Blair Levin: U.S. is ‘Off Course’ on Spectrum Goals

by Guest Contributor on January 29, 2012

Blair Levin, Aspen Institute Senior Fellow, delivered the following remarks at MMTC’s 3rd annual Broadband and Social Justice Summit.

David asked me to address this question; will the spectrum goals of the National Broadband Plan be achieved?

The answer is no.

Thank you.

While I just said that as a joke, I am quite serious about the answer.

And I say it with a great deal of pain.

Jokes are how we Jews deal with our pain.

I am very proud of the spectrum chapter of the Plan; indeed, very proud that there even was one.

The National Plans of other countries often only dealt with wireline issues.

For a while I was optimistic we would march quickly toward our spectrum goals.  I fear, however, we have gotten off course.

There are many reasons but my prime concern is the House Spectrum Bill.

My conservative friends have taught me—and I am grateful—that government has to have humility about its actions, and face the future with a flexible approach that accommodates our inability to know the future.

We followed that advice with the Plan.

Our proposal for incentive auctions reflects that humility and flexibility as it does not prejudge the relative value of spectrum for broadcasting, broadband or any other use we might have.

Rather, it is a market-based mechanism for reallocating spectrum to its highest use as opportunities change.

Some urged us, in advocating incentive auctions, to recommend capping the amount of spectrum an individual company could buy.  Other asked us to prescribe allocations between different uses of spectrum — exclusive, unlicensed, and opportunistic, each of which can fuel ecosystems that benefit consumers.

We didn’t do either of these, not because we thought spectrum caps were always bad or because we didn’t think unlicensed and opportunistic uses are valuable for the country, but because many things can happen between now and when the rules of an auction are established: mergers, technology developments, and changes in consumer preferences.

These issues are best evaluated when you look at the data of the day: How much spectrum is being reallocated? How is existing spectrum allocated? What are the current barriers to entry? Has technology facilitated more reuse or better use of higher or lower bands? Has spread spectrum or cognitive radios changed the game? Has Wi-Fi off load and non-mobile uses changed the market structure? And many others.

And while we passionately believed Congress should authorize incentive auctions, we did not attempt to dictate the details on timing, repacking, experimentation, and a myriad of others.

We knew that we were giving the expert auction staff at the FCC a difficult task.

We thought it would be best to let them figure these out and then let their actual proposal be thoroughly debated during the NPRM process.

And so, nearly two years ago, we were hoping that Congress—in which there is a rare bipartisan agreement on the wisdom of incentive auctions—would quickly pass a one sentence bill saying “The FCC should have authority to share auction proceeds with any licensee who turns in its license to allow the spectrum to be auctioned.”

We wanted a simple expansion of auction authority.

Two years later, we still have a bipartisan consensus.  But we have no new auction authority.

Rather, we have a long, complicated proposed piece of legislation—much of which I agree with—that nonetheless has many elements that sadly violate the most basic elements of that wise conservative advice about government humility that we took in developing the Plan.

Instead of expanding auction authority, the legislation undercuts the structure of one of the most successful government programs of the last two decades.

The House proposal locks in a variety of decisions, none of which need to be – or should be – decided now, as to timing, spectrum caps, uses, experimentation and other items.

If I were to propose that we adopt a rule that would force a mutual fund to decide which stocks they wanted to buy a year before they executed the trade, you would think me crazy.

Yet that is similar to what the legislation would do.

Some see it differently and argue that any FCC objection to Congress acting as proposed is an example of FCC trying to take away Congressional power.

With respect, that is downright silly.

The FCC cannot take away Congressional power.

As a matter of law, Congress has the final word.

If the FCC were to propose auction rules or make any auction related decision that Congress did not like, Congress would have at least a year—the minimum time it takes to go from rule-making to auction—to take action to modify or reject the proposal, as Congress has in the past done.

Perhaps the most humorous commentary—unintended category– was Scott Cleland’s comment that by asking that Congress give it the flexibility to design an auction that reflects the best available knowledge, “the FCC is clinging to an obsolete Government-knows-technology-best mindset where Government imagines it is better at picking technology and market winners and losers than users and market forces are.”

As the legislation on its face does exactly that, Scott appears to take the view that Congress is not a part of the government.

Like Dick Cheney’s view that the Vice-President is a fourth branch of government, Scott deserves points for constitutional creativity.

Or perhaps, Scott believes all spectrum should be auctioned, which would mean that the great benefits of Wi-Fi today, and perhaps white spaces tomorrow, would never be realized.

Which would be odd as I remember Scott praising the 2002 FCC decision on ultra wide band, which made technological decisions and depended on non-licensed spectrum, as creating the possibility of “Star Trek stuff”,

Scott’s prediction, at least to date, has not proven accurate, but my point is not that he made a bad call.

Rather, it is that if a smart guy like Scott can get a prediction that big that wrong, we should all be humble about our ability to foresee the future.

Nonetheless, just as an investor has to at some point decide to buy or sell that stock, at some point the government does have to make a call on how to proceed on the myriad of questions an auction entails.

Pre-judging those decisions, just like pre-judging the purchase of a stock, dramatically increases the risk of error.

Why do it?

I understand some are upset by various FCC decisions in the past that they feel were wrong, such as how the FCC tried to auction the D block in the middle of the last decade.

