105th Congress: Democratic Perspectives House Committee on Energy and Commerce Democrats Welcome Page
The majority has perpetrated a ruse on the American people. At a hearing on spectrum
auctions earlier this year Chairman Tom Bliley stated, "The annual budget cycle
has begun once again and this means that quick-fix proposals involving the sale of
spectrum emerge like snake oil salesmen at a local carnival."
Unfortunately, the Chairman was all too prescient. The Budget Resolution included reconciliation instructions to our committee to report legislation requiring spectrum auctions to raise $26.3 billion in revenues. There was not the slightest basis for such an estimate. At the hearing on spectrum auctions no testimony supported such a market for spectrum. Even worse, in order for the committee to seek auction revenues that can be "scored," the committee passed legislation which will actually reduce revenues flowing to the nation's taxpayers.
The rules of budget scoring have forced the Majority to write a bill that unnecessarily requires massive amounts of spectrum to be auctioned during the budget "window" of 1998-2002. Unfortunately, in order to achieve value for frequencies, there must be appropriate technologies available and ready to utilize the frequencies. The development and availability of emerging technologies is, however, not dictated by budget windows.
The recent Congressionally mandated auction of certain frequencies for wireless communications systems should give the Congress pause. That auction was estimated by CBO to achieve $1.8 billion in revenue, but the winning bids totaled just $13 million, or less than one percent of the estimate. One winning bidder bought the rights to market in 4 states with a population of 15 million for just 4 dollars. The reason for this spectacular failure was clear. First, the Commission failed to indicate more precisely the type of services the auctioned frequencies were to be for and this led to great uncertainty on the part of manufacturers as to what equipment to order. Second, the budget-drive timetable for holding the WCS auction did not allow potential bidders sufficient time to assess the markets, develop business plans, and find partners or financial backing. Third, the Commission was dorced to auction specific frequencies and lacked the discretion to exercise its expertise to tailor the frequencies to be put out for bid to further serve the public interest. Finally, there was also a saturation of competitors and frequencies available in the marketplace.
It might have been easy for Members of our committee to ignore these facts, and report the proposals contained in the budget resolution, despite our doubts. However, many of us believed that we had a responsibility to inform our colleagues that a portion of the balanced budget agreement was built on assumptions that could not be met. Other parts of the budget, whether they are spending increases or tax cuts, are real. In the case of spectrum auctions, the dollars to pay for them are as ephemeral as the airwaves themselves.
We now turn to the individual proposals in the spectrum auction legislation that are of
particular concern.
The bill requires the Commission to identify 120 MHz of additional spectrum to auction over the next five years. The proposal raises several fundamental problems. First, as the failed auction described above proved, it is unwise for Congress to specify the frequencies to be auctioned years from now. That is a decision best left to the Commission. Second, the timing of auctions must be dictated by the marketplace. Unless there are new and valuable uses for the frequencies, the auctions will fail. Specifying a mandatory date for the sales will likely result in irrevocable losses to the taxpayer.
Third, the assumption that valuable frequencies are available was challenged in a letter to the committee from Commission Chairman Reed Hundt. He wrote on June 9, 1997, "Our engineers, in an extended effort, have been unable to identify that amount [100 MHz] of spectrum below 3 Gigahertz which could be auctioned for significantly more valuable uses." If the agency with expertise cannot find the spectrum, we do not understand the basis for the Budget Committee's assumption. Even CBO has now backed off of its estimates of the value of the 120 MHz. In response to questions from Ranking Member John D. Dingell, CBO Director June E. O'Neill wrote in a letter dated June 5, 1997, "Based on information from the FCC and the National Technology and Information Administration, however, we are concerned that it may be very difficult to identify 120 megahertz (MHz) of spectrum under 3 gigahertz (GHz) that could be reallocated and auctioned, as proposed by the President. . . . Subsequently, we received draft language prepared by the Administration for the spectrum proposals in the President's budget. We have not prepared an estimate for that draft language, but we have concluded that the portion of the language dealing with directed reallocation of 120 MHz is not specific enough to warrant the $9.7 billion in estimated receipts that we attributed to the President's budget."
Fourth, the mandatory reallocation of certain Federal frequencies without any testimony
concerning the uses and the ability to reallocate the frequency raises further concerns.
For example, it appears that some of the frequencies contained in section 3301(b)(1)(E)
may be important for use by the FAA in airline safety.
The legislation would establish a statutory date for the return of the analog broadcast spectrum of December 31, 2006. The date would be extended indefinitely, if in a given year more than 5% of households are not capable of receiving digital signals. The auction of the anticipated returned spectrum would begin in 2001.
This portion of the legislation creates the most serious problems. We do not oppose the auction of the returned analog spectrum. However, the procedures in this legislation virtually guarantee that the taxpayer will be shortchanged. There is no logic to requiring the auction of the returned spectrum in the year 2001, more than 5 years in advance of the availability of the spectrum for use. The only justification for this arbitrary date is to meet a budget "window" of five years.
