Middle Class Tax Relief and Job Creation Act of 2012

When President Barack Obama signed the Middle Class Tax Relief and Job Creation Act of 2012 into law on February 22, 2012, the Federal Communications Commission (FCC) gained authority to 1) hold voluntary incentive auctions and 2) allocate necessary spectrum for a nationwide interoperable broadband network for first responders. The new law also provides A) $7 billion for public safety broadband network build out, and B) up to $1.75 billion for relocation costs for broadcasters. According to the Congressional Budget Office, the spectrum auction will raise $15 billion over the next eleven years.

Specifically, the bill would establish clearing and auction timelines for spectrum in 1915-1920 MHz and 1995-2000 MHz (the PCS H Block), 2155-2180 MHz (the AWS-3 block), 1755-1780 MHz, 15 MHz from the government spectrum at 1675-1710 MHz paired with 15 MHz to be determined by the FCC. The bill would also allow the President to substitute alternate spectrum for 1755-1780 MHz and would reallocate the 700 MHz D Block from commercial to public safety use.

Creating a nationwide interoperable broadband communications network for first responders will deliver on one of the last outstanding recommendations of the 9/11 Commission. For more than a decade, public safety advocates had been seeking federal approval for a high-speed wireless system that connects police and firefighters across multiple jurisdictions. Thanks to the legislation, the reallocation of D Block means that public safety will have 20 MHz of contiguous spectrum to launch the nationwide wireless broadband network. In addition, public safety also won’t be required to return its 700 MHz narrowband spectrum.

Of course, the question now is – Will television broadcasters be willing to sell off some of the spectrum they are currently using? Even though the potential cut for broadcasters from the sale is $1.75 billion, there doesn't seem to be a whole lot of excitement about the idea. Broadcasters "have leverage and if the price isn't right ... most everything falls flat on its face," said Jeffrey Silva, a senior policy director with Medley Global Advisors.

The National Journal’s Juliana Gruenwald noted the pressure the FCC is under now to fashion the spectrum auctions in a way that generate the most revenue possible given that the proceeds have been slated to pay for a variety of proposals. The legislation calls for two types of auctions. The first are called “reverse auctions” which would allow broadcasters to bid on what it would take for them to give up their spectrum. Broadcasters have three ways they could participate in reverse auctions: give up their spectrum and stop broadcasting; give up their spectrum and share a frequency with another broadcaster; or give up their more valuable UHF spectrum and move to a VHF channel, which is less suitable for today’s digital broadcasting. At least two broadcasters must participate in order for a reverse auction to take place in that market.

The FCC will also fashion what’s being called “forward” auctions in which wireless companies can bid on the spectrum that comes available from broadcasters. The legislation prohibits the FCC from barring eligible wireless firms from bidding, but it leaves open the door for the FCC to launch a rulemaking that could limit the amount of spectrum a wireless carrier could hold in each market.

Chris Guttman-McCabe, vice president for regulatory affairs for the wireless industry group CTIA, said he expects the FCC will likely do the reverse auctions first and then follow with forward auctions of that spectrum. The FCC will likely set minimum bids for wireless operators to cover the amount that has to go back to broadcasters, he added.

Philip Weiser, dean of the University of Colorado Law School and a former telecommunications advisor for the Obama administration, said he expects smaller broadcasters to try to have their cake and eat it too by sharing spectrum. For example, one TV station could sell its spectrum and then partner with another station and share airwaves. Although that would not appeal to a big broadcaster, smaller mom-and-pop TV stations might be more willing to embrace such an option. “It is a huge opportunity for them,” said Weiser, adding that such a practice would allow for a more efficient use of spectrum and would give broadcasters who choose to sell a “hefty profit.”

These incentive auctions will have a huge impact on the wireless industry as the carriers with the biggest batches of high-quality spectrum have more bandwidth to satisfy customers' growing demands for mobile phone calls, texts and Internet usage. That means fewer dropped calls and faster download speeds. "Wireless operators have to decide whether they spend money acquiring new spectrum or building tens of thousands of new cell sites all over the country," says Dan Hays, a partner at PricewaterhouseCoopers' consultancy. "That's the big dilemma." Both of those options cost billions. There's a third choice: consolidate. By merging, carriers can gain access to both spectrum and more cell sites. That can also cost billions, but it's a turn-key solution. The problem is that regulators hate it.

The new law also requires the FCC to determine whether it is feasible for unlicensed technologies such as Wi-Fi to operate in a few identified bands including "guard bands" in between the swaths of spectrum that would be auctioned to wireless carriers and in a chunk of spectrum set aside for "dedicated short-range communications." The FCC created the white spaces between channels decades ago to prevent stations from interfering with each other. The new law opens up the white space channels for “unlicensed” use. Unlike the spectrum controlled by carriers such as AT&T and Verizon Wireless, which is reserved for specified companies, unlicensed bandwidth is open to any user with an approved device. Wi-Fi, microwave ovens, baby monitors, and cordless phones all use frequencies that the industry calls the “junk band.” These radio waves can’t easily penetrate walls and are hard to maintain over long distances. The TV frequencies where the white space is located, by contrast, carry long distances and remain strong even inside buildings. Since rural areas have fewer TV stations, opening up white space could prove a boon to rural wireless Internet providers, which have struggled to provide service using a more robust version of Wi-Fi.