In February 2012, the US Congress passed Title VI of the Middle Class Tax Relief and Job Creation Act of 2012, commonly known as the Spectrum Act.1 The Spectrum Act authorizes the Federal Communications Commission (FCC or Commission) to conduct an incentive auction of the broadcast television spectrum in which broadcasters may voluntarily relinquish their spectrum usage rights in exchange for a portion of the resulting auction proceeds.

In October, the Commission launched a comprehensive proceeding to develop a record to draft new rules and policies implementing the Spectrum Act. Among other things, the Notice of Proposed Rulemaking2 sets forth proposals for: a simultaneous reverse auction and forward auction; a new spectrum band plan; a large, nationwide swath of unlicensed spectrum within the new band plan (for uses such as wi-fi); and a method to reorganize (or “repack”) the television channels to create room for new broadband mobile services within the band. The broadcast television spectrum incentive auction will be the first such auction, and the most complicated spectrum auction, ever attempted worldwide.

After almost six months, the official comment period closed on Tuesday. On that same day, the Senate Commerce, Science and Transportation Committee held an FCC oversight hearing where both Chairman Jay Rockefeller and Ranking Member John Thune explicitly indicated their strong interest in monitoring the FCC’s progress.

Key Players

To date, the Commission has received almost 500 sets of comments. Most of the key players fall into a few categories.

BROADCASTERS

While the industry trade group, the National Association of Broadcasters (NAB), has consistently stated that its members are unlikely to participate in the auction, the NAB has been actively lobbying the FCC nonetheless, especially because of the “repacking” or reorganizing of the broadcast channels that would occur for all broadcasters as a result of the auction. Meanwhile, the “Expanding Opportunities for Broadcasters Coalition,” made up of broadcasters that are interested in relinquishing their spectrum rights, has emerged as a potential FCC ally, expressing support for the agency’s auction proposal.

INCUMBENT WIRELESS PROVIDERS

While consensus among them is unlikely, incumbent wireless providers favor an auction design that maximizes the amount of repurposed spectrum and encourages strong broadcaster participation. Policy differences exist, however, between the largest nationwide providers (AT&T and Verizon Wireless), the smaller national providers (T-Mobile and Sprint) and the regional providers represented by the Competitive Carrier Association (CCA). For instance, AT&T and Verizon Wireless caution the FCC against imposing rules that would favor some bidders, or suppress bidding opportunities, by imposing eligibility restrictions or capping spectrum holdings. On the other hand, T-Mobile, Sprint and CCA propose that the FCC impose rules that would prevent “excessive concentration” of spectrum held by their larger competitors. CCA has also proposed bidding credits as a means to give smaller competitors a “fair opportunity to participate.”

PUBLIC INTEREST GROUPS

Groups such as Free Press are pressuring the FCC to tailor policies that will facilitate new entrants into the mobile broadband marketplace. Further, these groups are pushing for the FCC to “cap” the amount of spectrum held by any single incumbent wireless provider,3 which would block participation in the incentive auction by incumbent providers that presently hold what they judge to be a significant amount of spectrum. These groups also support the FCC’s proposal to reserve a large slice of the recovered spectrum for unlicensed use.

UNLICENSED SPECTRUM ADVOCATES

Various entities, including Microsoft, Google and the Wi-Fi Alliance, also argue that the FCC should set aside as much spectrum as possible for unlicensed use. They contend that wi-fi and other unlicensed services have resulted in innovation and economic growth at least equal to, if not greater than, that from licensed services. These stakeholders have asked the FCC to reserve as much as four television channels per market to create a nationwide unlicensed band.

Issues to Watch

The FCC’s decisions will not only determine whether the auction succeeds or fails, but who may challenge the auction rules. There are a number of important issues where lack of consensus exists thus far, which present litigation risk that could delay the beginning, or conclusion, of the auction:

  • How much spectrum will actually be recovered? FCC Chairman Genachowski has stated his desire to recover at least 20 television stations in each market. In order to recover as much spectrum as possible (and raise the many billions of dollars that Congress expects), the FCC will be under pressure to design a simple, intuitive auction process that incentivizes broadcasters to participate.
  • What values will be placed on broadcast spectrum? Another component to attracting broadcaster interest is securing a sufficiently high value on their businesses. Broadcasters have asked the FCC to design an objective valuation process where broadcasters of all stripes are compensated fairly for vacating their channels.
  • How will the FCC “repack” broadcast channel assignments? The incentive auction will include a major overhaul of channel assignments—including for those broadcasters that do not participate in the incentive auction. Thus, there is an intense interest within the entire broadcaster community, which has expressed concern that a transparent, objective means for reassigning channels would be difficult, if not impossible, to achieve if the process is rushed and opportunities for public input are limited.
  • Will any wireless providers be banned from participating in the auction by the FCC, or be otherwise limited in the amount of spectrum they can win? As noted earlier, the FCC must balance pressure to limit or ban participation by incumbent wireless providers with Congress’s strong desire for high auction revenues paid by entities willing to put the spectrum to its highest and best use. Given the need to raise substantial revenues to satisfy the Spectrum Act’s funding requirements, we expect the FCC to be hard-pressed to limit auction participation.
  • How much spectrum will be set aside for unlicensed use? The FCC proposes to reserve spectrum throughout the band—in order to prevent interference between new mobile broadband services and broadcasters that remain on the air—and to reserve the spectrum for unlicensed use. As discussed above, the sizes of these bands are a subject of intense debate. The FCC’s choice is stark. From a revenue perspective, auctioning (and licensing) spectrum will reap a significant monetary return, while any spectrum set aside for unlicensed use will raise nothing. In addition, the size of these bands raise important technical questions, including how to prevent harmful interference between the competing services.

Conclusions

The FCC faces pressure to act quickly, but also to “get it right.” Realistically, however, important questions need to be addressed before the FCC can finalize its rules for the auction. For example, the unique characteristics and complexities of the project suggest, at a minimum, at least one additional Notice of Proposed Rulemaking. This second rulemaking would be more specific, likely setting forth tentative conclusions on the important questions where a lack of consensus exists. Next, changes in FCC leadership, which have been predicted for some time, would also cause additional delay. A new chairman, for instance, would need time to get up to speed on the proceeding, not to mention formulate his or her own ideas and positions. In addition, the high financial stakes for broadcasters, as well as prospective bidders, presents litigation risk. Suits resulting from FCC decisions could interrupt the process and delay the start of the auction.