MEDIA ADVISORY: NTIA Releases Notice of Funding Opportunity for the BEAD Program

The following statement may be attributed to Free State Foundation Director of Policy Studies & Senior Fellow Seth Cooper:

On May 13, NTIA released its anticipated Notice of Funding Opportunity as part of the agency's implementation of the Broadband Equity, Access, and Deployment Program ("BEAD Program"). NTIA deserves credit for getting the ball rolling on the BEAD Program. We hope that NTIA and states that participate in the program will be successful in timely, accurately, and efficiently funding the construction of broadband Internet networks that will finally reach Americans who are truly unserved by broadband services.  

 

At the same time, certain aspects of NTIA's Notice raise some concerns. Although the Notice does indicate that Eligible Entities shall prioritize unserved locations when scoring and awarding funding for last-mile deployment projects, much of the Notice gives the appearance of putting unserved and underserved locations on equal footing. The BEAD Program will fail in its essential purpose if Americans are still left unserved by broadband services after the $42.5 billion allocated for the program is spent. Going forward, it will be important for NTIA to emphasize that unserved locations are to be given first priority for receiving grant awards for broadband deployment. And states awarding grants should be responsible for ensuring that every last unserved location within their jurisdiction gets connected to broadband. Otherwise, BEAD Program dollars may end up going to so-called "underserved" locations wherein most Americans already have access to broadband Internet services with 80 Mbps download speeds. 

 

And while it is good that NTIA's Notice does not impose "open access" or "net neutrality" regulatory conditions on the awarding of funds by states under the BEAD Program, the Notice includes a misguided recommendation that states ought to favor open access wholesale last-mile broadband services in setting their criteria for awarding grants. Open access requirements do not and would not help unserved Americans gain access to broadband. It is essential that states keep focused on connecting the truly unserved and not bog down the process or the program's ultimate success by pursuing open access requirements. 

Condition-Free Auctions Promote Economic Efficiency and Successful Outcomes

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.

More on "The Faulty Berkman Report"

In my recent FSF Perspectives piece, "The Faulty Berkman Report: The Fallacy of Overlooking Secondary Consequences," I challenge the Berkman Report’s myopic focus on the touted benefits of a public policy to one segment of beneficiaries to the exclusion of the broader costs associated with that policy. The Report's retelling of the Federal Communications Commission's (FCC) prior attempts to impose "open access" or "forced access" policy through unbundling regulations on incumbent wireline providers is a highly selective and thereby misleading account. It fails to mention the adverse infrastructure investment incentives of mandated access policies that effectively require incumbents to subsidize facilities to be used by their competitors. And the Report nowhere even mentions the telecom disinvestment trends, discussed in my Perspectives, that plagued the industry until the courts and the FCC begun to roll back unbundling regulations.

One aspect of the Report that I left unaddressed was its insistence that the FCC's unbundling regulatory regime failure was attributable in large part to the incumbents' lobby and litigation efforts, and ultimately to the courts' disagreement with FCC policy judgment. The Report asserted that the courts failed by not according proper discretion to regulatory experts. Urging a force-fit of extensive broadband regulatory regimes used by several foreign social democracies on the American broadband marketplace, the Report suggested that the U.S. give more "engaged" regulators greater "professionalism, independence, and power" in order to impose a next generation set of "open access" mandates on broadband network providers.

This argument about the woes of the FCC's unbundling regulations oversimplifies to the point of being totally unhelpful. To say that the courts simply disagreed with the FCC's policy is misleading. Moreover, the Report's trumpeting of regulators' independence and power in foreign nations as an antidote simply doesn’t translate in the U.S. government institutional setting.

The reality is that the FCC and other federal agencies receive a considerable degree of deference from U.S. courts under Administrative Procedures Act and the "Chevron doctrine." Under the former, courts typically decline to second-guess agency judgments or "expertise" on public policy questions. And under the latter, courts routinely acquiesce to agencies' interpretations of ambiguous statutory language unless the interpretation is clearly impermissible.

However, the independence of U.S. courts means that there are constitutional and statutory limits to agency discretion. (Such judicial independence is often lacking in foreign systems of parliamentary supremacy.) Contrary to the Report's claims about judicial disagreement with agency policy judgment, it was the FCC's own contravention of legal limits through its improper sub-delegation of federal agency authority to state regulators and the FCC's implausible readings of the terms of the Telecommunications Act of 1996 that led to judicial invalidation of many of the FCC's unbundling rules. To be sure, the U.S. Court of Appeals for the District of Columbia forthrightly recognized that "[e]ach unbundling of an element imposes costs of its own, spreading disincentive to invest in innovation and creating complex issues of managing shared facilities." But the Court’s observation about the economic drawbacks to the unbundling rules was made in a larger context. The Court was attempting to ascertain whether an expansive unbundling policy with such obvious infrastructure investment disincentives was what Congress conceivably had in mind in passing the Act.

Moreover, Courts are not likely to unilaterally drop existing legal limits on arbitrary and capricious decision making by federal agencies on the grounds that even greater bureaucratic power and independence should alleviate agency capture concerns. Perhaps the Report seeks to trumpet a best-of-all-possible-worlds policy in its implicit calls for judicial retreat from review of any future agency "open access" regulations. But in this world, federal agencies must make do with the constitutional and statutory slack they have been given. In other words, they must act in accord with the rule of law.