The New Spectrum Scarcity

Olivier Sylvain in Concurring Opinions (blog), September 16, 2011

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posted by Olivier Sylvain

At first glance, President Obama’s proposed American Jobs Act was an unlikely place to find significant reforms to the laws governing the allocation of prized electromagnetic spectrum licenses. Since the 1990s, however, FCC-administered auctions have been a major source of revenue for the U.S. Treasury, generating billions of dollars for the exclusive license to commercialize coveted bands of the spectrum. Just a couple years ago, for example, the 700 MHz band once occupied by the major broadcasters generated a total of almost $20 billion in successful bids from the likes of AT&T and Verizon.

So, as the mood for fiscal austerity haunts the halls of Congress these days, it makes sense to expect spectrum auction policy to make an appearance in the Jobs Act.  As presented to Congress, Obama’s jobs law would commit a meaningful portion of an expected $28 billion or so of revenue from spectrum auctions to help pay down the U.S. deficit. The so-called “incentive auctions” would be for a band in the spectrum jealously controlled by major broadcasters today. The broadcasters would get a piece of the expected $28 billion for the trouble of participating. Another portion would be devoted to the development and operation of a national wireless public safety network. The remainder would go to reducing the debt or closing budget deficits. A relatively small contribution to the cause, but a contribution nevertheless.

The auctioning of rights to the spectrum, however, is not just meant to plug holes in the federal budget. The incentive auctions in the jobs bill are meant to partially redress one of the more pressing problems in telecommunications law and policy today: spectrum scarcity in the face of booming demand for high-bandwidth wireless services, smartphones, and tablets. For someone who spent years pondering the problem of scarcity in the first law to regulate the commercial use of the spectrum, these developments beg the question: How did scarcity resurface so seamlessly after about two decades of being poopoo’ed as the chief reason for spectrum regulation?

Many experts and observers agree that growing enterprise and consumer interest in mobile cloud services, for example, are putting pressure on wireless carriers and policymakers to find more bandwidth in the spectrum. This, in spite of the drop in general consumer spending and confidence. If anything, according to Pew, many consumers in these hard economic times are relying on wireless services for telephony and broadband access over traditional wireline services.

In response to this demand, the White House and the FCC have sought to make underutilized portions of the spectrum  available to firms who, in turn, are investing in and developing “smart” and dynamic spectrum sharing technologies.

Today’s urgent talk of spectrum scarcity is evocative of the first federal regulation of commercial radio. Almost ninety years ago, then-Commerce Secretary Herbert Hoover convened four radio conferences in order to reach a consensus among policymakers, engineers, entrepreneurs, and enthusiasts on how to ration and award commercial access to the electromagnetic spectrum. Signal interference and scarcity were the name of the game, as there were more applicants for broadcast licenses than there were available frequencies. The famous radio conferences settled on a licensure regime that would be administered by a federal agency comprised of expert commissioners. These sages, in turn, would award licenses to broadcasters who demonstrated a commitment to the “public interest” in their programming in public comparative hearings. The spectrum, Hoover explained, was a valuable public resource that was too scarce to be left to the whims of industry. This, from a man who famously ran the Commerce Department on the grounds that the best way to regulate industry was through cooperation with industry.

Communications policymakers and the courts would subsequently turn to the scarcity rationale  until the 1980s to justify a sweep of regulations related to the diversity and structure of the industry, the wide distribution of public-regarding news, and, more controversially, broadcasting content. Never mind that, as Coase put it in his 1959 critique of the FCC, scarcity is one of the central problems in all of economic life. Never mind, moreover, that policymakers knew that spectrum sharing technologies were on the horizon even as early as the 1930s. Regulators and courts did this even as new communications platforms (i.e., cable and satellite) expanded consumers’ media options, ostensibly undercutting the pertinence of spectrum scarcity. They did this to vindicate important communications norms in public law. Congress finally opened the door to spectrum auctions in the early 1990s, having grown disaffected with the inefficiencies in the comparative hearing process first identified by Coase decades before.

Today, the scarcity rationale for federal regulation of the electromagnetic spectrum is simply not as legally salient as it once was. Yet, here policymakers and industry leaders are, almost ninety years later, invoking it alone to justify a series of positive regulatory interventions that could further consolidate the market power of the biggest players in the industry. To be sure, there are cost advantages to having the companies most motivated to pay for spectrum licenses acquiring those licenses. But policymakers should not get carried away with this scarcity or debt-management talk. Part of the impetus for federal regulation in the 1920s was to vindicate communications norms in public law that were outside of the competence of industry and engineering.

The FCC today employs a variety of auction designs to ensure successful participation by small businesses in the auction process. But, if the spectrum is as valuable as the agency suspects, it will do well to consider whether auction design is sufficient to balancing the interests in innovation, competition, diversity, and wide consumer participation, never mind whether the monies the auction generates will actually help balance the budget. Expanding the availability of spectrum makes sense, as long as it is tied to these other foundational norms in communications law and policy.