Incentive Auction Poses ‘Daunting’ Challenge, But Industry Shouldn’t Expect Failure, Wheeler Says

The auction is a “once-in-a-lifetime opportunity for broadcasters,” Wheeler said. “We are committed to providing them with the information about both our process as well as the financial opportunity the auction represents to enable them to make informed decisions about whether and how to participate.” Wheeler noted he spent many years as an entrepreneur and venture capitalist. “Seldom have I seen such a risk-free opportunity as that which is presented to broadcasters by the incentive auction, including the opportunity to continue in their current business to achieve must-carry status and to be able to share spectrum and turn around and get a check for the spectrum they're vacating.”

FCC staff will soon brief the other FCC commissioners and members of Congress on proposed rules for the auction, Wheeler said. “These are a tough set of interrelated issues made even more difficult by the detailed instructions the Congress provided in the Spectrum Act of 2012,” he said. Wheeler said, for example, he is a huge fan of unlicensed spectrum. “Our instruction from Congress, however, is that the spectrum reallocated from broadcast licensees must be made available for auction,” he said. “Thus, the spectrum available for unlicensed applications is limited to the frequencies that are designated as guard bands and channel 37 and the white spaces.”

"Here’s the bottom line to incentive auctions,” Wheeler said. “If we get this right -- and I'm sure we will -- incentive auctions could revolutionize spectrum policy by applying economic forces to the allocation of spectrum, in this case the reallocation ... rather than just the assignment of individual licenses."

Wheeler also said spectrum sharing “has come a long way” and he plans to circulate shortly for a vote rules for shared use of the 3.5 GHz band. Incentive auctions and spectrum sharing “together hold the promise to completely revolutionize the way we manage our airwaves and in so doing to provide the underpinning for significant economic growth,” he said. “We are evolving spectrum policy from the age of Marconi’s analog waveform to the era of digital on/off pulses that obviate the previous underpinnings of policy -- the nature of the waveform and the need to have a big buffer to protect that signal from others.”

Wheeler said industry should not expect the worst from both sharing and the incentive auction. “There are two controlling forces in spectrum policy, the laws of physics, and the laws of human nature. Of the two, physics is the easy lift,” he said. “Human nature, however, is another challenge. There is something in our human nature that draws us inexorably to worst-case assumptions. Both the incentive auction and the sharing proposal provide additional, if unneeded, examples of this reality. They both involve significant changes in traditional ways of doing business. Predictably, that novelty has produced anxiety."

The Brookings event also included discussion of a new paper by Pierre de Vries and Philip Weiser, both with the Silicon Flatirons Center, on “Unlocking Spectrum Value through Improved Allocation, Assignment, and Adjudication of Spectrum Rights.” The paper was released Monday by Brookings’ Hamilton Project (http://bit.ly/1psTQ5l).

Spectrum rights should be defined by “harm-claim thresholds,” which lay out “signal levels that must be exceeded before one operator can claim harmful interference by another,” the paper argues. Questions about spectrum rights should be handled not by “the current ad hoc and politically charged process” but by a “more fact-based procedure that can resolve spectrum-related disputes in a timely fashion using judges with expertise in spectrum policy, either in the FCC and/or in a newly created Court of Spectrum Claims,” the paper said. The paper also argued that the government could “reduce the drawbacks of excessive band fragmentation by introducing band agents that could represent large groups of licensees in negotiating changes in operating rights with neighbors.”

The proposals “reform the legacy spectrum policy framework by empowering individual spectrum licensees to develop win-win solutions without having to invoke time-consuming regulatory processes,” the paper said. “Taken together, these reforms promise to move more spectrum management from a model more closely controlled by regulators to one authorizing end users to make more flexible, win-win uses of spectrum. Based on our rough estimates, we conclude that these reforms could result in a total of a $10 billion per year in additional consumer surplus."

"There’s no doubt that harm-claim thresholds that are understood by everybody will greatly enable innovation,” said Preston Marshall, Google Access Services principal wireless architect. Marshall, who worked on the President’s Council of Advisors on Science and Technology’s controversial spectrum sharing report (CD July 23/12 p1), said one of the report’s fundamental points was that exclusive rights to use spectrum could be separated from protection. “We can protect people without necessarily giving them exclusive rights,” he said. “Exclusive rights came around after the Titanic sunk. Our technology was a little different. We didn’t have a big cloud. We couldn’t do computing.”

Joan Marsh, AT&T vice president, said the questions raised by the paper tie back to AT&T’s negotiations with Sirius XM over an agreement that opened the door for the carrier to deploy LTE in 30 megahertz of spectrum in the 2.3 GHz Wireless Communications Service (WCS) band. The agreement was approved by the FCC in October 2012 (CD Oct 18/12 p1). “The regulatory process had not yielded a result that was satisfactory, so we decided to go at it from a business-to-business perspective,” Marsh said. The talks addressed a harm-claims threshold, she said. “That was job number one with us to sit down and come to an agreement with Sirius about what would be the definition of harmful interference,” she said. “In our situation both parties had incentives to come to the table. Sirius felt that it was vulnerable to interference from the WCS operators and we could not use our spectrum to deploy LTE.” But in many cases, both sides don’t have incentives to reach an agreement, she said.

AT&T “effectively acted as band agent” as it negotiated with Sirius, Marsh said. “While we were having a regulatory discussion with Sirius we also pursued a secondary market strategy to acquire the fragmented pieces of the band, thereby aligning incentives behind us of the other licensees. Had we not done that there would have been an enormous dispute that would have continued in this proceeding. ... While we would have maybe reached an agreement with Sirius I don’t know that we would have gotten through the regulatory process.” Better procedures for handling disputes are also important, Marsh said. “The [FCC] eighth floor offices don’t have their own engineering talent on which to rely,” she said. “So these issues are really challenging if they go up to the eighth floor and have to be resolved there.” Decisions should be driven by engineering and physics and not politics and rhetoric, she said.