I agree with some of that criticism but it reminds me of Mark Twain’s insight that a cat who sits on a hot stove will never sit on one again.  Nor will the cat sit on a cold one.

Congress, like the cat, is over correcting.

Moreover, Congress should recognize that it had the power to fix all of those errors.  The fact that they didn’t, again, is not so much a criticism of Congress or the FCC as it is reflective of the difficulty of predicting the future.

The notion that Congress should restrict the expert staff in its design of an auction that will occur, at best, in 2014, by having Congress place restrictions on them that the critics wish they had put in place a decade earlier makes as much sense as the Maginot Line, a defense strategy that post World War I generals developed after the Great War and which proved utterly ineffective in World War II.

Some suggest that Congress needs to act to create predictability.

Of course, if we really want predictability, we could just establish a permanent and unequivocal spectrum cap today.

I, for one, would oppose that.  Policy always involves trade-offs.  If we want policy to respond to changes in the world, the FCC needs a level of flexibility.

Some supporting the House Bill make valid points.  For example Bob Quinn of AT&T suggests if the FCC wants to retain the right to impose any spectrum caps, it should do a rule making on the subject.

Good idea.  It’s entirely reasonable to examine whether, in principle, one or two players should be entitled to buy all new spectrum that comes to market.

But it’s odd that the House thinks it is in a position today to say there is no conceivable change in the market that would justify any kind of constraint on who would be eligible to participate and no conceivable change in technology that might increase what we want to allocate to unlicensed or opportunistic uses.

In short, the question is not about who has the ultimate authority.  It is about who makes what decisions when.

And the simple decision to let the FCC figure out how to do something no one else in the world has done is all we need to do now.  And all we should do now.

There is no need to impose arbitrary constraints at this point – if they don’t like what’s happening, there will be plenty of opportunities for Congress and others to intervene once the Commission has figured out a basic framework.

The risk of unintended consequences resulting from political intervention at this point are simply too high.

This is not my only problem with the legislation.

I’ve noted elsewhere that by writing language that would enable a judge to place the interests of individual broadcasters over the broader public interest, the bill creates a significant risk that the auction will produce less spectrum, and less money than is optimal, and certainly less than anticipated.

I should also note that some economists believe the other constraints in the House bill will also limit the revenues.

In response to my comments, one of the staff authors of the legislation expressed confidence that the $16 billion that had been scored would be achieved.

While I wish that an idea conceived around my conference table would produce that kind of return—for one thing it would mean our little old broadband plan would have produced about a 10,000% return to the federal government, entitling me to some kind of medal or a place in the Guinness Book of Records – my pride should not corrupt my experience that tells me what the impact of such vague legislative language can do.

So in the spirit of Mitt Romney, I hereby offer to that unknown congressional staffer a 10,000 penny bet that the scored number will not be achieved if Congress adopts the House version.

I look forward to hearing whether he will accept the bet.

Let me turn to the impact of all this on the folks you represent.

I think the House proposal ultimately hurts minority broadcasters as it limits their options as the markets change.

They should have some ability to monetize the spectrum they leased, particularly as it would capitalize their ability to adjust their business model to move to cable or over the top delivery.

I think it also limits the options of minorities, and everyone, by ultimately raising the cost of a key input in the broadband ecosystem—spectrum.

Every study confirms that wireless broadband is incredibly important to minority communities.

I don’t know whether in the future it will fully substitute for wireline usage.

I do, however know, that by artificially constraining spectrum by mucking up an auction, by constraining the ability of Wi-Fi and opportunistic uses to meet consumer demands, we will place even greater burdens on minorities who seek to be full economic and members of the information economy and society.

In closing, I should note that while I am deeply troubled by the House Bill, my concerns are bipartisan.  I thought the House Bill was better on the D block and regret the Republicans gave up that fight.  Moreover, there are a number of issues where there is plenty of blame or credit—depending on how you look at it—that goes to both sides of the aisle in which we have not been making the progress we all hoped for; from making more government spectrum available, to getting the MSS spectrum in use, to resolving interference issues.

These are all complex issues and I neither had all the answers when we were doing the plan; nor do I have them now.

But no one should be under the illusion that we are achieving the spectrum goals of the national broadband plan.

At the same time we should all agree with Committee Chair Upton’s comment that the legislation, by addressing the need for new spectrum, has more potential than any other legislation to open up great possibilities for new jobs and economic growth.

As Tom Friedman noted in his column on January 4th, a question that should be on the front burner for the country is how do we obtain a strategic bandwidth advantage?

Better spectrum policy, which includes incentive auctions, has to be part of the answer.

I believe, however, that we will only gain that advantage if we give the staff of the FCC the freedom to develop options and then allow the political leadership, both at the FCC and the Congress to apply their policy preferences.

Otherwise, it won’t even be three steps forward, two steps back.

It will just be two steps back.

Many thanks.

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  • Grady

    I am so grateful for his insight.

  • http://www.altondrew.com/ Alton Drew

    There should be clear, concise language in S.28 saying that financial and technical proficient firms, no matter their size, will be able to cast bids.  No auction would be competitive without making this clear in the legislation. 

  • http://www.internationalpatentservice.com/trademarkapplication.html USPTO TRADEMARK APPLICATION

    It sounds intresting. Regard.

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