Thursday, September 02, 2010

Chairman Genachowski Says No To Spectrum Giveaway

FCC Chairman Julius Genachowski deserves kudos for stopping in its tracks a disaster-in-the-making spectrum giveaway. He pulled the plug on a draft order that would have established rules for auctioning spectrum in the 2GHz band, also known as the AWS-3 (Advanced Wireless Services) band.

The problem with the draft order is that it would have sanctioned an auction tailored specifically to the unique business model of one company, M2Z Networks, which proposed to provide a "free" nationwide broadband service over part of the spectrum to be auctioned under the rules M2Z proposed.

Calling M2Z's plan to offer free broadband service a "business model" is being charitable. More realistically, M2Z's designer auction plan, which it has pursued for years here in Washington, should be called a "spectrum speculation" model. Indeed, the plan's chief backer is John Doerr, vaunted venture capitalist with the firm of Kleiner Perkins Caufield & Byers. We would all be better off if Mr. Doerr would devote his considerable talents to finding and funding promising Silicon Valley start-ups with innovative ideas and new technologies – companies that are not pleading for special government hand-outs.

M2Z's designer auction plan with its special conditions would have devalued the spectrum and reduced the auction proceeds. The reduced proceeds to the U.S. Treasury would be paid by American taxpayers. The FCC should not be in the business of tailoring auction rules to particular business models. Instead, it should always opt for clean, unconditioned auctions so that the spectrum will be awarded to the bidders who value it highest. They are in the best position to determine what services consumers value most in the marketplace, and at what price.

It is a valid public policy objective to make broadband service as ubiquitously available as feasible, and the government has a limited role to play in achieving this objective in proper ways. There is no need to rehearse here again all the progress that has been made in this regard in the past decade. Broadband service is now available to over 95% of American households. According to the latest Pew Internet & American Life Project report, over 65% of U.S. households subscribe. And the Pew reports consistently show that, for a significant number of non-subscribers, the cost of broadband service is not the reason they do not subscribe.

To the extent that the government wishes to further spur broadband availability and adoption, there are measures that it can take that do not involve the pitfalls and pratfalls of the M2Z plan. For example, I have supported circumscribed measures to target government financial support for new broadband infrastructure to geographic areas without any service at all. And, I – along with my colleague Deborah Taylor Tate, FSF Distinguished Adjunct Senior Fellow – have long supported directing LifeLine-Linkup support for broadband to low-income persons who demonstrate the need for financial support.

In other words, there are appropriate means for the government to employ to achieve the public policy objective that M2Z claimed to embrace with its plan. But adopting designer spectrum giveaway auctions, as M2Z urged, is certainly not one of them. The reason I referred above to M2Z's plan as a "spectrum speculation" model is this: A model based on "free" service, with all the service specifications – speed, quality, build-out, and upgrade requirements, and the like – designed and refined by the FCC likely would fail, if it ever got off the ground at all. Even if conditioning auctions were otherwise advisable, the broadband Internet market is too dynamic and innovative, and consumer demand changes too fast, for the government to set in stone specifications for service. Indeed, I suspect that "failure" of its free government-specified service is a key element of its business plan. Had M2Z gotten its way, and then faced financial difficulties as a result of its faulty business model, the company surely would have come forward with its ready-made alternative plan for using the spectrum, asking to be relieved of the conditions it originally embraced. You can bet that M2Z would have resisted mightily any attempts by the FCC to then reclaim "its" spectrum. Hence, the "spectrum speculation" model.

So, again, Chairman Genachowski deserves praise for putting the kibosh on M2Z's spectrum giveaway proposal. Hopefully, having now gone through this exercise, his commitment to unconditioned auctions will be strengthened going forward.