WASHINGTON-With only a month until President Clinton sends his 2001 budget plan to Congress, White House and congressional number crunchers face the daunting task of putting a dollar figure on spectrum whose value is increasingly determined by factors other than market forces.
Bankruptcies, litigation, legislation, regulation and technological advances are making the job of spectrum valuation more difficult for policy makers and for the market itself.
The Office of Management and Budget and the Congressional Budget Office had to lower revenue projections of the 1996 C-block personal communications services auction from $10 billion to $4.6 billion after the three big winners-NextWave Telecom Inc., Pocket Communications Inc. and Metro PCS (formerly General Wireless Inc.)-filed for bankruptcy.
All three are entangled in litigation to this day. In the biggest case of all, a federal appeals court in New York recently overruled lower court rulings that reduced NextWave’s obligation to the federal government from $4.7 billion to $1 billion.
Now, OMB is expected to adjust upward revenue estimates for the C-block auction in its upcoming budget.
To avoid similar problems in the future, the White House again is expected to include a provision in its fiscal 2001 budget plan that would enable the Federal Communications Commission to swiftly reclaim licenses snarled in wireless bankruptcies.
Such a law, unlike the Second Circuit’s ruling on NextWave, would have national reach. To date, financially struggling wireless firms, bankruptcy lawyers and key lawmakers have thwarted such legislation.
Still, OMB Director Jacob (Jack) Lew is expected to make much the same pitch to Congress as he did last year when he stated: “The administration believes that clarification of the status of the spectrum licenses … will allow a more rapid recovery of the licenses than costly, time-consuming litigation and (will) truly promote the expeditious deployment of new services.”
In past years, CBO has tended be more conservative than OMB in forecasting receipts from spectrum auctions. In last year’s budget, the Clinton administration predicted $21 billion from spectrum auctions during the next 10 years.
Following the euphoria of the A- and B- block PCS auctions ($7 billion) in 1995 and the C-block auction the following year, the FCC’s auction program went into a funk characterized by bankruptcies and the sale of $1 wireless licenses.
That gave currency to the notion that the federal government-in its zeal to sell large chunks of the airwaves in a compressed time frame to help underwrite spending programs-had oversupplied the market with spectrum and thus contributed to a devaluation of frequencies.
While the spectrum glut theory has credibility, it may have less standing today than it did a few years ago. The reason: broadband access. While most of the money raised from auctions has come from mobile telephone companies, upcoming auctions could draw a new wave of bidders anxious to gain rights to exploit the spectrum for broadband Internet access.
Broadband wireless access is touted as being less costly and more flexible than copper, fiber and other technologies.
The test will come when the FCC auctions spectrum in the 700-800 MHz band (TV channels 60-69) and in the 39 GHz band this year. FCC rules governing 60-69 spectrum could affect its value at auction time.
The FCC also will hold a paging auction in late February and a closed broadcast auction March 21.
While well-heeled Internet firms could bid up the price for wireless licenses in TV channels 60-69, downward pressure on bids could come from uncertainty over when (or whether) broadcast incumbents in top markets will vacate analog spectrum as part of the conversion to digital technology.
CBO does not believe it will happen by 2006, the year the conversion from analog to digital is supposed to be completed. Last year, the White House projected the U.S. Treasury would collect $2.6 billion from auction of as much as 36 megahertz in TV channels 60-69.
In the past, the president’s budget has created a stir by proposing other means-like user fees-to extract wealth from the airwaves.
Whatever the proposals are in the 2001 budget, they are likely to rekindle fights in Congress between appropriators and telecom lawmakers over the jurisdiction of radio spectrum.
