FCC Preserves the Path for Future Spectrum Auctions

On March 20, Chairman Julius Genachowski sent a letter notifying NTIA that the FCC "plans to commence the auction of licenses in the 1695-1710 MHz band and the 1755-1780 MHz band as early as September 2014." The Chairman's letter also expresses that the FCC's will perhaps pair that band with the 2155-2180 MHz band. This is a positive step forward in the FCC's ongoing effort to prepare additional spectrum for commercial use on both a licensed and unlicensed basis.

As the Chairman's letter explains, the Jobs Act requires the Commission to notify NTIA at least 18 months prior to the commencement of any auction of eligible frequencies. Congress also gave the FCC until February 2015 to auction the 1695-1710 and 2155-2180 MIHz bands. Wrote the Chairman: "we include the 1755-1780 MHz band in this notice to preserve the possibility of auctioning it with the 2155-2180 MHz band."

The Chairman's letter acknowledged an NTIA advisory committee's proposal for repurposing some of the spectrum at issue from federal government use to shared governmental and commercial use. But that proposal is not set in stone. Accordingly, spectrum policymakers should make all possible efforts to prefer licensing of spectrum on an exclusive basis over commercial sharing arrangements with government agencies.

Applauding Chairman Genachowski's letter, Commissioner Ajit Pai drove this point home in a public statement: "I continue to believe that we should aim to clear and reallocate the 1755–1780 MHz band rather than forcing federal users and commercial operators to undertake the complicated, untested task of spectrum sharing."

In a Perspectives from FSF Scholars paper from earlier this month, I acknowledged the importance of making unlicensed spectrum available for suitable bands. But at the same time, I concluded that licensing spectrum for exclusive commercial use is far better than spectrum sharing arrangements between governmental and commercial users:

Putting repurposed spectrum to its highest commercial use calls for heavy investment by carriers in next-generation wireless broadband networks. The certainty and incentives required for such multi-billion dollar investments are best supplied by spectrum licenses for exclusive use. Arrangements for the private sector and government agencies to share spectrum might be a useful transition tool. But proposals for such sharing now appear prevalent enough that, if adopted, they would undermine the goal of the current undertaking to repurpose spectrum.

Chairman Genachowski Deserves Credit on USF

I often criticize FCC Chairman Julius Genachowski for what I see as actions that are unduly regulatory. But I have just read reports in Communications Daily [subscription required] and TR Daily [subscription required] regarding the briefs the FCC filed yesterday in the U. S. Court of Appeals for the Tenth Circuit. Doing so reminded me that Chairman Genachowski deserves considerable credit for standing fast on his efforts to reform the Universal Service Fund. 

I would have gone even further in reducing, over time, the size of the unrestrained subsidies provided to rural telephone companies. Nevertheless, under Chairman Genachowski's leadership, the FCC did implement changes to the universal service program that are intended to make it operate more efficiently and economically than it has in the past. Not surprisingly, since adoption of the order implementing the changes, the some rural telco subsidy recipients have fought tooth and nail to overturn the USF reforms – and to retain their subsidies without any reduction. 

It would be a shame to go backwards now. Chairman Genachowski deserves credit for continuing to defend the modest reforms, and for continuing to explain in court and in Congress why it is in the interest of consumers and competition, if not the subsidy recipients, that the reforms be implemented.   

Eliminating Unnecessary Regulation

The Obama Administration's Regulatory Czar, Cass Sunstein, has an op-ed in today's Wall Street Journal touting the Administration's newfound interest in eliminating unnecessary regulation. This is welcome, because if Administration officials talk enough about reducing unnecessary regulations – regulations for which the costs outweigh the , they may start believing it actually needs to be done. And, to his credit, OIRA Administrator Sunstein seems intent on following through.

Over at the FCC, Chairman Genachowski, following the Administration's lead, is also talking about eliminating unnecessary regulations. In other words, he's talking the talk. Just yesterday, the FCC announced in a news release its intent to eliminate 83 outdated rules. They include the Fairness Doctrine rule, which hasn't been enforced for a quarter-century, and others, like the "broadcast flag" rule, which have not been subject to enforcement for years.

All well and good to get outdated rules off the books that have no practical effect. It will make the CFR books thinner.

But when the FCC starts eliminating outdated rules that are still being enforced, and, therefore, which do impose ongoing unnecessary burdens, then we'll know that Mr. Genachowski is actually walking the walk, not just talking the talk.

