The American Action Forum has posted a video of last week’s event examining current regulatory issues at the FCC. The event was keynoted by FCC Commissioner Mike O’Rielly, who was followed by a panel discussion moderated by Rob Pegoraro (Yahoo Tech) with panelists Fred Campbell (Tech Knowledge), Meredith Rose (Public Knowledge), and Will Rinehart (American Action Forum). You can watch the video HERE.
Few industry analysts seemed surprised when Sprint’s new CEO announced “after thorough analysis” that the company won’t participate in next year’s auction of TV broadcast spectrum (known as the “incentive auction”). Analysts already knew that Sprint “has the spectrum it needs to deploy its network architecture of the future.” As a senior telecommunications analyst for Bloomberg Intelligence said in response to the news, “Sprint really has a lot more spectrum than its rivals, so they don’t have that pressing need to get more.”
The announcement is an embarrassment to the Department of Justice (DOJ), which apparently didn’t know (or didn’t care) that Sprint was flush with spectrum for the foreseeable future. When the Federal Communications Commission (FCC) was developing its auction rules, the DOJ urged it to “ensure” that both Sprint and T-Mobile would “win” spectrum in the auction. The DOJ believed Sprint and T-Mobile had to win “low-frequency” spectrum in the auction in order to compete against Verizon and AT&T in the mobile marketplace. The FCC agreed with the DOJ’s expert opinion and decided to “reserve” the auction’s best spectrum for bidders other than AT&T and Verizon.
Though it’s no surprise, it’s now obvious the country’s federal experts on competition and antitrust matters were wrong in their analysis of Sprint’s alleged need for low-frequency spectrum in order to compete. The agencies were blind to Sprint’s effort to leverage Washington to its business advantage even though Sprint used the same tactics just a few years ago in the last major spectrum auction. As FCC Commissioner Ajit Pai recently noted, “Sprint’s decision not to participate in the incentive auction highlights the folly of the FCC’s attempt to pick winners and losers before the auction begins.” It’s been less than a year since Sprint told the FCC that it would be “unable to make up much, if any, ground” competing against Verizon and AT&T if the FCC didn’t expand its existing spectrum reserve so that Sprint could acquire additional spectrum. It was only after the FCC completed its spectrum reserve proceeding that Sprint announced it doesn’t need the spectrum after all. Read More
This week the Federal Communications Commission (FCC) is voting on procedures for an upcoming auction of spectrum (or airwaves) that will expand wireless broadband services to Apple and Android devices. Like bidders on eBay, it’s natural that spectrum bidders want to win big while paying as little as possible. It’s not natural for eBay or any other auctioneer to help some bidders win big by discriminating against other bidders, yet that’s what the FCC decided to do last year when it ruled that Verizon and AT&T can’t bid against T-Mobile or other bidders for nearly half of the spectrum expected at auction.
The FCC’s decision to shelter T-Mobile from competition for such a large portion of the spectrum for sale counts as a big win for T-Mobile before the auction even starts. But a bidding preference for nearly half of the spectrum still isn’t big enough to satisfy T-Mobile, who’s demanding an even bigger handout. The company claims it can’t buy the spectrum it needs unless the FCC gives it an additional unfair bidding advantage for more than half of the spectrum. Read More
The FCC is set to vote later this month on rules for the incentive auction of spectrum licenses in the broadcast television band. These licenses would ordinarily be won by the highest bidders, but not in this auction. The FCC plans to ensure that Sprint and T-Mobile win licenses in the incentive auction even if they aren’t willing to pay the highest price, because it believes that Sprint and T-Mobile will expand their networks to cover rural areas if it sells them licenses at a substantial discount.
This theory is fundamentally flawed. Sprint and T-Mobile won’t substantially expand their footprints into rural areas even if the FCC were to give them spectrum licenses for free. There simply isn’t enough additional revenue potential in rural areas to justify covering them with four or more networks no matter what spectrum is used or how much it costs. It is far more likely that Sprint and T-Mobile will focus their efforts on more profitable urban areas while continuing to rely on FCC roaming rights to use networks built by other carriers in rural areas. Read More
The Supreme Court hears oral arguments today in a case that will decide whether Aereo, an over-the-top video distributor, can retransmit broadcast television signals online without obtaining a copyright license. If the court rules in Aereo’s favor, national programming networks might stop distributing their programming for free over the air, and without prime time programming, local TV stations might go out of business across the country. It’s a make or break case for Aereo, but for broadcasters, it represents only one piece of a broader regulatory puzzle regarding the future of over-the-air television.
If the court rules in favor of the broadcasters, they could still lose at the Federal Communications Commission (FCC). At a National Association of Broadcasters (NAB) event earlier this month, FCC Chairman Tom Wheeler focused on “the opportunity for broadcast licensees in the 21st century . . . to provide over-the-top services.” According to Chairman Wheeler, TV stations shouldn’t limit themselves to being in the “television” business, because their “business horizons are greater than [their] current product.” Wheeler wants TV stations to become over-the-top “information providers”, and he sees the FCC’s role as helping them redefine themselves as a “growing source of competition” in that market segment. Read More
Click here to download the white paper in PDF.
