Tucked inside February’s Middle Class Tax Relief and Job Creation Act of 2012 was a provision long sought by the wireless telecommunications industry: The federal government auction of electromagnetic spectrum now held by television broadcasters.
Such an auction, overseen by the Federal Communications Commission (FCC), has the potential to free up space for the growing numbers of cellphone and tablet consumers who use wireless services, while generating economic growth and revenue for the federal government, supporters of the provision say.
But some experts argue that the spectrum auction will not take place for years, will raise a paltry sum when compared with the size of government deficits, and will add another layer of regulations governing the communications industry.
Consumers will be still waiting for additional spectrum 10 years from now, these experts say.
“They’ve complicated the system,” said Hudson Institute senior fellow Harold Furchtgott-Roth.
The new law puts the FCC at the center of a complicated process whereby TV broadcasters will sell their spectrum licenses back to the government, which will then allocate the frequencies to new licenses, auction them, and share the profits with the broadcasters.
The government estimates it will make $15 billion through the auction. It will pay the broadcasters up to $1.75 billion in so-called “moving” costs, for a net of around $13 billion.
The federal deficit in fiscal year 2011 was $1.3 trillion.
The FCC likely will take five to six years simply to write the auction rules, industry observers told the Washington Free Beacon. The Job Creation Act gives the commission nine years to complete the auction process, which leads some to believe that the benefits of the legislation are far off.
The FCC auction provision was the subject of an intense and expensive lobbying campaign in the final months of 2011. The National Cable and Telecommunications Association, for instance, spent more than $5.4 million on at least 12 lobbyists to rally congressional support for the bill in the fourth quarter of last year.
That amount is higher than the lobbying expenditures of all but two other companies or organizations in the fourth quarter.
AT&T (ATT) spent more than $4.2 million in the fourth quarter of 2011 on more than 16 lobbyists.
The National Association of Broadcasters (NAB) spent more than $3.5 million on 17 lobbyists to sell the legislation to Congress and the White House.
Verizon spent more than $3 million on 15 lobbyists to do the same.
And Qualcomm spent $1.3 million on lobbying for the bill in Congress and at the White House during the fourth quarter.
The investment appears to have paid off.
Verizon, AT&T, Sprint, Cisco, USTelecom, and Alcatel all praised the Job Creation Act. The Internet Innovation Alliance, the National Association of Manufacturers, the Consumer Electronics Association, and CTIA-The Wireless Association also celebrated the policy.
The accolades came from Democrats and Republicans inside and outside government and the industry associations affected by the new regulation.
The FCC auction policy was a qualified step in the right direction, said Thomas W. Hazlett, a professor at George Mason University in Virginia. “That step is an admission that regulators need to push a lot more spectrum—in the form of liberal licenses—out into the market so that competitors can have access to more bandwidth.”
Even so, said Hazlett, who served as chief economist for the FCC from 1991 to 1992, “The plan is regulation intensive.”
Another solution would have been to allow the FCC to auction off the entire TV band. The current license-holders would have been grandfathered in and allowed to cut their own deals with the new “overlay” license-holders.
“That would have jumpstarted a process of getting higher value for spectrum in two to three years,” said Furchtgott-Roth, a former FCC commissioner.
But that also would have deprived the government of revenue at a time of high deficits and massive public debt. And some say such a policy would also take time to implement.
“The problem there is that it could take longer to do what these economists are proposing,” said a congressional source. “The idea here is to get a nationwide swath of spectrum cleared at one time for broadband.”
The FCC has been selling spectrum since 1994. The 92 auctions to date have raised an estimated $52 billion for the government.
Annual revenue for the cable industry alone approached $100 billion in 2011.
Less than 10 percent of American households get their television through broadcast spectrum. Analysts disagree whether the broadcasters, who lobbied heavily for the law, are the deal’s biggest beneficiaries—or its biggest losers.
“They are going to get less money than their license is worth,” said Furchtgott-Roth.
But the National Association of Broadcasters praised the deal. “NAB salutes the tireless efforts of Congress to ensure that local broadcasters have a vibrant and robust future,” Gordon Smith, the group’s president and CEO, said in a statement.
And Gerald Faulhaber, professor emeritus at the Wharton School, said the broadcasters would see the most benefit. “It looks like a very nice deal,” he said. “They do pretty much anything they want and somebody will give them money.”
Faulhaber noted two things that could potentially sour the planned auction: The FCC could restrict the number of bidders, or it could set aside too much spectrum for unlicensed use.
Previous auctions have been open to all qualified bidders. But there has been a push by some to exclude the largest carriers, Verizon and AT&T, from the process and to mandate set-asides for minorities and other groups. “The FCC and Congress in the past have tried to use restrictions on bidding for social policy reasons,” said Faulhaber, a former chief economist at the FCC.
An attempt was made to restrict Verizon and AT&T from this latest deal. The attempt was quashed, but could resurface in the coming years as the FCC issues new rules governing the industry.
“This would be a kind of giveaway to Sprint and other carriers that are allowed to bid,” Professor Hazlett said, “as it lowers winning prices. It is not an effective way to promote competition or to encourage development of next generation wireless services, however, so it’s a lose-lose plan for consumers and innovation.”
The corporate lobbying campaign may have resulted in a compromise pleasing to most parties with an interest in spectrum allocation. But the deal’s critics are not confined to the libertarian political bandwidth.
“I am grudgingly satisfied,” said Andrew Schwartzman, senior vice president and policy director of the Media Access Project. Schwartzman supports restricting entry into the auction and permitting more unlicensed spectrum, but said he was content with the compromises that had been made during the legislative process.
“Not that I think that the whole prospect of bribing the broadcasters was the way to go about it,” he said. “This outcome is likely to yield somewhat less spectrum than had been hoped.”
A 2006 Center for American Progress (CAP) report by Gregory F. Rose, an adviser to the Media Access Project, and Mark Lloyd concluded that FCC spectrum auctions were a failure.
“The auctions have been subject to collusion and manipulation by big business,” the report said. “The claim regarding maximizing receipts is false and the claim of efficiency is at best an illusion.”
Lloyd, the paper’s coauthor and a former senior fellow at CAP, is currently the FCC’s associate general counsel and chief diversity officer.