Coming Soon to the FCC: Plenty of Incentive Auction Proceedings
On September 12, the Obama Administration released the American Jobs Act of 2011 legislative proposal, which the President hopes will help rebuild the American economy in the wake of the economic crisis. Earlier this year, Obama revealed a wireless broadband plan which included utilizing incentive auctions to 1) remove spectrum from the hands of inefficient users; 2) put said spectrum to better use by covering 98% of Americans with wireless broadband; and 3) help pay down the Federal deficit with surplus funds from the auctions. These ideas have come to fruition in the American Jobs Act, as well as proposals to carve out the 700 MHz D Block exclusively for a nationwide public safety wireless broadband network.
According to the President's statement, “The purpose of the American Jobs Act of 2011 is simple: put more people back to work and put more money in the pockets of working Americans. And it will do so without adding a dime to the deficit.” The Act outlines proposals ranging from small business tax cuts to refurbishing foreclosed homes to banning employers from discriminating against unemployed potential hires. The section entitled “National Wireless Initiative” appears to serve a combination of goals, including reducing the deficit, adding jobs as a result of wireless broadband innovation, and improving public safety communications.
Broadcasters and some Federal spectrum users have certainly had ample warning that the government intends to repurpose underutilized bands. Wireless carriers are no doubt planning their auction strategies at this very moment, and hoping that soon-to-be-reallocated spectrum will help ease the growing “spectrum crisis” resulting from explosive mobile broadband demands. If this Act is passed, the FCC will initiate proceedings to help determine auction methodologies, payments for license holders who voluntarily relinquish spectrum assets, and spectrum bands that should (or should not) be auctioned. The American Jobs Act describes the FCC’s incentive auction authority:
“Notwithstanding any other provision of law, if the Commission determines that it is consistent with the public interest in utilization of the spectrum for a licensee to voluntarily relinquish some or all of its licensed spectrum usage rights in order to permit the assignment of new initial licenses through a competitive bidding process subject to new service rules, or the designation of spectrum for unlicensed use, the Commission may pay to such licensee a portion of any auction proceeds that the Commission determines, in its discretion, are attributable to the spectrum usage rights voluntarily relinquished by such licensee. If the Commission also determines that it is in the public interest to modify the spectrum usage rights of any incumbent licensee in order to facilitate the assignment of such new initial licenses subject to new service rules, or the designation of spectrum for unlicensed use, the Commission may pay to such licensee a portion of the auction proceeds for the purpose of relocating to any alternative frequency or location that the Commission may designate.”
After the former licensee is compensated from the auction proceeds and around $6.5b and $300m are put aside for the public safety network and public safety network research and development, respectively, then the remaining funds can be used to pay the Federal deficit. Commenters disagree on exactly how much money will be available for the deficit—clearly, since it cannot be determined with accuracy how profitable the auctions will actually be (one Radio Business Reports article notes that the Congressional Budget Office estimates the deficit reduction from incentive auction proceeds to be around $6b). On its website, the FCC describes the benefits of incentive auctions and explains that auctions may bring in close to $30b total, but the consumer benefits “would be 10 times higher than the value that spectrum generates at auction.” Additionally, the FCC writes, “According to the High Tech Spectrum Coalition, over the next five years, investments in 4G wireless technology will create 205,000 U.S. jobs,” which may be one big reason why this proposal is included in the American Jobs Act.
Both the Consumer Electronics Association (CEA) and CTIA have commented favorably on the American Jobs Act’s wireless initiatives. A CEA press release states: “By incentivizing broadcasters to return underutilized spectrum our nation can solve our wireless spectrum shortage, create jobs and raise billions of dollars to help address the ballooning deficit.” CTIA likewise supports incentive auctions, arguing that “Bringing additional spectrum to auction expeditiously is critical to efforts to address wireless consumers’ demand for mobile broadband services, just as it is key to spurring additional investment, innovation and job creation across the wireless ecosystem.”
Broadcasters may be fine with going along for the ride so long as they are compensated appropriately and the auctions are fully voluntary, but that begs the question “will the broadcasters really give up their precious spectrum assets?” A September 12 CNET article about the Act explains, “Broadcasters say they have already given enough wireless spectrum for auction… Recently broadcasters have also complained that wireless and broadband providers that already hold wireless licenses are hoarding spectrum. Broadcasters say even though the auctions are meant to be voluntary, they fear that some broadcasters will be forced to give up spectrum that they could use to develop other services, such as mobile TV.”
While looking at the American Jobs Act and the reactions from the industry, I couldn’t help but draw comparisons between the broadcasters’ situation and the wireline telecom industry in the USF proceeding. In both cases, the government is being challenged to ensure that broadband is deployed to all Americans, with a limited amount of funding and where sacrifices must be made by virtually all sectors of the industry. Policies also have to balance the interests of “old telecom”—the entrenched broadcasting and wireline networks, with “new telecom”—fiber and 4G; without intentionally being anticompetitive or not technologically neutral. Both the American Jobs Act and USF reform must be able to facilitate deployment of broadband in rural areas, without undermining existing investments or creating barriers for future investments. If done properly, both proposals definitely have the potential to help revitalize rural economies and bring new jobs to rural areas.
Can RLECs benefit from the proposals in the American Jobs Act? That will probably depend on how the FCC structures the incentive auctions, if there is unused broadcaster spectrum available in RLEC territories, and how much companies like Verizon and AT&T are willing to pay to prevent smaller competitors from getting some of this spectrum. Basically, new spectrum auctions could be a competitive threat or a great business opportunity for small telecom providers—it just depends on individual market circumstances in areas where auctions are likely.
There may also be opportunities for RLECs to get involved with the 700 MHz public safety network. The Act proposes that the FCC grant the D Block license to the Public Safety Broadband Corporation, who can “take all actions necessary to ensure the building, deployment, and operation of a secure and resilient nationwide public safety interoperable broadband network…by… issuing open, transparent and competitive requests for proposals to private sector entities for the purposes of building, operating and maintaining the network.”
It would certainly be great if small rural companies could get access to spectrum via these proposed incentive auctions, but that will all depend on if this Act is passed and the subsequent rulemaking proceedings at the FCC.
The full text of the American Jobs Act is available here; Subtitle H – National Wireless Initiative begins on page 62.