Outlook for Spectrum Legislation Still Uncertain, McDowell Says

"Washington is a divided town right now,” McDowell said. “There is a lot of acrimony for a variety of reasons.” But he said the amount of money an incentive auction would raise could prove a key to approval. “If you have $16.5 billion net as your fuel for legislation, that increases the odds greatly that something will happen,” he said. “If you have bipartisan support, that increases your odds even further that something will happen.”

McDowell said if Congress wants to maximize auction revenue “you need to have as few encumbrances as possible on the spectrum.” The encumbrances the FCC placed on the 700 MHz C-block and D-block prior to that 2008 auction show the danger of imposing requirements on licensees, he said. “D-block didn’t work. There was not a business case to make based on all the conditions” and the spectrum went unsold, he said. “With the C-block, it depressed the prices … and actually drove out smaller players from the auction.” The FCC should also adopt flexible use policies, he said. “The government just cannot anticipate what uses a certain frequency is going to be best for, five, 10 years down the road. … The FCC has not always gotten spectrum auctions right."

McDowell said he remains “skeptical” of spectrum caps: “If you have unlicensed use, that’s the work-around.” As one example of why the FCC shouldn’t place tight restrictions on who can buy spectrum, he cited recent remarks by Comcast Chief Financial Officer Michael Angelakis, who he said suggested last week (CD Jan 6 p7) that SpectrumCo never intended to use AWS spectrum purchased in the 2006 AWS-1 auction. “That doesn’t help the cause,” McDowell said. “That not only creates tremendous legal issues, whether those licenses were purchased under false pretenses, but also really makes you wonder how much can the government engineer this space."

Comcast has “continually evaluated our business options” since SpectrumCo bought the AWS spectrum in 2006, a company spokeswoman said. The cable operator considered “whether building a new wireless network using the limited amount of spectrum acquired made commercial sense,” she continued. “We have also taken multiple steps to develop the spectrum for commercial use” by spending millions of dollars to clear the spectrum of incumbent users and building a commercial testbed to evaluate AWS technologies, the spokeswoman said. “Notwithstanding the significant time, effort, and investment that SpectrumCo put into these efforts, SpectrumCo has determined as a business matter that constructing and operating a standalone facilities-based wireless network using this AWS spectrum would not provide a return that would warrant incurring the substantial costs and risks involved,” the spokeswoman said. “Instead, we believe the transfer of this spectrum to Verizon Wireless is an efficient use of this spectrum because it can be deployed more rapidly to meet consumers’ growing demand for wireless broadband services.”

Clyburn said Congress should give the FCC “flexibility and dexterity” to develop auction rules when it approves an auction bill. “I think if we go into it with that mindset we will be better poised to make … decisions,” she said. “Fundamentally I think that that’s the best course of action.”

McDowell stressed the importance of unlicensed spectrum, whether it’s Wi-Fi or as proposed in the TV white spaces. “That actually gives a great escape valve for potential anticompetitive behavior that a lot of people worry about,” he said. McDowell argued that white spaces spectrum effectively counters the need for the FCC to approve auction rules limiting the largest carriers from taking part in some auctions.

Clyburn was also asked specifically whether auction rules should restrict, in some cases, the ability of the largest carriers to buy more spectrum. “We have as part of our mandate the goal of assuring a competitive marketplace with all of its benefits,” Clyburn said. “One of the good things about having policy … that allows for dexterity is that you have the ability to better navigate in this space and to adapt and change with the times.”

Clyburn said she continues to have concerns about whether the U.S. wireless market is competitive. “I look at certain markets, especially in rural areas, and I have concerns,” she said. “I don’t answer that question with a yes or no.” McDowell countered that most markets are competitive based on data gathered by the FCC. The last Wireless Competition report said “the average wireless consumer, the vast majority of American consumers, have a choice of five carriers,” he said.

Genachowski also urged Congress to give the FCC room to maneuver in devising the rules for an auction. While not specifically slamming legislative proposals being floated by House Republicans, he made clear he prefers the approach offered by the Democrat-controlled Senate. “My message today on incentive auctions is simple,” Genachowski said. “We need to get it done now and we need to get it done right. … Getting it wrong would undermine the reasons to adopt incentive auction legislation in the first place.” Congress is close “but we're not there yet,” he said, citing broad support for auction legislation.

Genachowski said the Senate spectrum bill, which cleared the Commerce Committee by a 21-4 vote, is exactly the legislation the FCC needs. The Senate bill gives the FCC “sufficient flexibility to conduct incentive auctions in a way that would generate massive value” while providing funding for a public safety broadband network, he said. But he also said Congress should reject any legislation that would “predetermine spectrum allocation and auction design in an unprecedented manner.”

Auction experts agree “it would not be wise to prejudge or micromanage FCC auction design,” Genachowski said. “Doing so could significantly diminish the value of spectrum auctions and stifle mobile innovation.” Congress shouldn’t “tie the agency’s hands,” he said. “This is, as you all know, an incredibly fast-moving space. Any policy that prejudges or predicts the future runs a great risk of unintended and unfortunate consequences.” Two years ago, he noted, there were no tablets on display at CES. “And we know how hard it is to change a law,” he said.

America’s leadership in the world “is being threatened by the looming spectrum crunch,” Genachowski warned. “The plain fact is the aggregate consumer demand for spectrum for broadband is increasing at a very rapid pace, while the supply of spectrum remains essentially flat,” he said. But he also said he sees a positive future for the U.S. wireless sector as long as more spectrum is made available under the right rules. “Our apps economy is the envy of the world,” he said. “We now have the most 3G subscribers in the world. While Europe led in getting to scale for 3G, we have a strong early lead in getting to scale for 4G.”

Also at CES, Neil Fried, senior telecommunications counsel to the House Commerce Committee, expressed optimism that Congress will enact spectrum legislation this year. Fried said the compromise offered in a spectrum bill by Communications Subcommittee Chairman Greg Walden, R-Ore., under which public safety would get the 700 MHz D-block while having to give up narrow-band spectrum, is a good deal for public safety. “The public safety problem is not a spectrum capacity problem, it’s a network problem,” Fried said. “We don’t have a network. We need to build a network and we need it to be interoperable.”

Congress is looking at limiting the FCC’s ability to impose net neutrality and other conditions on spectrum licensees “to prevent FCC shenanigans,” Fried said. “This is not a partisan issue.”