FCC’s 2013 Budget Includes $7m Hike in Regulatory Fee Collection

Genachowski Says FCC Has Highest ROI of Federal Agencies

On May 9, 2012, FCC Chairman Julius Genachowski addressed the Senate Subcommittee on Financial Services and General Government in a hearing about the FCC’s 2013 resource needs. Genachowski delivered a hard sell about how the FCC has the highest return on investment of all federal agencies, but eventually revealed that the FCC needs to collect $346,782,000 in 2013 “to implement our responsibilities under the Communications Act.” This amount is 2% more than 2012’s $339,844,000, which Genachowski claims is “essentially flat adjusting for inflation.” The budget “will be derived entirely from fee collections.”

Genachowski took the opportunity to update members of the Subcommittee, including Senator Dick Durbin (D-IL) and Senator Jerry Moran (R-KS), about the FCC’s plans for spectrum incentive auctions. According to Genachowski, “Incentive auctions are an opportunity to unleash vitally needed additional spectrum for mobile broadband and create tremendous value for American consumers, while raising billions of dollars for deficit reduction. It’s a key part of the puzzle to unleashing the mobile broadband opportunity.” He continued, “Incentive auctions are unprecedented. The U.S. will be the first country in the world to conduct them. It will be a complex task affecting major parts of our economy and involving many challenging questions of economics and engineering.” One translation: incentive auctions will be a very expensive undertaking, and it is currently uncertain exactly how much money will be earned for the U.S. Treasury.

Genachowski also updated the Subcommittee about progress in implementing the National Broadband Plan—which includes incentive auctions. Genachowski commented, “We have been working hard on implementing the broadband plan. Together with my colleagues at the FCC, we have made tremendous progress in the past three years, taking many steps to unleash investment, innovation, and job creation. These include freeing spectrum for both licensed and unlicensed use, modernizing and reforming major programs like the Universal Service Fund, and removing barriers to broadband buildout.”

After a long list of other FCC accomplishments and initiatives, Genachowski dropped the news about needing to increase the budget by 2%. While $7m is by no means an extraordinary amount of money for a federal agency, it should be noted that the 2% increase will come from regulatory fees, which will come from your companies—and ultimately your consumers’ pockets.

Also this week, the FCC released a Notice of Proposed Rulemaking about the 2012 regulatory fee collection target of $339,844,000. The FCC proposes very few changes to the regulatory fee collection methods. The FCC plans to release two additional NPRMs this year seeking input on reexamining the regulatory fee system.

At CTIA, Genachowski Shows No Regrets for AT&T/T-Mobile Decision

Wireless Makes the World a Better Place

FCC Chairman Julius Genachowski addressed the annual International CTIA Wireless convention in New Orleans on May 8, 2012, where he opened his prepared remarks with a yarn about how the new FCC commissioners were nominated by President Truman. Humor aside, Genachowski made some interesting comments about the state of the wireless industry and CTIA member companies’ various innovations and initiatives.  Some of the challenges that Genachowski applauded the wireless industry for tackling include: combating cell phone theft, curbing bill shock, deploying next generation 911 service, and enhancing cybersecurity. “On a series of important matters, working together, we’ve been able to develop real solutions to real problems. This is good for American consumers and good for the wireless industry,” said Genachowski.

Genachowski further expressed awe about milestones reached by the wireless industry, like “more people now have mobile phones than electricity or running water,” and “Smartphone sales now exceed PC sales.” Altogether, “The implications of the mobile revolution for our economy and our quality of life are profound.” As per usual, Genachowski highlighted the number of jobs allegedly created by the wireless industry (1.6m, including 500,000 in the app industry), and the benefits of wireless for education, public safety, and the economy.

