Ex-FCC Chairmen Spar on Incentive Auction Details, Complexity

Bureau staff should move full speed ahead on the auction, filling out noncontroversial details and coming up with different options for how best to deal with issues like repacking and preventing interference, panelists agreed. But if the big work is finished before Tom Wheeler is confirmed, the three sitting commissioners will have a decision to make, they said.

"Do we wait?” asked ex-interim Chairman Michael Copps, now at Common Cause. “Is the confirmation imminent or is it far in the distance?” If the order is done and the confirmation is coming up, the commission could wait a few weeks, he said. “If it’s not imminent, then the obligation is to move ahead,” he said. “Public safety cannot wait any longer. … The American people are not going to stand for it.” Plus, Copps said, no one even knows if the incentive auction is going to work as intended, so it’s important to try it as soon as possible. If the work is done and there’s still not a full commission, “we should do something a little out of the ordinary because the auctions are a little out of the ordinary,” he said. “The public interest compels it."

Were Wheeler confirmed soon, the commission could hold the auction in 2014, said ex-Chairman Reed Hundt, now CEO of Coalition for Green Capital. But no one knows when Wheeler will be installed, he said, and that is hampering the work of bureau staff. Former Commissioner Robert McDowell, now a visiting fellow at the Hudson Institute, expects the commission will be without a permanent chairman until potentially late in Q4. “There’s a lot going on in Washington other than our little world,” McDowell said. There’s a very capable staff, but no consensus about the structure of the auction, and policy decisions will be made on the eighth floor, which could take a while, he said: Even once he’s in, Wheeler will need “at least a couple of months to get his sea legs.” The staff should have several scenarios laid out, rather than “one scenario carved in stone,” which is unlikely to be approved by the commissioners, McDowell said.

"Tom Wheeler should be confirmed tomorrow,” and both Republicans and Democrats agree on that point, Hundt said. “It’s a non-issue.” Only once the full commission is in place should it move forward on the big auction decisions, like how much spectrum any one company can own, Hundt said. “It’s inconceivable to me that that would be decided by the three-person commission instead of the five-person commission, because it will be a rule that will cast a long shadow over many years into the future.” Companies need to know the spectrum aggregation rules well in advance of the auction, he said, rather than on the eve of it and “God forbid” after it: “That would be a nightmare.”

The commission needs to lay out an antitrust policy that makes sense, Hundt said. The Department of Justice has said it will do it if the FCC doesn’t, and two agencies speaking to the same topic would simply confuse the issues, Hundt said. In expressing concerns about the AT&T/T-Mobile transaction, the FCC already laid out the best market structure for wireless, Hundt said: “It’s the one we have.” The four main firms in the market ought to have “a lot of spectrum” because that will make it cheaper for them to do business, and in a competitive market the savings get passed to the customer, he said.

The former commissioners disagreed on whether spectrum caps are the best way to go. Ex-Chairman Richard Wiley of Wiley Rein said he’s against caps. Replied Hundt: “I'm the one who put the caps in, and they produced the four-firm market that we have today.” Ultimately caps do the same thing as a spectrum screen or an aggregation number, Hundt said: They're all ways of saying there is a limit. But caps are a very “hard-edged” limit, Wiley responded. Wiley would prefer the commission take a more individualized look at different transactions, and update the screen regularly.

"This auction will be a failure if it simply ends up transferring a lot of big broadcaster spectrum to big wireless companies,” Copps said. Now is the time for the agency to ask questions about the role of competitors and how to achieve policy goals for small businesses, he said. Copps always preferred caps to a spectrum screen, which he called an imprecise “moving target.” Copps also floated the policy of “use it or lose it,” which could take a harder position on the carriers’ practice of warehousing spectrum. Spectrum should be employed for the public interest, he said.

"The mere fact that this proceeding exists means that something more restrictive or regulatory is going to be done” regarding spectrum caps, McDowell said. Wheeler offered a “clue” during his confirmation hearings when he said that AT&T and Verizon Wireless wouldn’t be “entirely excluded” from the incentive auctions, McDowell said. Taking out the two deepest pockets in the game is a recipe for a “failed auction,” said McDowell: To incentivize broadcasters to give up spectrum, investors are needed. Geographic limits and an “eloquent” band plan could also let small companies get in on the action, he said. But the commission shouldn’t get “hung up” on the below-1 GHz analysis, he said. There’s usable spectrum above 2 GHz, and even some experimentation above 5 GHz, he said. Technology is always pushing the envelope, and the commission should recognize that and not lag behind the market, he said.

Hundt was alone in saying the incentive auction is “not that complicated,” among the four panelists. Game theorists argue that it’s a “prodigiously complicated and infinitely complex topic,” but this auction is “not any different than the FCC playing the role of real estate broker” that has to get a seller and buyer to meet on common ground, he said. Success, he said, will be measured by whether the maximum amount of spectrum is sold for the lowest possible price.

"It is the most complex proceeding we've seen,” Wiley countered. Multiple rounds, simultaneous bidding, the need to minimize repacking cost and the “Canadian-Mexico problem” are just some of the thorny issues the commission will have to deal with, he said. McDowell agreed with Wiley: He would love it if the auction were simple, but it’s not, he said. The “golden rule” of trying to avoid harmful interference and the “domino effect” of repacking across the nation make this auction extremely complicated, he said. “It could be simplified,” which would bring more certainty and raise more revenue, McDowell said. He’s “reluctantly skeptical” that the auction will yield even 80 MHz.

The panelists also tackled issues raised by the Internet Protocol transition. Copps worried that companies moving to new forms of communication “without even clearing it with the regulatory agency” is “ludicrous” and “mind-boggling.” The regulatory side of the transition has been set to move very slowly, McDowell said, to the point where it will remain “well behind the times” and the evolution of the market. Although a “controversial issue” for some -- including CLECs that fear for the future of unbundling obligations -- as the industry moves to an all-IP world where wireless is a disruptor and the copper footprint is shrinking, “that means competition has prevailed,” McDowell said. “And where competition exists, you should be deregulating."

Panelists don’t expect the commission to make any move on USF contribution reform in the foreseeable future. With the contribution factor relatively stable, there’s less urgency for the commission to act, McDowell said, although he wondered how long the issue can be postponed as the move continues from phone numbers to IP addresses. But “as long as people have telephone numbers, there’s no need to change the methodology of collection,” Hundt said. As incomes go up, the amount collected should go up, he said. It’s an “unnecessary and inappropriate austerity measure” for the FCC to not raise more money to fund its programs, he said.

The former officials lamented the fact that the 2010 quadrennial report on media ownership likely won’t be out until 2014. The commission can’t go too far without an Adarand study, McDowell said. The commission needs the study to help it adopt rules that comply with the strict scrutiny required by the Supreme Court’s 1995 Adarand decision (CD Nov 19 p1). “It’s not an issue that a lot of FCC chairs relish tackling,” McDowell said. “It just sort of sits in suspended animation.” Hundt said he’s hopeful that the current commission “will in fact take up this challenge.”