WASHINGTON-Ten years after Congress authorized auctions to award wireless permits, the market-based licensing scheme continues be a magnet for those needing funding for pet projects, but the Federal Communications Commission’s strong embrace of intelligent radio technology and commercial exploitation of unlicensed spectrum could force a re-examination of a policy that has created as much controversy as cash for the U.S. government.
Can the spectrum auction-now utilized by governments worldwide with varying levels of success-be all things to all people? Have the value and legitimacy of auctions diminished since the mid-1990s, when the government banked on auctions to help erase a monster deficit and swiftly inject competition into a wireless industry now crowded at the top and primed for consolidation?
Former FCC Chairman Newton Minow sees democracy itself-not to mention U.S. competitiveness and national security-at stake in the competition for auction dollars. Minow and former NBC President Larry Grossman are architects of a plan to fund educational initiatives with a chunk of future auction receipts.
“We must use technology for improved education and training or we will pay a price we cannot afford,” said Minow in prepared testimony for a House telecom subcommittee hearing Nov. 19.
The Minow initiative has strong support from the panel’s ranking Democrat, Rep. Edward Markey of Massachusetts.
Markey’s colleague, Rep. Edolphus Towns (D-N.Y.), would like a bit more auction money for the Telecommunication Development Fund. Towns helped create TDF, which was inserted into the 1996 telecom act. TDF is a private, nonprofit group funded by a small portion of auction revenue that makes equity investments in small entrepreneurial firms. The idea for it came after the Supreme Court curbed affirmative action in 1995. The ruling prompted the FCC to eliminate preferences for women and minorities in spectrum auctions.
“By increasing investments in the early-stage communications industries, TDF will play an important role in creating the next level of technology that will stimulate our country’s economic growth,” stated Ginger Lew, chief executive officer of TDF, in written testimony for the same House hearing.
House telecom subcommittee Chairman Fred Upton (R-Mich.) noted the Digital Opportunity Investment Trust and TDF proposals wall off spectrum-auction proceeds otherwise the province of congressional appropriators, a not-so-subtle reminder of the tension between lawmakers who make spending decisions and those who make telecom law on matters involving spectrum auction dollars.
The Bush administration, facing a projected $475 billion deficit in the 2004 election year, wants congressional appropriators to restore the FCC’s authority to siphon off a little auction revenue to fund the auction program itself.
The backdrop to all this is high-profile legislation to create a fund to underwrite the cost of moving Department of Defense radio systems to new frequencies to clear the 1700 MHz band for third-generation wireless systems. The relocation fund-a critical component of the administration’s mobile-phone plan-would be comprised of billions of dollars from the 3G auction.
The bill is hung up by a controversial amendment that goes to the issue of who should and who should not be subject to auctions. Northpoint Technology Ltd. and its proponents on Capitol Hill believe that because the firm would share spectrum used by broadcast satellite operators-which by law received their licenses for free-it should not have to pay either.
It is not a novel issue. In 1997, Congress expanded the universe of wireless services whose spectrum are exempt from auction. Frequencies for railroads, utilities and other critical infrastructure sectors got the same sacred-cow treatment heretofore accorded to public safety.
In the same bill, lawmakers took valuable spectrum totaling 24 megahertz off the auction block. Lawmakers wanted to improve the patchwork state of public-safety communications, including giving firefighters, police and medics in different jurisdictions the ability to seamlessly talk with one another during emergencies.
In light of the Sept. 11, 2001, terrorist attacks, Congress’ action now seems almost prescient. But it is far from becoming a reality. TV broadcasters-struggling to transition to digital technology-have yet to return frequencies reallocated to public safety.
But perhaps the real controversy has yet to play out.
With more of the nation’s airwaves being set aside for high-speed wireless broadband connections in unlicensed frequency bands and greater emphasis on smart, frequency-sniffing radios, there appears to be less of a role for auctions. Don’t expect wireless entrepreneurs and small businesses to shed any tears. The burden of having to raise hundreds of millions of dollars to pay for spectrum licenses-costs incurred before network construction, marketing and payroll-has proven too heavy for all but the nation’s largest wireless carriers. In Europe, where the sky was not the limit in 3G auctions, even wireless heavyweights succumbed to the crush of auction debt.
Meantime, there are renewed calls for spectrum lease fees, an idea floated and quickly shot down-mainly by TV broadcasters-in recent years.
But that may be about to change. Spectrum auctions were repeatedly proposed and defeated for more than a decade before it became the law of the land. In official Washington, federal deficits can do wonders in changing hearts and minds.
In an August Cato Institute paper, two authors argued a new, two-side auction-involving simultaneous buying and selling of spectrum packages and contemplated in an FCC plan to remake the 2.5 GHz band for wireless Internet service-would allow commercial and educational licenses to retain revenue that normally would flow to the U.S. Treasury.
The wireless industry, Wall Street and number crunchers in Congress and the Bush administration are watching carefully.
