Photo by Sigfrid Lundberg

U.S. consumers use smartphones, tablets, e-readers, and laptops to access email, download apps, engage in mobile commerce, upload and download content, stream video, video chat, use navigation systems, and search the Internet.  Responding to the demand for these wireless services, mobile broadband providers are rolling out 4G LTE networks and offering particularized data plans to customers.  However, the ideal of unlimited data over high-speed wireless broadband networks is constrained by a very limited resource: spectrum.

There are only a limited number of frequency bands in the radio spectrum that can be successfully utilized for next generation wireless broadband services–and even fewer that are unencumbered and available for allocation.  Analyses by the Federal Communications Commission (FCC), the National Telecommunications and Information Administration (NTIA), and industry experts indicate that the exponential growth in demand for mobile broadband may soon outstrip the capacity of the current spectrum allocations.  Such a spectrum crunch would significantly affect both the price and quality of service of mobile broadband.

In 2010, the FCC released a National Broadband Plan that recommended making 500MHZ of additional spectrum available for wireless broadband use over the next 10 years, with 120 MHz derived from spectrum presently held by television broadcasters.  In 2011, President Obama’s “Wireless Innovation and Infrastructure Initiative” endorsed the FCC’s goals by requesting legislation to authorize “voluntary incentive auctions.”  The incentive auction is a voluntary, market-based process for repurposing bands from broadcast television to wireless broadband services.  It promises an innovative means of aligning the interests of existing broadcast television license holders, new service providers, and the federal government by creating outcomes in spectrum repurposing that benefit consumers.  The process would allow a license holder to auction all its spectrum, share its channel, or abstain from participating.

The Middle Class Tax Relief and Job Creation Act of 2012 authorized the FCC to conduct these incentive auctions.  The act generally authorized the FCC to share auction proceeds with broadcast licensees in order to move spectrum from the hands of the present licensees to others that may have more efficient or higher uses for it.  In practice, this involves running a two-sided auction in which the FCC invites current licensees to volunteer their spectrum and concurrently auctions that spectrum to new users.  The FCC then shares the proceeds of the auction with those who have made their spectrum available.

The Act has two provisions concerning incentive auctions:  (1) Section 6402 is a general provision authorizing the FCC to conduct incentive auctions; (2) Section 6403 is a specific provision authorizing a one-time UHF broadcaster auction.  The FCC was also authorized to realign or “repack” bands by moving licensees who do not participate in the auction to  different channels so spectrum is available in larger, more useful blocks for the forward auction.  ”All reasonable efforts” are required by the FCC to preserve broadcaster coverage with the repacking, and the FCC must reimburse broadcasters’ expenses of changing channels out of a $1.75 billion fund from auction proceeds.

On September 28, 2012, the FCC approved the Notice of Proposed Rule-Making for the incentive auction, seeking comment from the stakeholders and the public on auction design, participation, and transition upon band repacking.  The hope is that this newly developed incentive auction might serve as an example of how to help meet the global demand for additional mobile broadband spectrum.  But, before it can act as an international example, and to understand the capacity expected to be received, it must first be successfully implemented.  How can the FCC structure the auction incentives to facilitate high participation among broadcasters?  Does the ability for the FCC to repack bands limit the extent to which the auction can be considered voluntary?  Considering that most television broadcasters were allotted spectrum for free, what percentage return should they expect should they choose to auction their spectrum?

Elizabeth Maratea

 

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One Response to Incentive Auctions: Will the FCC’s New Approach Deliver on Its Promise of Spectrum?

  1. Jake says:

    Is there any indication that the FCC plans to include restrictions in the licenses it sells this time around? Part of the issue with the current licenses is that A) they were given away for free B) they are non-transferable and C) there is no clear way for the FCC to terminate licenses (other than not renewing them, which would certainly be contested by TV broadcasters). How is the agency going to ensure that the need for this kind of incentive auction – along with rents being passed on to undeserving broadcasters – doesn’t happen again?