The “Internet of Things” is all the rage in the wireless industry right now, especially following AT&T’s big announcement yesterday about AT&T Digital Life, a remote home monitoring and automation portfolio. Genachowski commented, “The Internet of Things has the ability to enable remote health monitoring, smart energy grids and smart, secure homes; to foster more efficient transportation networks, water systems, and logistical support for businesses.” He added, “This isn’t science fiction.” Genachowski noted that the U.S. is leading the global wireless revolution, and “Mobile broadband is changing the world for the better.” However, the wireless industry shouldn’t get too complacent at the top—Genachowski cautioned that the industry must still innovate and invest “in hardware, in software, in air interfaces, in business models, everywhere.”

Perhaps the most provocative statements by Genachowski at CTIA were directed towards AT&T in response to recent claims by AT&T that by not merging with T-Mobile, customers will suffer from higher prices and the industry will suffer from a spectrum shortage. Genachowski said “Some have recently argued that the government’s review of transactions in the wireless space—or, let’s be frank, review of one specific transaction—is somehow causing a shortage of spectrum and leading that company to raise prices for consumers.”

Not true, according to Genachowski: “the overall amount of spectrum available has not changed, except for the steps we’re taking to add new spectrum to the market.” Furthermore, “At its core, the argument—that competition is bad for consumers—is at odds with basic free-market principles.” He elaborated, “The notion that competition drives spectrum inefficiency is at odds with our history with mobile, which demonstrates that competition drives investment in efficiency-enhancing technologies and the evolution of business models to the benefit of consumers and providers alike.” All in all, Genachowski sticks to his convictions about the AT&T/T-Mobile merger, and asserts that this merger “crossed a line.”

Looking to the not-so-distant future, Genachowski hopes to see experimentation in pricing and business models, “accelerated upgrades of network architecture,” small cell and smart antenna advancement, and re-purposing of older wireless technologies to LTE. Genachowski then described the FCC’s Mobile Action Plan, which “goes well beyond incentive auctions,” but seemed rather vague overall with references to “opportunities,” “toolkits,” and “charting the next frontiers of wireless policy.”

After running through a long list of things the FCC is doing to help promote wireless investment and innovation, Genachowski eventually mentioned the Universal Service Fund reforms, where “This was the first time the U.S. recognized mobile services as an independent universal service objective.” He explained that Phase I of the Mobility Fund is fast approaching, and “a number of wireless providers across the country are making great progress extending 4G to rural communities, including through partnerships and sharing arrangements.”

Genachowski wrapped up his 14-page prepared statement by saying “the best is yet to come,” and “Working together, we can seize the opportunities of the mobile revolution and build a brighter future.” If Genachowski’s speech tells us anything, it is that this is an exciting time to be in the wireless industry.

Wireless Associations Cheer New Proposed Spectrum Legislation

The Efficient Use of Government Spectrum Act Could Boost Scope of Previous Legislation

If you are worried that the recent steps taken by the government to release more spectrum to the wireless broadband industry don’t go far enough to really solve the alleged spectrum crisis, the Efficient Use of Government Spectrum Act might be the legislation for you. AdWeek reported on April 26, 2012 that this bill, introduced by Representative Cliff Stearns (R-FL) and Doris Matsui (D-CA), might “take up the slack” if the previously-authorized incentive auctions don’t incent many broadcasters to relinquish their spectrum.  

The Efficient Use of Government Spectrum Act “would require the FCC to run a bigger auction by bundling broadcast spectrum with spectrum from the federal government used by the Department of Defense and other federal agencies.” If passed, this bill would reallocate the 1755-1780 MHz band for commercial use and pair it with the 2155-2180 MHz band. This follows a separate announcement this week that Representatives Greg Walden (R-OR) and Anna Eshoo (D-CA) “launched a bipartisan federal spectrum working group to examine how the federal government can use the nation’s airwaves more efficiently.”

