FCC Economist Spells Out Three Ways TV Spectrum Could be Auctioned

Simultaneous auctions to clear and re-license the spectrum have “a certain appeal to economists” as the “most elegant” of the three formats, Kwerel said late Wednesday at a conference by the Technology Policy Institute and the Stanford Institute for Economic Policy Research on the National Broadband Plan. The commission would run “an exchange in which broadcasters offer to channel share, contribute an entire channel or clear UHF spectrum in other ways (FCC reassigns TV channels and calculates amount of contiguous UHF spectrum made available) and mobile operators bid on new unencumbered licenses simultaneously,” a presentation slide said. In this way, the exchange itself, rather than the commission, “determines the amount of spectrum cleared,” it said.

Methods other than the overlay would require congressional action, Kwerel said. That’s because Section 309(j) of the Communications Act bars any auction proceeds from going “to broadcasters to clear spectrum” as those methods would involve, and because the FCC lacks express authority to act as a third-party auctioneer, he said. A draft bill by Rep. Ed Markey, D-Mass., would fill in the commission’s powers in this connection (CD May 27 p10). The FCC has clear authority to create overlay licenses and has used it for PCS, Kwerel said.

The formats that Kwerel discussed aren’t the only possibilities, a commission official said Thursday. In the ordinary course, the Media and Wireless bureaus and any others involved would recommend one of the auction methods to Chairman Julius Genachowski for circulation to the other commissioners in anticipation of a proceeding, the official said. The commission plans to put out some time from July to September a rulemaking notice to “seek comment on proposals to increase spectrum efficiency and innovation” in connection with broadcast TV frequencies, according to an agenda for broadband-plan follow-up that the FCC has posted online. Beyond that, the timing isn’t clear, the official said. It’s an “ongoing process” and “for the most part, we don’t have answers” about how it will play out."

Under the two-step format, a reverse auction would be held to clear a set amount of broadcast spectrum or to produce a supply curve that shows how much spectrum would be sold at what price, Kwerel said. Licensees could offer to share “a channel in same market through multicasting with other broadcasters, while retaining must-carry rights for primary program stream,” contribute “an entire channel” or clear “UHF spectrum in other ways,” a slide said. The FCC could “repack channels to clear contiguous blocks.” The second step would be a “forward auction for cleared UHF spectrum.”

With an overlay, the FCC would “auction new licenses with defined geographic areas” or “a single nationwide license” for ease of clearing “combined with divestiture of some or all cleared spectrum to promote competition,” a slide said. The overlay wireless licensees would have to protect the incumbent broadcasters from interference, but they would have great leeway in making their own arrangements to get the stations off the spectrum, Kwerel said.

National Broadband Plan Conference Notebook

"Totally cleared beachfront property” in the spectrum makes sense for iPhone service and other licensed uses, Kwerel said, referring to the analog broadcast spectrum. “We should think very carefully -- very carefully -- before allocating … for unlicensed use” spectrum that’s very well suited to licensed use, he said. The “broadcasting white space may be appropriate” for unlicensed use, Kwerel said, saying he was speaking only for himself.

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The new Broadband Internet Technical Advisory Group of large Internet companies (CD June 10 p1) may develop into something like the National Advertising Division of the Better Business Bureaus, a self-regulatory body for complaints with the FTC as a backstop for those that don’t get resolved, said Joe Waz, senior vice president for external affairs at Comcast, a member of the group. “The whole concept is pretty brilliant,” and the effort is run by former FCC official Dale Hatfield, “who is respected by everybody,” Waz said. The group’s creation is just a “first step” toward progress by private players toward defining “reasonable network management” for nondiscrimination purposes, said Senior Policy Director Rick Whitt of Google, another member. The announcement Wednesday was a “call for action” for “other people to join us,” notably Internet users and academics, he said. The group grew out of activity including discussions between Google and Verizon, and then a March meeting at the Silicon Flatirons called by Hatfield, Whitt said. “Having engineers in charge can open up possibilities” for the advisory group, said Jeff Campbell, senior director for technology and trade policy at Cisco, another member. Engineers understand that problems can have multiple solutions and can try to agree on an acceptable range, he said. That’s in contrast to lawyers, who seem to “get a chip in your brain that turns you into a binary thinker,” Campbell said.

