FCC Wants Generic Spectrum Blocks in Incentive Auction, But Goal May Be Tough to Achieve
LAS VEGAS -- One of the key tenants behind the FCC’s incentive auction of broadcast TV spectrum, as rules evolve, appears to be “fungibility,” said FCC and industry officials watching the process closely. Under the theory of the auction, being developed by economists at Stanford University and elsewhere, officials say, carriers won’t bid for a specific block of spectrum but for an amount in a given market. The possibility of fungible blocks got considerable attention at the FCC’s recent 600 MHz band plan workshop (CD May 6 p1). Critics question whether the concept makes sense and will prove workable, in the end, since all spectrum is not created equal and different blocks come with different issues depending on where they are in the 600 MHz band -- how close to broadcast operations and the guard bands.
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In the 2008 700 MHz auction, the FCC offered spectrum in five blocks, A, B, C, D and E, which had different characteristics. Under a “generic” licensing approach, for example, a carrier would know that four different spectrum blocks were for sale in the New York City market, but wouldn’t know which one the carrier was bidding on until late in the auction.
Fungible spectrum blocks, assigned randomly after the auction, would avoid the 700 MHz interoperability issues that have been a concern since the end of the auction. Generic spectrum blocks would “equalize” bidding, but also “help avoid an interoperability problem like what we saw at 700 MHz,” said a wireless carrier executive. The problems can be engineered around, the official said. “To the extent there may be certain different interference issues … you can take that into consideration as you deploy your network. The mobile equipment -- and that’s where you really need your economies of scale -- is on the mobile side. On the network side you're got a little bit more flexibility."
But other industry officials disagree. “We do not see currently how you can have fungible blocks of spectrum, if you have a variable band plan -- it just seems impossible,” said NAB Executive Vice President Rick Kaplan, former chief of the Wireless Bureau. “They're not going to be created equal. Some will be completely encumbered, some will be partially encumbered and some will have no encumbrances.”
"I think there’s going to be meaningful differences between different frequencies and that’s going to make it difficult to create generic licenses,” said Coleman Bazelon, an economist at the Brattle Group. Bazelon cited as an example a TV station in Toronto that needs to be protected in western New York. “It means you cannot use those frequencies in western New York,” he said. “You can engineer your system around it and it might not stop you from using it altogether or only on part of your license, but when you bid on a license you need to know whether or not you're going to have that problem.” Unless “they're truly generic” generic licensing “won’t work,” he said.
If guard bands work as they're supposed to “it shouldn’t matter whether you're on the edge or in the middle, but that’s a big if,” Bazelon said. The problem is exacerbated since different amounts of spectrum are expected to be clear in different markets, he added. “If you have a market where you can only clear 102 MHz and next to it is a market where you can clear 120 MHz, you potentially will have problems around the borders of those markets as well.”
"The key to any successful auction is certainty,” said a former FCC official. “Where is the certainty on that type of auction? I don’t see it. … There’s no way that this is going to work. There’s no way this auction is going to go off like that.”
"What you're sitting on now is a huge disaster,” said a second former FCC official. “One thing you cannot have is homogenous blocks, because some will be encumbered, all at different rates. … The entire auction is being built on a fallacy."
Few understood how complicated the technical rules for the auction would be, said Public Knowledge Senior Vice President Harold Feld, one of the panelists at the May 600 MHz workshop. “While I think that nobody is giving up on the auction by any stretch of the imagination, I think that there is kind of a real sense, particularly among the people who are kind of deep into this and particularly at the FCC, that the problems here are not just political and it’s not just with auction design,” Feld said. “There are very significant technical problems that are informed by our experience with the 700 MHz … that are really giving people a lot of headaches in terms of just trying to come up with what’s a good answer here.”
Much work remains to be done on the auction at the FCC, working with the auction experts engaged by the commission, Feld said. “I do think the people are overestimating the extent to which the bureau has a plan at this point,” he said. “The combination of economic issues and competition issues and technical issues means that there are hard tradeoffs that all affect each other. Some of these things are things that they're discovering as they look at this in a more serious way.”
"Wireless service rules and auction values are interdependent,” said Fred Campbell, director of the Competitive Enterprise Institute’s Communications Liberty and Innovation Project, and who was chief of the Wireless Bureau during the 700 MHz auction. “Without FCC decisions on the band plan and other critical service rules, it is impossible to determine whether fungible blocks would adversely affect the auction.”