Recap: Crafting a Successful Incentive Auction: Stakeholders' Perspectives

The Senate Commerce Committee held a hearing to examine the issues surrounding implementation of the voluntary incentive auction of broadcast television spectrum, which is being conducted by the Federal Communications Commission as required by the Middle Class Tax Relief and Job Creation Act of 2012. The witnesses were Gary Epstein, the chair of the FCC’s Incentive Auction Task Force; Rick Kaplan from the National Association of Broadcasters (a former head of the FCC’s Wireless Bureau); AT&T’s Joan Marsh; Preston Padden, the Executive Director of the Expanding Opportunities for Broadcasters Coalition; the Competitive Carriers Association’s Steven Barry; Harold Feld of Public Knowledge; and Hal Singer of the Progressive Policy Institute. A fun time was had by all.

Committee Chairman Jay Rockefeller (D-WV) stated that there is no doubt that the FCC’s incentive auction proceeding is one of the most important undertakings in the agency’s history. He outlined what he sees as being at stake in the proceeding:

• A successful incentive auction will set a new model for international spectrum policy, just as we did 20 years ago with the first spectrum auctions. It also will pave the way for future incentive auctions in the United States.
• A successful incentive auction will mean more robust wireless communications networks both for voice and data in rural and urban areas around the country. It will make sure the United States continues its global leadership in wireless and preserves room for the innovation brought about by unlicensed spectrum use.
• A successful incentive auction will offer broadcasters an opportunity to relinquish some or all of their current spectrum usage rights for an incentive payment.
• A successful incentive auction will minimize disruptions and expense to those broadcasters who choose to remain in the business.
• Finally, a successful incentive auction will raise significant revenue for FirstNet. As I have said before, this auction must be driven by one simple principle -- it must raise the resources needed for the FirstNet network.

Sen John Thune (R-SD), the Committee’s Ranking Member, said he believes the FCC “should let all interested participants freely compete against one another in the open market and should avoid putting its thumb on the scale.” He stressed that the “value of using spectrum auctions is that the free market is more effective at allocating spectrum than relying on the subjective opinions and predictions of government officials. American consumers should pick who wins in the marketplace, not the government.”

Lawmakers could reach no consensus on proposals to limit the bids of AT&T and Verizon, the two largest mobile carriers in the US. Sens Ed Markey (D-MA) and Richard Blumenthal (D-CT) called on the FCC to impose limits on the amount of spectrum the largest carriers can buy. While some senators and witnesses called on the agency to design an auction that results in the highest bids, there should be other priorities, including consumer benefits, Sen Markey said. Some Republican senators, along with an AT&T’s Marsh and other witnesses, called for unrestricted bidding in the mid-2015 auction of 600MHz spectrum.

The FCC’s Epstein said the Commission plans to offer broadcasters a "very high" starting price for their spectrum in the incentive auction, and one not just based on their value as TV stations. He said that attracting broadcasters was crucial. He said making it attractive would include a very high service price, not simply reflected fair market value of the spectrum as a broadcast channel, but including other factors like what it would be worth in the hands of wireless companies.
The FCC should adopt a "no-piggie rule" that limits any one carrier from buying too much of the available spectrum, said PK’s Feld.

"An open auction is the fairest method to assign licenses because it ensures that all applicants have the same opportunity to obtain spectrum," Marsh said. "An open auction would allow market competition, rather than regulation, to allocate spectrum, ensuring that it is put to its best and highest use." Still, if the FCC decides to cap spectrum purchases, it should do so for all carriers and not just the two largest, Marsh said.

But without some caps on the largest carriers, small regional mobile carriers won't be able to compete in the auction, said Steven Berry, president and CEO of the Competitive Carriers Association. Losing out on this 4G spectrum would be "disastrous" for many small carriers, he said. Verizon and AT&T together control about 80 percent of the low band spectrum best suited for mobile broadband, Berry said. "One or two carriers should not be allowed to walk away with the entire pie," he said.