FCC Exploring Rules for Incentive Auction of Broadcast Spectrum

Numerous details have surfaced since the NPRM was circulated by Chairman Julius Genachowski three weeks ago (CD Bulletin Sept 7). Among them was that the NPRM proposes simultaneous reverse and forward auctions and proposes that guard band spectrum and other unspecified spectrum be set aside for unlicensed use, a major win for many high-tech players (CD Sept 17 p1). A few new details emerged Friday, but the 150-page NPRM is expected to be released by the FCC within a week, officials said Friday.

Among new details, the NPRM asks questions about whether the FCC should impose a 700 MHz interoperability mandate as part of the order, a big concern of small carriers (CD Sept 26 p1). The NPRM also seeks comments on whether to relocate the Radio Astronomy Service and wireless medical telemetry systems from channel 37, “and on whether and how to address the post-auction availability of UHF band spectrum for fixed broadcast auxiliary stations, low-power auxiliary stations, and unlicensed wireless microphones,” according to a release from the commission.

"This is a big deal,” said FCC Chairman Julius Genachowski. “The work that’s reflected in the notice reflects a level of expertise and sophistication that I'm very proud of. We had tremendous engagement and input from world-leading economists, world-leading auction experts, world-leading engineers.” Genachowski said the rest of the world is watching as the U.S. launches what is expected to be the first auction of broadcast spectrum for wireless broadband.

Genachowski is hopeful many broadcasters will opt to sell their licenses, he said during a news conference. “There’s no question that the success of the incentive auction depends on broadcaster participation,” he said. “As we've heard more and more from broadcasters, we're well aware that there are many broadcasters who are not going to seriously consider this. We completely understand and expect that there will continue to be a vibrant broadcast industry after the auction. It’s also quite clear that, particularly in major markets, there are many stations that are interested, that are looking closely."

The auction will be “without exception, perhaps the most difficult undertaking the commission has embarked upon since I got here,” said Commissioner Robert McDowell. “It’s like moving from two-dimensional chess to three-dimensional chess and perhaps three-dimensional chess while blindfolded.” McDowell said some ideas in the NPRM are better than others, “but we also realize it’s early.” Among the questions he has are whether too much spectrum would be set aside for unlicensed use and whether 6 MHz guard bands are needed “to prevent harmful interference given the technological improvements that may come over the horizon after we adopt rules.” Another question is “whether auctioning spectrum in six megahertz channels, that is, on a broadcast channel-by-channel basis, would be more intuitive and thus lead to a more efficient and fruitful auction,” he said.

Pai slammed the NPRM for proposing too much spectrum for unlicensed use. “I agree with the NPRM that six megahertz guard bands are sufficient to shield against interference between television broadcasting and LTE-based services likely to be offered using the newly licensed spectrum,” he said. “But it also may be more than sufficient given the power and out-of-band emission limits we place on this newly licensed spectrum, not to mention the availability of improved filters."

Genachowski replied to Pai during the news conference. “There is a disagreement on innovation and Wi-Fi-like unlicensed uses, [but] there’s no disagreement that our duty and obligation is to implement the Spectrum Act,” he said.

Pai also said the NPRM fails to ask critical questions on auction timing. “The forward auction as proposed stops as soon as it generates proceeds sufficient to pay successful bidders in the reverse auction, cover the commission’s administrative costs, and cover the estimated costs of reimbursements required by the statute,” Pai said. “This is essentially like ending a traditional auction as soon as the reserve price is met. In other words, the NPRM envisions an auction with no net revenues. This means no money for the FirstNet to build out a nationwide, interoperable public safety broadband network, no money for state and local first responders, no money for public safety research, no money for deficit reduction and no money for next-generation 911 implementation."

The NPRM also fails to ask a key question about broadcaster reimbursement, which is limited by the February spectrum law to $1.75 billion, Pai said. “The NPRM acknowledges that this fund may be insufficient to compensate broadcasters and cable operators for their reasonably incurred costs, but it does not seek comment on how this limitation affects when we close the auction,” he said. “So I will ask: Does the Spectrum Act require us to include this limitation as a closing condition? If not, should we require that the estimated costs of repacking television broadcasters and cable operators be less than that sum as a closing condition? Either way, what impact, if any, would such a condition have on the efficiency of the broadcast incentive auction?"

Commissioner Mignon Clyburn was particularly pleased the NPRM preserves spectrum for unlicensed use and seeks comments on bidding credits. “I was also happy to see questions on what the commission should do to ensure interoperability in the band plan for the forward auction,” Clyburn said. “The current lack of interoperability, in the lower 700 MHz band, is impeding the deployment of competitive options for consumers. To ensure that this incentive auction yields the greatest possible benefits for consumers, we must consider whether we should mandate interoperability in the spectrum we repurpose for mobile services."

