Government Spectrum Fees Off Agenda for CSMAC

A planning document released for the newly reconstituted CSMAC does not mention further discussion of the fees issue. CSMAC officials said Friday that NTIA appears to want to steer the discussion to other areas in the third iteration of the committee, which started its work last week with its initial meeting Wednesday (CD May 26 p4). But the topic came up once again during a panel late Thursday at the State of the Mobile Net conference sponsored by the Congressional Internet Caucus.

Michael Calabrese of the New America Foundation, who headed a report on spectrum fees approved by CSMAC in January (CD Jan 12 p1), said spectrum fees proved to be a hugely “contentious issue” and CSMAC was unable to reach a consensus. CSMAC had explored whether the U.S. should move to a system -- based in part on Administrative Incentive Pricing (AIP) as practiced in the U.K. -- that requires government agencies to pay for spectrum they use to encourage efficient use of the airwaves.

"We sort of hedged and said [the government] should explore fees,” Calabrese said, “the good thing being to internalize opportunity costs, make you more conscious of it in the budget process, because right now [spectrum] is treated more or less as a free resource.” As things stand now, federal agencies “have no incentive, and every disincentive, to share their unused spectrum capacity, by doing things like retrofitting their radars or becoming part of the database management system or whatever,” he said. Calabrese suggested that spectrum fees could be used to pay for a spectrum innovation fund to promote more efficient use of spectrum.

"Fees on government spectrum are fees that the government is paying itself,” countered John Kneuer, former NTIA administrator, on the same panel. “How strong is that” as an incentive to use spectrum efficiently? he asked.

Kneuer noted that every administration since Bill Clinton’s has proposed giving the FCC authority to impose fees on spectrum used by industry, including broadcasters. “Spectrum fees have been a budget trick for a long time,” he said. “You can write down, ‘We assume that fees are going to be collected,’ knowing they never will be, spend the money as an offset, say, ‘Hey it wasn’t our fault, you guys didn’t impose the fees.’ … It’s an easy way to conjure up another $20 billion and then spend it."

Chris Ornelas, executive vice president at NAB, said broadcasters remain strongly opposed to spectrum fees for industry, as proposed by the three presidential administrations. “We are not alone in terms of industries that oppose the imposition of spectrum fees,” he said. “I might just throw on the table that perhaps we could just tax all unlicensed devices to generate revenue for your innovation fund,” Ornelas said in comments aimed at Calabrese.

Calabrese, an advocate of unlicensed spectrum, said Ornelas’s suggestion might make sense. “Although some of our allies, companies like Dell and so on, don’t like to hear this, to the extent there’s some sort of determination to raise revenue from spectrum … it would be preferable to have a very low device certification fee to generate continuing federal revenue, rather than to say we have to auction everything for what’s a one time bump” in revenue, he said. If the FCC assessed a $3 or $5 fee on every unlicensed device, “there’s hundreds of millions now operating in the Wi-Fi bands,” he said. “It’s a better alternative than auctioning everything."

Making more spectrum available for unlicensed use is critical, Calabrese argued. “The traditional carrier business model with towers and power isn’t going to be able to keep up with demand even if we throw TV spectrum or what have you at it,” he said. “Over the past 50 years, 95 percent of the increase in spectrum capacity has not come from providing more spectrum, has not come from auctions, it’s come from shrinking the cell size -- in other words from reusing frequencies over and over, and the greatest reuse … that’s actually working now in the market is Wi-Fi."

Calabrese told us CSMAC’s immediate agenda suggests that spectrum fees “are not a short-term priority for the administration. Whether that is a policy or practical political judgment remains to be seen."

During a second panel late Thursday, Hal Singer, managing director at Navigant Economics, said the structure of the wireless industry does not appear to have much effect on prices. Singer’s comments came as the FCC prepares to release its 2011 Wireless Competition Report, which is expected to stop short of concluding, for the second year, that the U.S. wireless industry is “effectively competitive.”

"There’s been a movement over the last 15, 20 years to put more weight on what is called the direct evidence,” he said. “Direct evidence, as the name suggests, is just look directly at the data, what is it telling you, as opposed to trying to make inferences based on some kind of indirect evidence.” Direct evidence shows that wireless prices have fallen for voice, down 12 percent for the same basket of minutes over the last 10 years, based on statistics from the Bureau of Labor Statistics. Since 1997, the price of the same basket of minutes has fallen by about 40 percent. Other data shows that carrier ARPU for voice is lower in the U.S. than in any other country in the world, down to 4 cents per minute.

Data prices are also falling, Singer said. The price per text message declined from 6 cents to one cent from 2005 to 2010, Singer said. The price per megabyte downloaded fell 90 percent, from 47 cents to 5 cents since 2008. Last year’s Wireless Competition Report detailed eight “effective price decreases” for wireless in the 2008-2009 period, he said.

Direct evidence also shows plenty of entry by competitors into the market, another sign of competition, Singer said. The 2010 report detailed the “economically significant” expansion of Leap, MetroPCS and Clearwire during the two-year period studied, he said. “Leap and MetroPCS collectively serve 21 out of the 25 largest economic areas in the United States, which is creating, effectively, a fifth national provider for almost all U.S. consumers,” he said. “JP Morgan Equity Research said that the wireless industry remains one of high aggressive competition."

But Andrew Schwartzman, senior vice president of the Media Access Project, disagreed strongly with Singer’s arguments, though conceding he’s a lawyer, not an economist. “The presentation you just heard basically says, ‘Pay no attention to the traditional antitrust and economic analysis because they don’t matter and I can show you they don’t matter,'” he said. “If you do the traditional analysis, if you apply, in the case of AT&T/T-Mobile, the Justice Department’s merger guidelines to the transaction, you find that this is not a competitive marketplace.”

Price isn’t the only thing that matters, Schwartzman said. “We're future-oriented and we look at innovation, we look at opportunities for entry,” he said. “That is where the evidence of the uncompetitive nature of the current wireless marketplace comes up.” Voice prices are down but other sources show data revenue per user is on the increase and data prices are more expensive in the U.S. than in other nations, he said. “We also have caps being put on data use, which whether you want to view that as a price increase or a service decrease, is not only significant at a time when costs are going down, but it’s also running counter to the worldwide trend.”