Wireless associations CTIA and RCA are pleased with the proposed legislation, and so is the Consumer Electronics Association (CEA). Why wouldn’t they be happy? Once the FCC creates its reverse-and-forward incentive auction process, the wireless carriers will be battling with each other over whatever little scraps of spectrum the broadcasters decide that they don’t want. At the NAB Show last week, FCC Commissioner Robert McDowell expressed that he is not very optimistic about the amount of spectrum that might be relinquished by broadcasters. These auctions aren’t happening anytime soon, and the wireless industry has become extremely worried about having enough spectrum to meet consumers’ insatiable lust for smartphones and tablets.

In response to the proposed legislation, CTIA vp of government affairs Jot Carpenter commented that “Reallocation of the 1755 to 1780 MHz band is a high priority for CTIA and its members and so we welcome introduction of the Stearns-Matsui bill. We hope that this and other bands currently occupied but often underutilized by federal users will be made available for commercial use as expeditiously as possible.” RCA ceo Steven Berry concurred, stating that “This bill will benefit our economy and consumers while promoting competition and innovation throughout the wireless industry. Consumers deserve competitive options, and this bill is an important step toward providing usable spectrum to all carriers, so they can better serve their customers.”

CEA likewise praised the legislation. CEA president and ceo Gary Shapiro stated, “The 1755-1780 MHz band represents key spectrum that our nation’s innovators need to deploy robust mobile broadband networks for the benefit of all Americans. We commend Representatives Stearns and Matsui for introducing important legislation and urge quick passage by the full House.”

At this early stage, it is anyone’s guess if this legislation will pass. However, we can be sure that the wireless industry will continue to pressure the government to make more spectrum available for wireless broadband.

At NAB Show, Genachowski Talks Retrans and Broadcast Bounty

FCC Commissioner Tells Broadcasters “Don’t Be Afraid” of Incentive Auctions

FCC Chairman Julius Genachowski delivered a motivational speech at the annual National Association of Broadcasters (NAB) Show in Las Vegas, NV on April 16, 2012. The motivational aspect was two-fold: Genachowski praised broadcasters for their economic growth and prosperity, and he put on his finest salesman hat to pressure broadcasters to participate in the upcoming spectrum incentive auctions. In more ways than one, Genachowski’s 2012 speech was nearly identical to his 2011 NAB Show remarks—he is still hyping the spectrum crunch, confirming the FCC’s reluctance to intervene in retransmission consent wars between broadcasters and cablecos, and pushing incentive auctions on broadcasters like there is no tomorrow.  

Genachowski announced that “business is much better for broadcasters overall” compared to previous years, in both TV and radio. One reason is post-recession economic improvement: “Broadcasters are benefiting not only from general economic recovery, but from specific initiatives like the rescue of the auto industry,” he said. Another reason is retransmission revenue, which may cause some cableco executives to groan. According to Genachowski, “new retransmission consent fees are giving many broadcasters meaningful second revenue.”

Of course, this meaningful revenue for broadcasters is a meaningful and growing expense for pay-TV providers and their customers. Genachowski acknowledged concerns about retransmission fees, but explained, “The FCC’s approach so far on retrans has generally been to resist calls for agency intervention and encourage private, market-driven agreements between broadcasters and cable and satellite providers. The basic view is that it is both economically sensible and consistent with the statutory scheme for broadcasters that have invested in desirable programming to seek and receive retransmission fees.”

A third reasons for the broadcasters’ recent economic bounty is that they are “increasingly pursuing innovative strategies to take advantage of the multi-platform digital broadband world.” For example, Genachowski highlighted: “With Wi-Fi and the next generation of mobile broadband networks, the new exception and the new norm is quickly becoming: the content you want, where you want it, and when you want it, accompanied by the full suite of interactive services.” Interestingly, broadcasters have not reacted very positively to non-broadcasting entities that try to take this approach and incorporate broadcast-controlled content in broadband-enabled multi-platform interactive services (see Aereo and Skitter).