Prices and Profits in the Broadband Marketplace

I read this morning in the trade press that Free Press's Research Director Derek Turner is criticizing FCC Chairman Julius Genachowski for saying some kind words about usage-based pricing for broadband services.

According to yesterday's TR Daily [subscription required], Chairman Genachowski said on Tuesday that consumption-based pricing “can allow consumers that use less to be charged less,” and that it can “encourage efficiency and investment in networks.” And Communications Daily [subscription required] reports today that Mr. Genachowski said usage caps such as those adopted by AT&T and Verizon “fundamentally” may “provide consumers more choice."

Mr. Genachowski's comments follow on the heels of FTC Chairman Jon Leibowitz's endorsement of usage-based pricing for broadband services this past June at the Cable Show. The FTC Chairman expressed surprise that more usage-based pricing plans had not already been adopted, pointing out that most other products on the market are priced based on the volume consumed by customers. According to Chairman Leibowitz, it is only rational that broadband would be treated the same way.

So, according to Communications Daily, here is what Mr. Turner said: “While the rest of the world is moving away from this type of price-gouging, it is puzzling why the FCC chairman would endorse a practice that in the long run will relegate the United States to an Internet backwater.” While acknowledging that adoption of usage-based pricing could help low-volume users “in theory," Mr. Turner said, "doing so would not help [the broadband providers] achieve their primary goal — continued explosive growth of profits."

I suppose, in theory, it is nice that Mr. Turner at least recognizes, in theory, that usage-based pricing may be beneficial to low-volume users. But, unfortunately, his utter disdain for corporate "profits," and his unremitting fondness for accusations of "price-gouging," blind him from recognizing that, in the real world, usage-based pricing promotes economic efficiency in a way that not only benefits low-volume users, but also enhances overall consumer welfare.

By generally railing against "profits" and "pricing gouging" as Free Press does consistently, Mr. Turner makes his intentions – once again – crystal-clear. What he really prefers is government-owned and operated communications networks, or at the very least, private sector communications networks whose rates and service terms are closely regulated under traditional public utility principles. In Mr. Turner's world, with government-owned broadband networks, there would be no need to worry about profits because we don't expect governments to turn a profit. Quite the contrary – deficits and debt are what we expect and what we get.

And with broadband providers regulated as public utilities, Mr. Turner would look to regulators to prevent what he calls "price gouging." I understand that Mr. Turner always prefers a lower price to a higher one. But the only way to determine a "reasonable" price – even though Mr. Turner nevertheless might never agree it is not a "gouging" price – is to conduct full-blown rate cases. Having lived through many of them back in the Ma Bell era of the 70s and 80s, I am absolutely certain that, in today's competitive marketplace, we don't want to turn the clock back to those drawn-out, usually inconclusive affairs.  

Mr. Turner's preference for a world without profits or prices is one way to go – but it is completely the wrong way. Indeed, it was tried in the Soviet Union for seventy years with disastrous results before being abandoned.

There is no dispute that in the past five years, private sector broadband providers have invested over $300 billion in private capital to build-out and upgrade high-speed broadband networks that now provide access to over 95% of the nation's households. And, there is no dispute that, even so, with Internet usage continuing to explode, and especially for wireless, there will be a continuing need to invest at least $30-$40 billion per year to expand and upgrade capacity-constrained broadband networks in order to meet consumer demand and expectations.

The notion that the private sector will continue to invest hundreds of billions of dollars in broadband networks, as it has over the past decade, without the prospect of profits, however Mr. Turner chooses to characterize them, is fanciful.

And the notion that broadband providers, in a competitive market, should not be allowed to employ price signals so consumers can avail themselves of choices is fanciful too. Indeed, in the context of today's broadband marketplace, it is downright mischievous. For what "all you can eat" pricing means in this context is that either low-volume users will be required to subsidize the usage of high-volume users, which raises equity issues. Or that all – repeat, all -- users will be required to pay more for the build-out of additional network capacity than they otherwise would absent the adoption of usage-based pricing. It is either/or.

In other words, usage-based plans, by giving consumers choices related to pricing signals, promote both fairness and efficiency.

Neither FTC Chairman Leibowitz nor FCC Chairman Genachowski, both Obama Administration picks, can possibly be characterized as corporate stooges or anti-regulation. I certainly don't always agree with them. Indeed, I think often they are too quick to look to impose new regulations. But I am happy to come to their defense when they take positions that are consistent with enhancing overall consumer welfare.      

That is manifestly the case here – and I happily rise in their defense.