Delayed Incentive Auction Backed by Ex-Chairmen, Seen by Stakeholders as Making It More Feasible

Three ex-chairmen said they would probably make the same decision as Wheeler, knowing what they know now. The extent to which incentive auction-related decisions the FCC makes under Wheeler draw opposition, and perhaps lawsuits, may determine whether the auction goes off as planned in 2015, said broadcast lawyer Jack Goodman. Should various industries cooperate, an auction when Wheeler plans is feasible, said CEA Vice President-Regulatory Affairs Julie Kearney. An FCC spokesman declined to comment for this report beyond Wheeler’s blog post delaying the auction (http://fcc.us/1aP7Nm7).

"This is what leadership looks like, for him to hit the pause button” on the auction, said Mark Fowler, Republican FCC chairman 1981-1987. “It’s a no-brainer.” It’s “important to get it right, including not just the auction but the underlying spectrum policy goals,” said Fowler, now an investor and managing member of Digital Power Radio, which licenses the rights to make a chip that goes inside HD Radio receivers to improve signal reception. The FCC should think about the “wisdom” of spectrum limitations on AT&T and Verizon Wireless, as some have sought, said Fowler. “It penalizes a successful company that needs more capacity.” A 2012 NPRM asked about ways to evaluate mobile spectrum holdings (http://fcc.us/J81fcH), and was approved around the time a rulemaking on the incentive auction was OK'd (http://fcc.us/10NclY5).

The agency needs to decide before the incentive auction the “fundamental question” of which entities can bid for how much capacity, said Reed Hundt, Democratic chairman 1993-1997. “People want to know if they're going to submit a high bid, that they're going to get the spectrum.” It’s also “very important to let the industry absorb those auctions” before the incentive auction takes place, he said. Hundt was referring to the January 2014 H block auction, perhaps later next year an AWS 3 auction and spectrum owned by LightSquared, which is subject of a bankruptcy court proceeding. “Until it’s all sorted out, carriers wouldn’t be in a position to bid on the broadcast incentive auction,” said Hundt.

Wheeler’s decision “wasn’t a tough call” and “was inevitable,” said Hundt, who gives him “credit for making the decision decisively.” The auction “is not ready and it was very important not to repeat Obamacare, don’t do something that is not ready,” Hundt said of the start of healthcare.gov. Wheeler is “simplifying” the incentive auction by proceeding first with other FCC spectrum auctions and dealing with any spectrum limitation issues, said Hundt, now CEO of the Coalition for Green Capital. He represents LightSquared in bankruptcy and has no investments in spectrum companies.

Richard Wiley thinks Wheeler “did a wise thing, make it right when we have it,” said the former Republican chairman of the delay. “That was the prudent thing to do. I think I would have done exactly the same thing.” Wheeler is overseeing “a very complex proceeding” because there’s a forward auction for broadcasters’ spectrum at the same time the TV stations bid in a reverse auction to sell their frequencies, said Wiley. It was “realistic” to delay the auction to mid-2015, said the Republican FCC chairman from 1974-1977 who now works at Wiley Rein, which represents broadcasters and carriers. Wiley said the auction is likely to remain Wheeler’s top priority until it’s held.

Extending the auction timeline to mid-2015 “hasn’t made it easier -- it’s just made it practical,” said Competitive Carriers Association President Steve Berry. The commission essentially has about 18 months to complete its prep work for the auction under the revised timeline, which is “going to be a fairly short timeframe to pull this off,” he said. “But I know Tom Wheeler well enough to know there will be few things that will drive him as much as this auction. If there’s a way to do it, they'll get it done.” The auction itself remains “incredibly complicated,” but “there’s every indication that the FCC is moving pretty quickly to try and get some of the big decisions made,” said Jill Canfield, NTCA assistant general counsel. “I wouldn’t discount their ability to do so."

Band Plan Needed

The FCC will need to sort out the band plan “sooner than later,” said Grant Spellmeyer, U.S. Cellular vice president-federal affairs and public policy. The band plan’s final parameters will be important to the auction’s outcome, Canfield said. The band plan has been “fairly well briefed,” with the big question now being whether the FCC will pursue the version that Verizon Wireless, AT&T and broadcasters have endorsed -- and how that plan would handle unlicensed uses like wireless mics, said Public Knowledge Senior Vice President Harold Feld said. “You could leave open how big guard bands would be and whether to reserve channels,” he said. “You could make a cut at that or not.”

The FCC’s public record on the incentive auction is “fairly full at this point” on major incentive auction issues like the band plan, the compatibility of unlicensed services and the basics of repacking, said Feld. “We've gone about as far as we can go in terms of building the record,” he said. “What the FCC needs to do now is to start making some basic cuts and saying the direction they're going on some of these major decisions and how they expect to see them work together.” The commission is likely to set many of those parameters at its January meeting, Feld said. “There are some things where you could make a cut or not make a cut, like spectrum aggregation limits, that are straight-up policy questions,” he said. “The record on those are as full as they're going to get."

There’s still a great deal of uncertainty on the issue of bidding rules for the auction -- and that’s likely to be the issue with the most potential to derail the revised auction timeline, Feld said. The FCC could arguably decide the bidding rules late in the process, as is done in most auctions, “but this is not a normal auction,” he said. “The bidding rules are huge to the question of the success of the overall auction. Nobody has a really good sense of what the rules are yet. If there’s a lot of concern about these rules, a lot of confusion about how the rules would work, then that might slow things down some."

The FCC will also need to finalize the mechanics of the auction, which will be critical to maximizing broadcaster participation, said communications lawyer Andrew Lipman of Bingham McCutchen. Nailing down whether the reverse and forward auctions will be simultaneous or incremental is “critical,” he said. “Broadcasters are looking for certainty; they're looking for transparency and clarity in order to make a pretty existential decision.” CCA believes it’s important to have “a successful reverse auction first” as one of several ways to encourage maximum broadcaster participation, Berry said. NTCA has proposed the FCC conduct the auction in two rounds -- a “hybrid” reverse-forward auction and a second forward auction, Canfield said. The auction must be as attractive as possible for broadcasters or “it’s going to be a failure,” said Lukas Nace attorney David Nace, whose wireless clients include C Spire and smaller regional carriers.

Holding an auction in 2015 “is certainly doable,” said CEA’s Kearney. “The commission has the staff, and they have a chairman and commissioners who want to get it done, and stakeholders who are committed to getting it done. And as long as we can continue to cooperate, and not throw wrenches into the gears,” holding it in 2015 is possible, she said. “CEA and its members are committed to working with the commission” so that happens, she said. NAB had no comment for this report.

If other FCC actions during the lead-up to the auction are controversial, that may delay things further than mid-2015, said broadcast attorney Goodman. “At each stage” such as when the agency adopts an order with auction rules and comes up with bidding procedures, “how much are people going to object to them,” asked Goodman. If there are “a lot of delays and threats and potential litigation, that makes potential auction participants nervous,” he added. If the commission takes “harder-line positions one way or the other” than some parties want, that may “engender opposition” that could delay things, he said. Goodman said that in the absence of such challenges, the FCC is more likely to hold the auction in 2015. (jmake@warren-news.com),