Moving along, Genachowski focused heavily on incentive auctions. After all, the success of the incentive auctions that the FCC has been championing for several years lies almost squarely in the hands of broadcasters. If broadcasters don’t participate, there won’t be any spectrum to auction. No conversation about incentive auctions is complete without talking about the spectrum crunch, and Genachowski’s speech was no exception. He stated, “Failure to meet this growing demand for spectrum could stifle the vast opportunities of mobile broadband,” which would stifle education, health care, public safety, economic growth, and global competitiveness. Genachowski added, “There’s no silver bullet to solving the spectrum crunch,” and solutions will include new technology, expanded unlicensed use, repurposing inefficiently used spectrum, and spectrum sharing arrangements with government users.

Regarding incentive auctions, Genachowski said that the FCC is “now focused on implementation” and the “many challenging questions of economics and engineering.” He said that broadcasters have initially been positive about incentive auctions, but ultimately he doesn’t expect many to participate. Genachowski’s message was simple: “Don’t be afraid.” Incentive auctions will provide a unique opportunity with compelling business options for broadcasters, who will “be able to participate in an active marketplace providing a sizable cash infusion for returning some or all spectrum.” He added, “Don’t miss the boat on an opportunity you might regret passing up.”

The FCC is committed to providing quality information to broadcasters about the auctions, and hopes to receive quality information in return. The FCC intends to “run a process that is open, inclusive, fact-based, and guided by economics and engineering,” that will include a task force, public workshops and notice and comment cycles. Genachowski noted that world experts are leading the process, including Ruth Milkman and Gary Epstein.

The NAB Show brought more than 90k people to Las Vegas “celebrating technology, connectivity and the remarkable media marketplace on display,” according to NAB president and ceo Gordon Smith in his keynote address at the conference, where he also declared “Ladies and gentlemen, NAB is back. And we are keeping our eyes on the future.”

Smith expressed irritation with cable and satellite companies’ fight for retransmission reform, nothing that “The other side says the market is broken, but with nearly all retransmission consent deals being completed successfully, the cable and satellite lobby’s notion of ‘market failure’ is simply false.” The “other side,” especially small cablecos, continue to argue that a lack of blackouts does not mean that the market is working—small companies often lack leverage in retransmission negotiations and concede to broadcasters’ demands rather than holding out for a better deal that may never come.

Smith’s remarks about broadcasters participating in incentive auctions were not quite as optimistic as Genachowski’s. Smith explained that broadcasters also need spectrum to roll out mobile streaming services, but wireless carriers “are asking the government for more of our spectrum” for their competing mobile services. Smith continued, “It seems to me that the government could be in the position of picking the wireless industry as the winner and the consumer as the loser” (remember: Genachowski said the FCC will not pick winners and losers—but the FCC says this often enough that it has lost meaning).

Smith applied the Dickensian creed “It’s the best of times, it’s the worst of times” to the broadcast industry, elaborating that the “ears and eyeballs” are on broadcasters but the competitive environment is “relentless.”

Genachowski and Smith both made noteworthy arguments about market forces, broadband, and the give-and-take between communications providers and broadcasters. The broadcasting perspective on issues like retransmission consent, competition, and incentive auctions is certainly different from the cableco perspective and the wireless perspective, and it will ultimately be interesting to see if the FCC does indeed refrain from picking winners and losers in both retransmission and incentive auctions. Meanwhile, incentive auctions present one of the most exciting developments in the telecommunications industry this year, and all eyes will be honed in on the FCC and broadcasters throughout the reverse auction phase--the very first of its kind in U.S. telecom history.

CTIA Delivers a Blueprint for Broadband Spectrum to FCC

The Wireless Association Pushes an Aggressive Timeline for Incentive Auctions

On Thursday, March 22, 2012, CTIA-The Wireless Association president ceo Steve Largent sent letters to the FCC and NTIA expressing the importance of a strict timeframe for complying with the spectrum legislation component of the Middle Class Tax Relief Job Creation Act of 2012 and the 2010 National Broadband Plan’s goal of “brining 300 MHz of spectrum to market by 2015.” CTIA argues, “Prompt and effective implementation of the Spectrum Legislation is vital to addressing the looming spectrum crunch that has been long predicted by CTIA and the Federal Government.” CTIA asserts that releasing spectrum for mobile broadband on its recommended timetable will “generate investment of up to $53b, provide as much as $151b in GDB and create as many as 771,000 jobs by 2016.”

