On November 19,
the Digital Policy Institute hosted a webinar entitled, “Spectrum Auctions and Band Plans.” Panelists included Free State
Foundation President Randolph May, Association of Independent Television
Stations President Preston Padden, and National Association of Broadcasters
Executive Vice President of Strategic Planning Rick Kaplan. The panelists, each
with decades of experience regarding communications law and policy, discussed
the proper approach the Commission should take to ensure the success of the
upcoming spectrum auctions. The resounding message was the importance of
achieving a successful auction in order to meet the constantly growing demand
for increased spectrum.
Free State
Foundation President Randolph May advocated an unencumbered, condition-free
auction to maximize the highest and best use of spectrum as the statute
authorizing the Commission to conduct auctions dictates. Mr. May reminded the
audience that experience shows that when the FCC begins to deviate from the
principle of an unencumbered auction the results are “not always pretty.” He
cited as examples the flawed PCS C block and 700 MHz auctions.
In the PCS
auction, the FCC extended long-term credit to financially weak bidders, with
the apparent intention of encouraging small businesses and rural bidders. This
manipulation of the auction resulted in a decade of bankruptcy litigation,
delayed the availability of spectrum, and cost consumers over $65 billion
according to some estimates. In the 700 MHz C block auction, the FCC
required the winner of the 22 MHz C license to provide non-discriminatory
network access for all devices and applications. This vague “open access”
mandate lacked detail on the freedom of a new licensee to set prices or
innovate and disincentivized bidding. This condition-encumbered C block sold
for 29% of the price as comparable or even less valuable blocks. Additionally, in
auctioning the D block in the same 700 MHz auction, the FCC imposed significant
conditions on the use of the spectrum and imposed eligibility rules on bidding.
The results of this auction were also unsuccessful, since the D license failed
to sell even for a reserve price that was one-third of the average obtained for
other comparable licenses. As Tom Hazlett, Professor of Law & Economics at
George Mason School of Law stated, “this is evidence that regulatory rules and
spectrum allocation procedures continue to distort markets.”
Preston Padden
seconded these points, and reminded the Commission of another hurdle to a
successful auction: The Commission does not currently have in its possession
the spectrum it is purporting to auction. In addition to structuring a
condition-free auction to encourage efficient bidding, the Commission must also
incentivize broadcasters to relinquish their spectrum. He stated, “absolutely
the best course is to rely on the market forces of an open auction as Congress
intended.”
Voicing a
different perspective, Rick Kaplan cautioned against rushing into the incentive
auction, and emphasized the importance of other auctions, which must be executed
before the FCC pressures broadcasters to give up their spectrum. He pointed to
interference problems in previous auctions and urged the FCC to take its time
to formulate the right band plan. Finally, he asked for those broadcasters that
do not donate their spectrum to be held harmless, and stated that freeing up
spectrum is not the only thing that defines a successful auction: “Success is
having a wireless broadband ecosystem that works together – that means no
interference.”
Although
it is certainly important to auction spectrum in ways that support a reliable,
interference-free wireless network, it is also crucial that the incentive
auction take place soon and achieve success. In order for the U.S. to continue
to be a world leader in broadband and the communications and technology sector,
the FCC must ensure that there is sufficient spectrum available and that it is
used efficiently. A report released by Deloitte last year examined spectrum strategy
issues that may threaten U.S. leadership in mobile broadband. The report found that “demand
for mobile services has accelerated, fueled by a multitude of innovative
devices and an explosion in applications. Demand growth is likely to intensify
as mobile broadband uses appear in a widening array of business and government
segments,” and “a successful TV broadcast spectrum auction should be a top
priority as a highly visible step toward meeting the 2020 goal of freeing up
500 MHz of spectrum for mobile broadband.” In light of these facts, Randolph
May stated in the recent webinar that the incentive auction “should happen
sooner rather than later because wireless needs more spectrum. It’s a good
thing in terms of adding to our economy and benefiting consumers. In order to
keep up with the rest of the world and serve our own nation’s interest, having
more mobile and more spectrum is a good thing.”
Many recent reports continue to emphasize the importance of conducting a
condition-free auction to maximize revenue and to ensure the highest and best
use of spectrum. I cited several of these in my September 25 Perspectives, “No Picking Favorites,” as did Free State Foundation Visiting
Fellow Greg Vogt in his August 13 piece, “Achieving Unanimity.” There seems to be widespread agreement
that imposing eligibility constraints on the incentive auction will threaten
the success of the auction.
FSF President
Randolph May summarized these key issues in the recent webinar:
We
have to get it right. My hope would be that we have an opportunity,
particularly with the newly reconstituted Commission, that this [incentive
auction] be a top priority…. I do think there’s widespread agreement that if it
can be done properly and consistent with rule of law principles it is possible
to repurpose spectrum while also conducting an auction in which broadcasters
aren’t coerced but participate voluntarily. I think its ultimately important,
especially given the fact that the wireless market is competitive and that we
don’t have a problem with concentration, that we don’t have an incentive to
game the auction to reach preconceived results. The FCC should conduct an
unconditioned auction.
Although
panelists at the webinar at times reflected divergent perspectives of various
stakeholders and observers in the communications sector, there was general
agreement that the success of the incentive auction should be a top priority
for newly appointed Chairman Wheeler and the Commission. Promoting the
availability and reliability of spectrum will fuel the continued growth and
development of the digital marketplace, respond to consumer demands, and help
the U.S. maintain its mobile broadband leadership.
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