Sharp Disagreements Remain on Incentive Auction Rules

Industry officials disagreed on whether policy disputes likely mean delays in the development of auction rules. The final rules are widely expected to be ready only after current Chairman Julius Genachowski leaves the commission.

"The FCC will indeed have to make some tough choices regarding the auction rules,” said Free State Foundation President Randolph May. “If you're honest, you'd have to acknowledge that, historically, when the commission has to make so-called tough choices its decision-making slows down. But it just shouldn’t be this way, especially with regard to the incentive auction, which is too important not to get underway on schedule. Some commissioners may view the question whether to exclude AT&T and Verizon from bidding, or otherwise encumbering the auction with special conditions, to be a tough ‘political’ choice. But it shouldn’t be. They should opt for an unencumbered auction with rules that are as uncomplicated as possible."

"The FCC gave itself a great deal of lead time,” said David Honig, president of the Minority Media and Telecommunications Council. “We wanted the auction completed this year; they're actually going to complete it in 2014.” Honig said the FCC knew going in what the tough issues would be. He mentioned spectrum aggregation and unlicensed set-asides, as well as “how to preserve and expand ownership opportunities for minority and women broadcast and digital entrepreneurs.”

Sharp divisions among the stakeholders “should not mean that it will take longer to reach a decision, so long as the members of the commission are willing to be decisive,” said communications lawyer Andrew Schwartzman. “This is one of those dockets where it will not be possible to please everyone.”

"This complex proceeding could take time, but once you get past the predictable views of a few entrenched special interests there’s not that much controversy,” said Free Press Policy Director Matt Wood. “There are always tough calls to make on the details, but the statute gives the FCC the discretion to make them by striking the right balance for broadcasting, auctions, and unlicensed uses."

AT&T warned the FCC there’s no margin for error in getting the rules right for the auction. In other auctions “regulatory missteps might needlessly reduce the auction proceeds that are deposited into the Treasury, but consumers nonetheless benefit from the reallocation of spectrum to mobile broadband uses, and secondary-market transactions can normally be expected to produce the eventual assignment of spectrum assets to the providers most capable of putting them to the uses most valued by consumers,” AT&T said (http://bit.ly/YnqOsQ). “This auction is different, and there is no room for regulatory error, because the consequences of such error would be much more severe: less (or no) spectrum would be reallocated for mobile broadband in the first place."

AT&T offered 68 pages of advice, starting with a recognition that there was widespread agreement that the FCC’s proposed band plan must be revised. “First, there is a consensus against the NPRM’s proposals to place (i) television stations in the duplex gap, (ii) all paired downlink blocks below channel 37, and (iii) uplink blocks as far down as current Channels 42-46,” AT&T said. “Each of those features would create substantial interference and other implementation problems and devalue the spectrum for carriers and consumers alike.” Second, AT&T said, “the NPRM proposes excessive market-to-market variation in the number of uplink blocks, a feature that would exacerbate the risk of co-channel interference across neighboring markets in which differing amounts of spectrum have been cleared."

Verizon and Verizon Wireless noted in 50 pages of reply comments that there’s broad support for a band plan “that makes paired spectrum available in the forward auction, creates 5 MHz blocks, locates uplink spectrum adjacent to the 700 MHz band, licenses spectrum on an Economic Area (EA) basis, and leaves in place existing operations in Channel 37.” The record is clear that guardbands should be no bigger that 10 MHz and duplex gaps no larger than 11 MHz, Verizon said (http://bit.ly/WHzwon). Larger bands “would be technically unnecessary and unreasonable from an engineering standpoint,” the filing said. “They would result in spectral inefficiency because they would be larger than is appropriate to adequately protect licensed operations from interference. Moreover, a larger duplex gap can make devices more complex and less interoperable.”