Repurposing Educational Spectrum Resources to Connect America’s Schools and Libraries to Next Generation Internet Services
A 2010 survey commissioned by the Federal Communications Commission (FCC) found that nearly 80% of schools and libraries in the United States lack Internet connectivity that fully meets their current needs. In response, President Obama proposed the ConnectED initiative to provide 99% of American schools and libraries with Internet connectivity at speeds no less than 100 Mbps within the next five years. Most of the funding for this initiative is expected to come from universal service funds administered by the FCC through it E-rate program.
The current level of E-rate funding is far too limited to meet the President’s goal, however, and a substantial increase in universal service funding would threaten the affordability of broadband services in rural areas and to low-income communities. These public interest constraints have prompted the FCC to ask the public for help in identifying additional sources of funding for educational broadband.
Strangely, the FCC has ignored an obvious source of at least $11 billion in educational funding for which the FCC already has ultimate authority: The 117.5 MHz of spectrum allocated for the Educational Broadband Service (EBS) in the 2.5 GHz band. This spectrum was allocated for education over 50 years ago, but has never been fully utilized for its intended purpose. During the last two decades, the FCC permitted Sprint to lease nearly all of this educational spectrum from our schools and use it almost exclusively for Sprint’s commercial purposes. Though Sprint has a legal obligation to provide 5% of the spectrum’s broadband capacity for use by schools holding 2.5 GHz spectrum licenses, a recent study indicates that Sprint is not meeting even this minimal obligation in good faith. Read More
I prepared a report for the Expanding Opportunities for Broadcasters Coalition and Consumer Electronics Association entitled Maximizing the Success of the Incentive Auction, which was filed at the Federal Communications Commission on November 4, 2013. The executive summary is reprinted below and the full paper can be viewed here. Read More
From the time Tom Wheeler was nominated to become the next FCC Chairman, many have wondered, “What would Wheeler do?” Though it is still early in his chairmanship, the only ruling issued in Chairman Wheeler’s first meeting signals a pro-investment approach to communications regulation.
The declaratory ruling clarified that the FCC would evaluate foreign investment in broadcast licensees that exceeds the 25 percent statutory benchmark using its existing analytical framework. It had previously been unclear whether broadcasters were subject to the same standard as other segments of the communications industry. The ruling recognized that providing broadcasters with regulatory certainty in this respect would promote investment and that greater investment yields greater innovation.
The FCC’s decision to apply the same standards for reviewing foreign ownership of broadcasters as it applies to other segments of the communications industry is very encouraging. It affirms the watershed policy decisions in the USF/ICC Transformation Order, in which the FCC concluded that “leveling the playing field” promotes competition whereas implied subsidies deter investment and are “unfair for consumers.” Read More
I recently prepared a paper for the Expanding Opportunities for Broadcasters Coalition and Consumer Electronics Association that provides empirical data regarding the costs of restricting the eligibility of large firms to participate in FCC spectrum auctions (available in PDF here). The paper demonstrates that there is no significant likelihood that an open incentive auction would substantially harm the competitive positions of Sprint and T-Mobile. It also demonstrates that Sprint and T-Mobile have incentives to constrain the ability of Verizon and AT&T to expand their network capacity, and that Sprint and T-Mobile could consider FCC restraints on their primary rivals a “win” even if Sprint and T-Mobile don’t place a single bid in the incentive auction. (Winning regulatory battles is a lot cheaper than winning spectrum in a competitive auction.)
“Permitting voluntary spectrum transactions between federal and commercial users would harness the power of market forces to put both commercial and federal spectrum to its highest and best uses.”
The House Energy and Commerce Committee’s Subcommittee on Communications and Technology is holding a hearing today to ask, “How can Congress meet the needs of Federal agencies while addressing carriers’ spiraling demand for spectrum in the age of the data-intensive smartphone?” In my view, the answer requires a flexible approach that permits experimentation among multiple approaches.
There are challenges and opportunities for both (1) clearing and reallocating federal spectrum for commercial use and (2) sharing spectrum among federal and commercial users. Economic and technical issues may require different strategies for different spectrum bands and different uses. Experience indicates that voluntary negotiations among interested parties – not bureaucratic fiat – are likely to produce the most efficient strategy in any particular instance. Unfortunately, current law does not provide market incentives or mechanisms for the relevant parties (federal and commercial spectrum users and spectrum regulators) to achieve efficient outcomes.
Congressional action creating markets for spectrum transactions between federal and commercial users would provide the relevant parties with an opportunity to maximize their spectrum use through voluntary negotiation. A market-oriented approach would permit experimentation, encourage innovation, and promote investment while increasing the efficiency of spectrum use. The result would benefit consumers, federal agencies, and the economy. Read More