Incentive Auction Still Moving Forward as FCC Takes Up IP Transition

Wheeler started asking questions about the incentive auction the week of Nov. 4, his first week on the job, industry and FCC officials said. His predecessor Julius Genachowski had left in May. Acting Chairwoman Mignon Clyburn had stressed repeatedly that work on the auction was proceeding even as the agency waited for the Senate to confirm Wheeler. A former FCC official suggested Wheeler “may pivot to IP transition for a little while until auctions look better to him."

A delay in development of auction rules would not be a surprise, said a former FCC legal adviser. “The staff had little, if any, direction from Genachowski in his final months, and they didn’t engage fully with the acting chairwoman, preferring to wait for Chairman Wheeler,” the lawyer said. “So for him to ask them to start anew is not only his prerogative, but was expected by many outside observers.” A former FCC spectrum official said “this is a massive, unprecedented undertaking and the chairman is very hands-on.”

"If the chairman wants more work done, that’s probably the nail in the coffin for a 2014 broadcast auction, although that was always a stretch anyway,” said Paul Gallant, analyst at Guggenheim. “A well-received launch on the IP transition would actually create political momentum for the rest of his agenda, including spectrum auctions.”

Public Knowledge Senior Vice President Harold Feld said staff had not waited for Wheeler to arrive and had been pushing forward on rules for the auction. “The incentive auction is insanely complicated,” he said. “It has many working parts that need to be completed and then harmonized. A critical aspect, how the bidding will actually work, still needs public comment. And, of course, the agency lost several weeks due to the shut down.”

Auction on Track

FCC officials this week reassured Preston Padden, head of the Expanding Opportunities for Broadcasters Coalition, that the agency is still on track to hold an auction in 2014, he said. “That’s the operative word out of the commission,” he said during a webinar Tuesday sponsored by the Digital Policy Institute. “There is a very lengthy order that is substantially drafted. It’s awaiting the decisions on key policy issues to be directed by the new chairman and his fellow commissioners, but it’s not like we're sitting here ... with noting on paper in terms of rules for this auction."

While the word delay “tends to have negative connotations, often for good reason, there is a case to be made in this instance that getting it right should predominate,” said Jeff Silva, analyst at Medley Global Advisors. “While there is an unquestioned need to inject additional spectrum into the market to advance the ... bright future of mobile broadband, the stakes are simply too big to religiously adhere to artificial deadlines. I t can be argued that a reasonable delay could even work in Wheeler’s favor by buying time to fine-tune incentive auction rules to help maximize policy/revenue objectives and to incent meaningful broadcast participation.” Meanwhile, the FCC can move forward on the IP transition, Silva said. “While the IP transition process is likely to be time consuming, Wheeler’s high-profile focus on IP transition at this early juncture” as chairman “can provide, at a minimum, some beneficial guidance to markets and stakeholders that the process will indeed go forward -- and that it is a top priority,” he said.

Meanwhile, wireline carriers were enthusiastic about the Wheeler announcement on the IP transition. Industry officials said the idea of the transition has been discussed since SBC petitioned the FCC, raising the issue almost a decade ago.

In 2011, the FCC Technological Advisory Committee, then chaired by Wheeler, released a report on the sunsetting of the public switched telephone network (http://fcc.us/10nYJj4). In late 2012, Genachowski established a Technology Transitions Policy Task Force, which led to formal comments at the FCC and a public notice on IP trials in May (CD May 13 p1).

Pai Backs Wheeler Timeframe

"The record is ripe for decision on the IP transition, so the timing is perfect for Chairman Wheeler to tee it up for some action,” said former Commissioner Robert McDowell, a visiting fellow at the Hudson Institute. “From the market’s perspective, updates have been needed for years, so I think a prudent, cautious approach is the right way to go and hopefully that’s the direction he’s going in.”

"People are choosing IP services and moving, but at some point you need to turn off the old stuff so that you can free up all the money that goes into that and start investing in the IP stuff,” said a veteran wireline attorney who represents telcos. “The legacy networks have lots of old-fashioned switches and old operating systems, order systems and billing systems, network inventorying systems that are old and they're sort of duplicates on the IP or broadband side. At some point, and it’s a different point for every company, it becomes economically untenable to keep all the old stuff.” The lawyer said what Wheeler is proposing does move the ball over the May notice from the task force. “That was just comments and it was on the trial that AT&T asked for, but then also should we do other trials. It was a very kind of broad and vague invitation for comments,” the lawyer said. “The Wheeler thing says, ‘We're going to get a report in December. We're going to issue an order in January and it’s going to do some things.’ That’s much more direct and action-oriented.”