Among the areas of continuing disagreement is whether the FCC should impose a cap on the ability of Verizon Wireless and AT&T to buy spectrum in the auction. “The incentive auction may fail if too few participants join the bidding and the new spectrum auction leads to less competition in the marketplace for wireless services rather than more competition, which would benefit consumers and the federal treasury,” T-Mobile said (http://bit.ly/XIFu7b). “One of the strongest deterrents to widespread participation in the 600 MHz auction is the prospect that bidding will be pointless if the nation’s two largest carriers -- each of which has a market capitalization roughly ten times that of its next largest competitor -- are given an unfettered ability to acquire all of the spectrum offered."

"With the unsurprising exception of the Twin Bells, AT&T and Verizon, there is broad support in the record for the Commission to adopt neutral and objective, generally applicable eligibility rules that prevent the anticompetitive aggregation of spectrum,” the Competitive Carriers Association said (http://bit.ly/10N53qn). “The Commission should promptly resolve its parallel mobile spectrum holdings proceeding so that it can apply a more accurate and meaningful spectrum screen to this auction proceeding.” C Spire Wireless offered similar comments. “Except, of course, for the Twin Bells -- AT&T and Verizon -- the commenters reflect a chorus of consensus that the Commission’s incentive auction rules should give existing operators and new entrants a meaningful opportunity to acquire spectrum,” C Spire said (http://bit.ly/X6WXm4). “A spectrum cap or aggregation limit in this proceeding on spectrum holdings below 1 GHz complies with both the language and the intent of the Spectrum Act,” the Public Interest Spectrum Coalition (PISC) said.

Verizon and AT&T both fired back at those calling for tight limits on their participation in the auction. “Some commenters’ proposals for restricting other bidders are not only unlawful but are also transparent efforts to protect themselves from fully competitive bidding,” Verizon said. “Moreover, no party presents evidence that there is a competitive problem for which a bidding or eligibility restriction might be an appropriate remedy."

The size of the guardbands and duplex gap, which will be open to unlicensed use, also remains an area of lingering controversy.

The White Spaces Alliance recommended a guardband of 10-12 MHz and a duplex gap of up to 24 MHz (http://bit.ly/Wq54wS) “so as to allow filters that can provide sufficient isolation between the downlink and the uplink in these bands.” “This will also help to avoid interference from full power TV broadcasts into the proposed downlink and uplink spectrum, and vice versa, and provide for efficient filtering between downlink and uplink in these low frequency bands,” the group said. Google encouraged the FCC to maximize the amount of spectrum set aside for unlicensed use. “Commenters demonstrate that consumer demand for unlicensed connectivity is growing rapidly and that current unlicensed designations will not be able to support this growth,” Google said (http://bit.ly/ZQfnLu).

AT&T advised the FCC not to set aside an unnecessarily large amount of spectrum for the duplex gap or guardbands. “Led by Google and Microsoft, a few commenters ask the Commission to devote far more spectrum to the duplex gap and other guard bands -- not because that extra spectrum is genuinely needed to prevent interference to licensed uses, but simply to reserve more spectrum for unlicensed uses,” the carrier said. “Although AT&T supports creating additional unlicensed spectrum in other bands, the Google/Microsoft proposal for the 600 MHz band would be unlawful and unwise."

"CTIA disagrees with those commenters who allege that freeing up unlicensed spectrum is more beneficial than licensing spectrum through competitive bidding, and that the Commission can reduce the amount of spectrum auctioned without violating the Spectrum Act and having an adverse effect on auction revenue,” CTIA said (http://bit.ly/ZL0vMh).

Another question is the future of TV Channel 37, now set aside for the Radio Astronomy Service and the Wireless Medical Telemetry Service. PISC said the FCC should allow unlicensed use of the channel. “There is no reason why protection zones enforced on an automated basis through a geolocation database system certified by the Commission would not be able to safeguard incumbents so that the remaining 95 percent or more of the band’s capacity, which is currently unused, can be used on a largely contiguous basis nationwide,” PISC said (http://bit.ly/ZQegeM). But GE Healthcare said there was “near universal agreement” that medical operations should be protected. “The only reliable evidence submitted into the record demonstrates that authorized unlicensed devices, wireless microphones, and low power auxiliary service stations in Channel 37 would materially disrupt [medical] operations in the band,” the company said (http://bit.ly/Wqb2Oh).