Commissioner Jessica Rosenworcel said balance, fairness and simplicity must be key principles as the FCC moves forward on the auction. “Simplicity is key,” she said. “Incentive auctions are an undeniably complex undertaking. But at every structural juncture, I believe that a bias toward simplicity is crucial. Simplicity will yield more interest in the opportunities these auctions provide for broadcasters, and in turn, this will yield more spectrum. Station owners operating small- and medium-sized businesses should be able to understand their options without hiring high-priced auction experts.” It’s also important to keep in mind that auction revenue will help pay for the new FirstNet, Rosenworcel said: “After far too many years, we are at long last beginning to address the 9/11 Commission’s call to enable communications connectivity among local, state, and federal first responders."

The NAB is committed to working with the FCC to make sure the auction is successful and constructed in a way that protects broadcasters that do not volunteer their licenses, its CEO Gordon Smith said during a teleconference with reporters Friday. “Our hope, and the assurance the FCC has continued to give us, is that this will be a transparent process,” he said. “We will be grateful for that and we're anxious to see that."

The association has not tallied how many of its members are interested in participating in the auction, Smith said. “We don’t now” how many stations are interested, he said. “We know there is some activity, and there have certainly been some speculators entering the market,” he said. “We do not have a firm count. … What we have heard from our members is how earnestly committed to the future of their business they are.” There is potential for more TV stations to consider selling all or some of their 6 MHz of spectrum than the industry has generally expected, some say (CD Sept 28 p1).

Expectations for high levels of broadcaster participation may be “predicated on some misbegotten belief that broadcasting is an industry in decline,” Smith said. “Broadcasting is a great business. Advertising is huge, local newsrooms are hiring and our over-the-air viewership continues to grow in part because of the cord-cutting phenomenon,” he said. “This is a very good year for broadcasting and [our members] have smiles on their faces about next year.” The outcome of the general election in November probably won’t affect the FCC’s auction plans much, Smith said. “It’s in the statute and it’s going to happen no matter who is elected president,” he said. “There may be a different speed at which it happens, one administration versus another, but that’s the only difference I see."

Lawmakers were largely supportive of the commission’s rulemaking proposal, urging the FCC to move forward in a transparent fashion that preserves consumer access to over-the-air TV.

The rulemaking brings the U.S. “another step closer to creating a truly nationwide, interoperable public safety broadband network for our first responders,” Senate Commerce Committee Jay Rockefeller, D-W.Va., said. The rulemaking will be complex, but he’s “optimistic that broadcasters, wireless companies, and others will work cooperatively with the FCC to make sure these auctions are successful.” House Communications Subcommittee Chairman Greg Walden, R-Ore., said that, if implemented successfully, the voluntary incentive auction has the potential to “help meet Americans’ hunger for mobile broadband services, generate hundreds of thousands of jobs, and raise billions of dollars toward build out of the nationwide, interoperable public safety network.” Subcommittee Ranking Member Anna Eshoo, D-Calif., said the rulemaking “lays the foundation for a 21st century spectrum policy that will drive American innovation, create new jobs and increase consumer choice."

House Commerce Committee Ranking Member Henry Waxman, D-Calif., said he was pleased that the FCC’s action was “faithful to Congressional intent and aims to promote unlicensed use as well as the innovation that will surely follow.” Rep. Mary Bono Mack, R-Calif., thinks “a lot of questions remain unanswered,” she said. “I am concerned about the emphasis on unlicensed spectrum, which will limit revenue derived from the auctions, as well as what protections will be put in place for local broadcasters in the repacking process.” Rep. Doris Matsui, D-Calif., said she was pleased the proposed rules will “promote the continued use of unlicensed spectrum for the American high-tech industry” and said she hopes the commission will continue to operate “transparently.” Rep. Ed Markey, D-Mass., also said transparency is key and urged the commission to “ensure that the ability of the public is protected to receive free over-the-air television service from local stations that wish not to participate in the spectrum auction."

With the looming spectrum crunch a key theme of carriers and industry advocacy groups, Verizon, AT&T, Mobile Future, the Competitive Carriers Association and the Rural Telecommunications Group, among others, released statements supporting the order.

"Today’s order on spectrum auctions is a big step in the right direction,” said Mary Brown, Cisco director-government affairs. “The FCC invented the spectrum auction and perfected it. We have every confidence that the commission will do the same for incentive auctions. The timing is none too soon. Consumers are purchasing more powerful mobile devices every hour of every day, and they are chewing up more mobile bandwidth. It’s critical that we add more spectrum for broadband as quickly as possible to avoid the looming spectrum crunch.”

"Additional spectrum is not only key to our national competitiveness, but also needed for creating jobs and spurring economic growth,” said CEA Vice President Julie Kearney. CTIA President Steve Largent said the NPRM is “an important step toward alleviating the looming spectrum crisis that we've been warning policymakers about for the last three years.”