The current debate concerning the spectrum auction provisions in the House bill that would restrict the FCC's authority to limit auction participation and to impose extraneous conditions might seem confusing. Confusing, that is, absent some appreciation for the proper roles of Congress and the FCC, along with some appreciation of the FCC's problematic track record of imposing conditions for the sake of attempting to achieve some predetermined auction result.
Here's an example of the way that the discussion can become confused, especially with regard to misguided claims regarding who's micro-managing who. In the February 8 Communications Daily [subscription required], Steve Berry, President of the Rural Cellular Association, arguing against the House bill restrictions, said that Congress does not need "to micro-manage a market which is, to say the least, dynamic and changes as quickly as the technology changes."
Mr. Berry, whom I respect, is only half-right – the half of his statement that acknowledges the wireless market is dynamic and changes quickly as technology changes is surely correct. But the half that suggests Congress would be micro-managing the market by restricting the FCC's authority to limit auction participation and to encumber the auction with extraneous conditions surely is wrong.
As I said in a January 17 blog, "Implementing Spectrum Incentive Auctions," it is not micro-managing for Congress to make certain high-level policy decisions concerning the auctions. More specifically, with regard to the restrictions in the House bill, I said:
"It is one thing to say that Congress should not 'micromanage' FCC auction design, or 'inappropriately' restrict the FCC's flexibility. But it is another thing entirely to say that it is improper for Congress to make certain high-level policy decisions about the conduct of the auctions.
It is most certainly within Congress's prerogative, and, indeed, perhaps even within its responsibility, to make such high-level policy decisions in authorizing the incentive auctions. While Mr. Genachowski suggests that Congress should delegate absolute discretion to the FCC with respect to conduct of the auctions, after all, it is Congress, not the FCC, which ultimately is accountable to the people.
[S]urely matters such as preventing the FCC from imposing new net neutrality restrictions or from restricting eligibility to participate in the auction to certain bidders - the very matters Mr. Genachowski wants to reserve to the FCC - fall into the category of high-level policy decisions that are appropriate for Congress to make."
So, to be clear, what the House bill proposes is not to micro-manage the FCC auctions. To the contrary, it proposes to prohibit the FCC itself from micro-managing the auction process by encumbering it to the likely detriment of consumers and taxpayers. This is a very important distinction.
There are good reasons why Congress, in the exercise of its policymaking function, might want to prevent such FCC micro-management. For example, Congress likely is aware that the FCC's previous exercises in micro-managing auctions by way of favoring certain entities or excluding others did not turn out well. The PCS spectrum auction intended to favor certain "designated entities," such as the ill-fated NextWave. This resulted in valuable spectrum going unused for many years as the courts sorted out the FCC's mess. And the FCC's more recent experience with trying to micro-manage the 700 MHz "C" and "D" spectrum blocks resulted, on the one hand, in a loss of billions of dollars in foregone revenue to the U.S Treasury (that is, to U.S. taxpayers) and, on the other hand, in an ineffective plan to utilize spectrum for public safety purposes.
Another good reason for Congress wanting to prevent FCC micro-management is the fact that, as Mr. Berry acknowledges, the wireless market is, "to say the least, dynamic and changes as quickly as the technology changes." Not only is the wireless marketplace fast-changing, as Robert Hahn and Peter Passell point out in a recent post, but it is "an amazing place" that has delivered immense consumer benefits. Like many others, they point out that "charges for both voice and data use have been falling even as reliability and geographic coverage have been improving."
In recent actions, the FCC has indicated its disposition to constrain or somehow limit additional spectrum acquisition by AT&T and Verizon, while favoring spectrum acquisition by others. For example, the ad hoc merger condition imposed by the FCC in the Harbinger/SkyTerra deal restricting transfer of spectrum to AT&T and Verizon and the agency's handling of the proposed AT&T-T-Mobile merger are to this effect. And the general tenor of the two most recent wireless competition reports, refusing to find the wireless marketplace competitive, also is to the same effect. As Messrs. Hahn and Passell rightly suggest: "The risk here is that freezing the industry leaders in place while giving competitors indirect subsidies (in the form of less-than-competitive prices for spectrum) would slow innovation."
Given this risk, and the FCC's pro-regulatory disposition as evidenced by its recent actions, it is entirely appropriate, as I wrote in my January 17 piece, for Congress to establish broad policy restricting the FCC's authority to limit auction participation or otherwise encumber auctions by imposing extraneous conditions. If you wish, you might call this policy-setting "macro-managing" the auctions. But it is not micro-managing them.
Properly understood, Congress would be constraining the FCC from exercising its unbounded discretion under the indeterminate "public interest" standard to try to micro-manage the auction rules, or, for that matter, the license transfer process, on the theory that it is somehow creating "more" competition. This manipulative approach, as the FCC has yet to learn but should have, rarely works to the benefit of consumers in markets as dynamic and already workably competitive as the current wireless marketplace.
In such markets, the FCC shouldn't be allowed to try to manage competition by micro-managing the regulatory process.
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