CTIA’s Blueprint for Broadband Spectrum lays down parallel tracks for two auctions and includes responsibilities for both the FCC and NTIA, but the FCC definitely has the brunt of the burden. On one track, the NTIA is responsible for repurposing 15 MHz of Federal spectrum between 1674 and 1710 MHz for non-Federal use. Likewise, the FCC should find, allocate, and auction 15 MHz for a total of 30 MHz for new mobile broadband licenses. Some of the key dates in CTIA’s proposed timetable for this 30 MHz of spectrum include: a Report & Order identifying the FCC’s 15 MHz on December 20, 2012; a Final Procedures Public Notice on May 12, 2014; an auction start-date of August 14, 2014; and licenses granted on February 22, 2015.

The second track is much more difficult—the incentive auction component, which includes reverse auctions to release spectrum from broadcasters and forward competitive auctions to re-license the spectrum to mobile broadband providers. CTIA refrains from commenting extensively on the reverse auction process, but does add that “the rules should be designed in a manner that is easy for broadcasters to understand so as to facilitate participation.” CTIA wants the FCC to make haste with band plans, auction design, service rules, international interference mitigation plans, and the all the other exciting tasks that accompany government-sponsored spectrum auctions.

The timetable for the forward competitive bidding auctions is also aggressive, perhaps more so than the 30 MHz auction. CTIA hopes to see a Report & Order on Forward Incentive Auction Issues by March 26, 2013; a Final Procedures Public Notice by September 6, 2013; and an auction start-date of November 20, 2013. All in all, CTIA would like to see the FCC “meet or beat the National Broadband Plan’s goal of 300 MHz by March 2015.” Considering that is just 3 short years from now, and considering how slow the FCC is to move on important rulemakings, CTIA is certainly not leaving much wiggle room. It will be interesting to look back in 3 years and see if the FCC complied with CTIA’s recommendation, or if we are still waiting for a Forward Incentive Auction Report & Order.

Or, the FCC may bow to pressure from the wireless industry to expedite the 30 MHz and incentive auctions. It is almost a daily occurrence that a major news outlet reports something about the looming spectrum crunch, the wireless crisis, or (my personal favorite) the cell phone apocalypse. CTIA’s letter feeds the spectrum crisis frenzy by closing with the comment, “The wireless industry is at a critical crossroads—the long warned spectrum shortage is at an inflection point. The Commission has the opportunity to step forward and respond to this looming spectrum crisis in an effective, expeditious manner.”

Not everyone agrees that the spectrum crisis is indeed at apocalyptic proportions, and some experts are quick to point fingers at the wireless industry for causing its own spectrum crisis. Naturally, CTIA’s letter has received some backlash already. The National Journal reported, “The National Association of Broadcasters, whose members must now decide whether they want to give up their airwaves, has been skeptical of the wireless industry’s claim that a spectrum crisis is looming and chided CTIA’s proposed timeline, ‘Conveniently, CTIA left off its FCC list of proposed timetables the most important of all: a deadline for a complete inventory of warehoused spectrum being hoarded by CTIA members,’ NAB spokesman Dennis Wharton said.”

Regardless of who is right and who is wrong about the spectrum crisis, there is one other spectrum-related crisis not addressed by CTIA: spectrum license concentration by the largest carriers, where small carriers face tremendous barriers in acquiring more spectrum. Small independent wireless companies (fixed and mobile) might want to start formulating their auction strategies and petitioning the FCC for small business bidding credits and other proposals to ensure that the impending auctions are not dominated by the Big Four, Three, or Two.