Commissioner Ajit Pai said he agrees with Wheeler that now is the time to act. “The transition to IP-based technologies represents the most fundamental and positive change in telecommunications in decades,” Pai said in a statement (http://fcc.us/I5fsGE). He said he welcomed the January order addressing the IP transition, and he’s “optimistic” the item would lead to the kinds of geographic all-IP trials that Pai’s been pushing for some time.

Pai was the first commissioner to publicly endorse the idea of wire center trials, pointing to the support they had gotten from Blair Levin, who Pai called “the father of the National Broadband Plan” (CD March 8 p 4). “People give me credit for writing the Broadband Plan,” but that’s not really true, Levin told us -- it was a team effort. “The one page that I actually typed myself was [Section] 4.5 on the IP transition!” said Levin, now executive director of Gig.U. That section details the transition away from a circuit-switched network, which suggests consideration of regulatory structure, legacy regulations, and safeguarding emergency communications.

Levin has long supported trials, which he has said would be “worth a thousand pleadings” in their ability to enlighten regulators about potential issues (CD Jan 31 p2). But it’s important to note that trials are likely to turn out well, given AT&T and the other carriers “have an incentive to make sure that the trials do not go badly,” he said. “You don’t want experiments to give you essentially a Potemkin village vision -- that is to say where everything just looks beautiful” but conceals deeper problems. That’s why any trials need to make the results widely available, he said. “There’s a lot of proprietary information, but you want the public to be able to see what really happens. Are there 911 calls that don’t get connected? And things like that."

"In a funny way, Tom is like the perfect guy to do this because he knows the industry so well,” Levin said. “I think he’s doing exactly the right thing and moving forward very aggressively. ... The sooner we have a timetable, the more likely we are to be able to correct whatever mistakes are made in the transition.” With a short timetable, he said, it’s very hard to course correct. “Part of the cost of starting basically three years later than we should have,” is it will make the course correction more difficult, Levin said. The commission should start the broader proceeding with a relatively quick time period on the key issues that need to covered in the actual IP transition, he said. “We identified them in the plan, and we actually had an NOI drafted,” he said. “If you just start the process, you learn something, and then you make your decision."

Wheeler’s timeline is definitely doable, given the long record amassed on issues that would be raised by the transition, said Michael Romano, NTCA senior vice president-policy. The way the chairman laid it out at a high level -- conducting experiments, collecting supplemental data, and considering other legacy policy and technical issues -- is “a good contextual framework for how to approach this,” Romano said. The question will be “what exactly do those experiments and these trials look like,” and how detailed the order gets on constraints, constructs and control conditions, he said. “How do you make sure that at the end of the day those core statutory principles that everybody seems to agree are essential ... are served in the context of the trial?”

"We don’t want to run into a case where the service disappears or falls apart or becomes substandard in quality because of a trial,” Romano said. The trials should be about furthering competition, consumer protection and universal service, he said. Some rules might not fit anymore, not just due to technological changes, but also to consumer choice, Romano said. Other rules like basic carrier-of-last-resort requirements will continue to be essential, he said, but might be done in a different way. “In a day when people have cellphones and other things, there may be a case where people can go for a few days” without carriers needing to deploy equipment to turn on a landline within a day, said Romano. There will have to be an underlying facility of some kind, he said, “regardless of whether it’s fiber or copper."

Unlike the incentive auction, the IP transition has no clear deadline, Feld said. “It is fair to say that Genachowski and Clyburn quite properly deferred major decisions on the matter until Wheeler arrived,” he said. “The IP transition will be one of the defining elements of Wheeler’s tenure, lasting for several years. While Clyburn addressed the urgent issues, such as making sure Verizon filed a 214(a) for Fire Island, she was careful not to lock Wheeler into any particular approach. A consequence of that, however, is that there is a great deal of pressure for the FCC to assert leadership on the transition as quickly as possible. Those who would like to see FCC authority over phone service eliminated have pointed to the lack of agency leadership as proof that the FCC is outdated and can’t do the job."

Wheeler’s blog post was “shrewd” in that he publicly applauded Clyburn, Pai and Commissioner Jessica Rosenworcel, “making it clear that his announcement of a timetable was no criticism of them,” Feld said. “He laid out priorities for things, but left open what exactly the January order will cover. He gave everyone a reason to be happy we're finally getting things moving, without tipping his hand about where we're going or how we'll get there.”,