"The FCC has a number of challenging technical and policies decisions to make with respect to structuring the spectrum band plan and designing an incentive auction framework that will allow all qualified bidders to bid on all available blocks of spectrum and maximize the amount of spectrum available while ensuring there is funding for the construction of a nationwide, interoperable broadband network for America’s first responders,” said Fred Campbell, director of the Competitive Enterprise Institute’s Communications Liberty and Innovation Project. “One of the most crucial decisions the FCC will need to make is whether and how a spectrum screen will apply to companies participating in the forward auction. I believe it is critical that the FCC address the spectrum aggregation proceeding at least six months before the auction is scheduled to allow adequate time for companies to adequately plan for participation in the auction."

Broadcasters Also Concerned

As in initial comments, broadcasters raised a host of concerns in their replies filed this week. Their comments and suggestions varied widely party to party and reflected each’s plans for the future of the TV broadcasting business. Most of the major networks and major sports leagues focused their comments on the use of wireless microphones and other devices (see separate report in this issue). Owners of Class A and low-power TV (LPTV) stations largely argued for increased protections for that category of licensee. Cable operators largely supported proposals for some unlicensed use in the 600 MHz band.

Sinclair continued to push the FCC to let broadcasters experiment with a new technical standard for delivering TV service in the UHF band. The broadcaster, which has said its recent acquisitions are positioning it to make a “spectrum space play” down the road (CD March 6 p5), said none of the initial comments “are directly inconsistent” with its proposal. It pointed to separate comments from Tribune, Univision and broadcast engineer Oded Bendov, as being supportive of the proposal. “It is nonsensical to weigh the ‘value’ of heavily regulated television broadcast service against unregulated mobile service based on the price paid at auction, when it is universally acknowledged that the constraints of the regulations themselves severely depress the cash value of the spectrum when being used for broadcasting,” Sinclair said (http://bit.ly/Zr79rf).

Some station groups sought broader protections for licensees that do not participate in the reverse auction. The Post-Newsweek stations joined others who in initial comments asked the commission to protect the service area of their stations based on construction permits issued after the Spectrum Act passed on Feb. 22, 2012 (http://bit.ly/10Mxd18). LPTV operators Free Access & Broadcast Telemedia argued the commission should protect LPTV service in the repacking of the TV band that is set to follow the auction. “The Commission mistakenly assumes that because LPTV stations are secondary to the extent that they may not cause interference to full-power TV stations, it has no obligation to find channels for LPTV stations displaced in the repacking process,” it said (http://bit.ly/YurnOx). That view is completely contrary to the plain language of the law that authorized the auction, it said. “Congress ... did not damn LPTV stations to extinction in expressing that no change occur in their right to use spectrum,” it said. Like other broadcasters, it urged the FCC to conduct a repack prior to the auction to know what spectrum is needed.

Intel provided an analysis of the markets where the FCC will most likely need TV stations to participate if it’s to clear a nationwide band of spectrum. It said it looked at all current operations based on the FCC’s Consolidated Database System (CDBS) and found 11 markets with four stations operating above Channel 37, another eight markets with five channels above Channel 37 and one market, Fairbanks, Alaska, with seven channels above 37. “Based on this data, there would be a maximum of nine potential markets where five or more channels cannot relocate below channel 37,” it said (http://bit.ly/WKg7Dl). In some cases, enough stations may sell their market or choose to operate in the low-UHF range to relocate all without issues, it said. “On the other hand, in heavily congested regions such as the Boston-to-Washington Corridor, the Canadian border and California, the density of adjacent markets may make it extremely difficult to relocate channels above 37 to lower channels,” it said. Such markets may need to be under an exclusion zone in order to preserve a higher number of paired channels in the rest of the country, Intel said.