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"Assurances” about the permanence of forbearance concerning the great majority of Title II duties “are going to be essential” to the positions of Comcast and Wall Street on reclassification, Waz said. Citing Commissioner Mignon Clyburn as having said there will be no reclassification without forbearance, he said “forbearance is not foreclosure.” The FCC’s justifications for forbearance may not persuade appeals judges, and there’s a major question about how the current commission could bind a future one, Waz said.

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Government agencies and their employees are discouraged from aiding the spectrum sharing needed to support wireless broadband, Hatfield said. “Sharing in frequency, space and time” is required, and it won’t happen without reversing the incentives for federal users, he said. The employees who can deal with sharing are “really scarce” and usually “terribly overworked,” Hatfield said. “The issues are really hard,” and “there’s no financial reward” for employees for resolving them, he said. And “there’s no payoff for the agency,” because payments for sharing “go to the Treasury,” Hatfield said. The agency would have to devote its scarce resources to sharing techniques that sometimes are risky, he said. There are no awards for success, but officials get called on the carpet for foul-ups, Hatfield said. “It’s just easier to say no,” directly or by inaction, he said.

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Indications in the wireless competition report that the FCC considers spectrum below 1 GHz special raise fears that “some policy levers might be pulled to keep the largest carriers from participating” in some auctions, said Charla Roth, Verizon public policy vice president. She alluded to the SkyTerra order, restricting spectrum leases to the largest carriers, which she said “didn’t really have a rationale behind it” and which had to be based on companies’ revenue rather than spectrum holdings to make it apply to AT&T and Verizon Wireless.

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Whitt highlighted evidence mentioned in the broadband plan that, by 2012, no more than 15 percent of the U.S. population may have a choice of providers of “robust,” very high-speed access, by way of DOCSIS 3.0 cable and fiber to the premises. He said this had received little attention in Washington. “If it’s true, this is a pretty significant fact,” Whitt said. If the spectrum recommendations ride on what any appeals court panel happens to think of the FCC’s authority when it happens to decide a challenge, “the plan risks turning into Swiss cheese,” he said. The FCC should change the plan as it sees what’s working and should ensure that rather than being “top-down” the follow-through gives states and localities a large role, Whitt said. He suggested that Verizon’s decision to stop its FiOS expansion in a deregulated market confounds incumbents’ arguments that holding down government rules encourages network investment. Whitt raised the question of whether “there’s a need for the government to come in” and extend fiber “the rest of the way.” Waz said if Wall Street believed the prediction about ultra high-speed access, “our shares might be worth a little more.” He said many technology predictions have been dashed. “I would not stake my entire policy position on that prediction,” Waz said. Campbell said, “Let’s make sure we have a structure that encourages another provider to come in” to compete with incumbents, an effort that regulation now discourages.

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Regulation allowing service providers flexibility in tiering both prices and service quality and in financial arrangements concerning third-party applications is needed to achieve the National Broadband Plan’s goal of increasing adoption of high-speed access by meeting residents’ varying needs and desires, Campbell said. He was discussing what he considers downsides to the proposed reclassification of broadband under Title II of the Telecom Act. Now there’s pricing freedom formally but in practice a “sword of Damocles” hanging over providers that “will come down and kill you” for a misstep, he said. Campbell alluded to an outcry against Time Warner Cable’s abortive plans for tiered broadband, saying it scared off the other service providers until AT&T recently announced usage-based prices for iPhone service. Reclassification of Internet access under Title II of the Telecom Act would be “the first step that’s going to fundamentally unbalance that balance” in the government’s handling of the Internet that has allowed the innovation that Silicon Valley has produced, he said. If the courts upheld the action, “we're going to live in a world of complaint,” because “there are public-interest groups that have a strong interest in maintaining conflict,” Campbell said. Every change in broadband-service terms would bring a regulatory complaint, he said. But reclassification probably would be thrown out in court, tossing the matter to Congress to take years to resolve, Campbell said.