This fall promises to
be a critical season for spectrum. At its September 28 meeting, the FCC is set
to consider proposed rules for the broadcast TV spectrum incentive auction and
for the spectrum screen the agency uses in evaluating spectrum license
transfers. The FCC is also considering AT&T's proposed acquisition of
several spectrum licenses from Comcast, Horizon, and NextWave.
The name NextWave
should ring a bell at the FCC. In particular, it should call to mind the
debacle of the agency's mid-1990s spectrum auctions conducted according to a
restrictive, protectionist approach instead of a truly free market approach. A
decade of messy legal
battles
between botched auction winner NextWave and the FCC kept valuable spectrum from
being put into use for wireless services.
The FCC will hopefully
show it has learned the lessons of NextWave in implementing spectrum incentive
auctions and in reviewing spectrum secondary market transactions. For the FCC,
this means ensuring there is open eligibility for those entities offering the
highest bids to obtain spectrum licenses. It also means auctioning spectrum
licenses free from encumbrances that could depress their value. A
pro-investment policy for spectrum, so vital to job growth and economic
expansion, requires reliance on free market forces for ensuring spectrum
licenses obtain their highest value.
Spectrum is a critical
input for accommodating surging wireless data traffic and for facilitating
deployment of next generation wireless services. According to data
compiled by CTIA, wireless data traffic totaled more than 865 billion
megabytes in 2011, a 123% increase in annual traffic from 2010. The FCC has repeatedly
acknowledged the urgency of making more spectrum available to accommodate
future wireless data traffic demands. AT&T's proposed acquisition of
spectrum licenses from Comcast, Horizon, and NextWave – dubbed "AT&T/WCS
Licensees" by the FCC – fits with plans to retire its legacy service
operations. The carrier is positioning itself to migrate those customers to
more advanced wireless networks, including its expanding 4G network. As one analyst
report puts it, next-generation IP networks offer the benefits of "increased throughput, lower latency, and stronger
security. One result is a reduced cost per megabit."
Due to this
combination of increasing demand for wireless services and network capacity
constraints, in recent years spectrum has become increasingly valuable. This is
evidenced by the high prices being offered by wireless carriers for additional
licenses. For instance, Verizon Wireless acquired 20MHz of Advanced Wireless
Services (AWS) spectrum from a consortium of cable companies (SpectrumCo) for a
reported
$3.9 billion. It is reported
that AT&T is paying NextWave $600 million for its spectrum licenses, with
the carrier said to be spending some $2.6 billion to acquire spectrum through
several other transactions.
Given the innovative
and competitive state of today's wireless marketplace, a pro-investment policy
that puts primacy on market forces will best ensure the rapid rollout of the
next generation of wireless services. Market-based decision-making by the
private sector offers the most efficient means for ensuring that spectrum
licenses are put to their best use. Those entities that are willing to invest
the most in spectrum will invariably have the strongest incentive to make good
on their investments. And as research
by economists Robert Shapiro and Kevin Hassett indicates, "every 10
percent increase in the adoption of 3G and 4G wireless technologies could add
more than 231,000 new jobs to the U.S. economy in less than a year."
But the full benefits of
future wireless innovation, investment, and jobs might not be realized if the
FCC takes a restrictive, protectionist, and otherwise pro-regulatory approach
to spectrum policy.
Earlier this year, FSF
President Randolph May raised
serious concerns that the FCC might invoke its vague and indeterminate
"public interest standard" in order to impose restrictions on
eligibility for the incentive auctions. Similar concerns were expressed that
the FCC might impose restrictions on the use of licensed spectrum once it is
auctioned. FSF
scholars
have criticized the FCC's process for reviewing mergers and acquisitions,
including those involving the transfer of spectrum licenses. For example, FCC
merger review orders regarding AT&T/T-Mobile
and AT&T/Qualcomm
have relied on seemingly arbitrary and ad hoc rationalizations for blocking deals
or subjecting them to burdensome regulatory restrictions.
Given the vibrancy of
the wireless market in an economy otherwise experiencing an intractably slow
recovery, these concerns about FCC-imposed regulatory restrictions on spectrum
auction eligibility and flexible license usage remain in full force. There are
agency precedents in this regard that the FCC should not repeat. As mentioned
earlier, the FCC's ill-conceived auction in the mid-1990s that restricted
bidding eligibility and transferability put valuable spectrum licenses into the
hands of NextWave and other entities that proved unable to pay for those
licenses or put them to use. And in 2007, the FCC's 700 MHz C Block Order imposed "open access" or
network neutrality restrictions on the use of the auctioned spectrum licenses. A 2010 paper
by economists Gerald Faulhaber and David Farber concludes those encumbrances
"decreased the value of the spectrum asset by 60%...reduc[ing] the
affected telecommunication asset and thus reduc[ing] the incentive to invest in
such assets."
Going forward, the FCC
must pursue a pro-investment spectrum policy that seeks to obtain the highest
value that wireless carriers are willing to put up. Such investment is the
lifeblood of the innovation, competition, and job growth that next-generation
IP wireless services promise for consumers and for our economy. Open
eligibility and flexible use, not protectionist or competitor welfare
restrictions, should be the rule for the FCC's upcoming incentive auctions and
for future reviews of spectrum license transfers.
Posts
