where companies applied for a band of spectrum and the FCC determined who was going to win and for what purpose,” Pai said. “Evan, along with two Nobel Prize winners, designed the first FCC spectrum auctions. He was a pioneer.”
After winning the Nobel Prize, Milgrom wrote that “Evan’s individual contributions were so major that it would have been appropriate for him to share this prize.”
Until the early 1980s when the FCC started using lotteries to select licensees, the agency distributed spectrum licenses by administrative hearings. Depending on the level of review, either an administrative law judge or the full commission would evaluate applicants under comparative criteria.
That meant telecommunication companies hired “an army of lobbyists and lawyers” and the outcomes were dependent on connections rather than the quality of an idea or a company’s need, Pai said. Consequently, the U.S. was about a decade behind European providers in developing wireless services, Pai added.
Kwerel’s goal was to rely on market forces to drive spectrum to its most valuable, evolving uses, and to diversify ownership. He pushed for the change inside the agency and in Congress, never retreating in the face of strong resistance.
Kwerel arrived at the FCC in in 1983 and focused immediately on the issue of spectrum distribution. Two years later, he wrote a white paper suggesting that the commission allocate the resource through auctions, citing the work in the late 1950s of another Nobel economist, Ronald Coase.
Coase’s proposal had been ignored and remained dormant until Kwerel’s paper, Pai said. By then, times had changed. It was the dawn of the cellular era, and a lack of spectrum was constraining the historic burst of innovation. In addition, the government was seeking new sources of revenue in the face of a growing federal deficit.
Congress finally authorized spectrum auctions in 1993. Kwerel wrote the rules for conducting spectrum auctions, conferring with Milgrom to resolve concerns about the complexities of the implementation.
While conducting auctions is conceptually simple, the mechanisms for doing so are complicated. Different auction designs, for example, can result in different outcomes, and the role of information or the lack of information, can shape a buyer’s bidding strategy.
“Just getting all the details right was so important,” Milgrom said. “Getting it coded, dealing with the politics, the contractors — Evan was on top of all that.” Wilson added that Kwerel “was not just a champion, he was a champion on the spot who could influence decision-making—he was just so well-informed.”
In 1994, the FCC successfully carried out the first-ever simultaneous multi-round spectrum auction. In a traditional auction, items typically are sold individually without reference to any other item, Kwerel explained. In spectrum auctions, by contrast, licenses have interdependent values.
“Often, you don’t just want one license, you want a package of licenses that cover adjacent areas,” said Paul LaFontaine, an FCC economist. “The package is worth more to you than the sum of the value of the individual licenses.”
Kwerel uniquely understood the intricacies of the auctions, which have grown more complex.
He said that, as an FCC economist, he has no formal authority within the agency, but he used persistence, persuasion and the facts to bring about change.
“The idea of spectrum auctions didn’t originate with me, but I made a difference in making it a reality and by applying cutting edge economics to it,” Kwerel said. “I’ve been able to do very innovative things to serve the public.”
Photo credit: Rena Schild