The Majority has chosen to establish a statutory date for the return of the spectrum,
rather than leaving regulatory flexibility to the Commission, which has established a
similar "target" date, which could be adjusted, as circumstances dictate.
Recognizing the problem in setting a statutory date, the Majority included a statutory
rule for delaying the return of the spectrum indefinitely, if five percent of households
are incapable of receiving digital signals. This exception would likely result in the
spectrum never being returned. It is almost certain to spark virtually no interest by
bidders in 2001 for spectrum which may never be returned.
During the consideration of the legislation, two amendments were offered relating to the sale of television sets. Ranking Member Edward J. Markey offered an amendment that would have prohibited the sale of sets that were incapable of receiving digital transmissions three years before the anticipated change to digital broadcasting. Rep. Elizabeth Furse subsequently offered an amendment to require that the Commission at least establish labeling requirements for new televisions that were unable to receive digital transmissions to inform purchasers that the set would not be capable of receiving transmissions without the addition of a converter when broadcasters converted to digital transmissions.
The bill approved by the Majority includes for the first time a statutory requirement that the analog spectrum be returned by December 31, 2006. This deadline may be extended, if 5% of households are not capable of receiving digital transmissions. It is only fair to the consumer that the consequences of this law be disclosed when they purchase a set that is not capable of receiving the digital signal mandated by this law. Otherwise, dealers could sell sets that could be obsolete in just months or a few years after they are sold.
The situation in no way resembles that of a technology becoming obsolete through market forces, such as eight-track tapes, as alleged by some opponents of these amendments. Analog televisions, in the absence of a converter, will become obsolete due to the government mandate contained in this law requiring the return of the analog spectrum, not due to market forces. If the Majority desires to establish a date upon which analog televisions should become obsolete, they should at least be willing to disclose their decision to buyers of television sets. Apparently, if consumers buy a television that soon becomes obsolete, the Majority intends, in Mission Impossible style, to "disavow any knowledge of its actions" on this legislation.
There is another budgetary consequence to the decision not to adopt these amendments.
If manufacturers continue to sell sets not capable of receiving digital transmissions, and
also fail even to inform purchasers of the potential obsolescence of the equipment, the
likelihood that more than 95% of households will be digitally-capable is reduced. Under
the bill, the spectrum would not be returned under such conditions, and bidders at an
auction occurring in 2001 will be less likely to bid anything for such spectrum.
One of the more questionable instructions, based upon the Bipartisan Budget Agreement, and incorporated into the Budget Resolution, was entitled "Spectrum Penalty." The Budget Agreement stated, "As authorized by current law, a penalty fee would be levied against those entities who received free' spectrum for advanced, advertiser-based television services, but failed to utilize it fully." According to the Budget Agreement, this provision would be scored at $2 billion. The Budget Agreement also stated with respect to spectrum auctions, "Estimates for 1998-2002 were developed by the Congressional Budget Office."
Both the Majority and Minority were skeptical about how a provision already in current law could be scored by CBO as part of reconciliation. In response to questions by Ranking Member John D. Dingell concerning this provision, CBO Director June E. O'Neill on June 5, 1997 wrote concerning this "Spectrum Penalty," "CBO has not seen any legislative language regarding a spectrum penalty, and therefore we cannot comment on what the spectrum penalty would be and how much it would raise. In order to result in savings, it would have to mandate fees that would not be assessed under current law."
It therefore appears that the attribution of the Budget Agreement and Budget Resolution
of $2 billion in scorable savings for fees authorized under current law to estimates by
CBO was erroneous. There is no provision for such a Spectrum Penalty in the bill.
During the consideration of the legislation, Subcommittee Chairman W.J. "Billy" Tauzin offered an amendment that would require the Commission to establish methodologies to carry out the auctions required under each section to achieve approximately 50% of the original CBO estimates for each category of auction. If the Commission failed to convince itself that such targets were achievable the auctions could be canceled. The amendment also gave the Commission the authority to establish minimum bids.
We agree that the Commission should have the authority to establish minimum bids and to
cancel auctions if they are not in the public interest or will not achieve estimated
revenue targets. The minority offered amendments on these matters that were defeated by
the Majority. Our amendments, however, did not accept the arbitrary dates for auctions
contained in the Majority bill. The target approach in the Tauzin amendment, while
providing some flexibility to cancel auctions if they cannot achieve the unrealistic
budget estimates, appears designed more to "pretend" that revenue estimates can
be met than to provide true flexibility to the Commission.
The Majority has also decided to use the Reconciliation legislation as an opportunity
to reopen the bipartisan Telecommunications Act passed in the last Congress. Specifically,
the legislation was amended to repeal the Commission's duopoly and cross-ownership rules
with respect to the purchase of the returned analog spectrum for digital uses, an approach
rejected in the conference on the Telecommunications legislation last year. Not only do we
disagree with the merits of such an approach, but this decision is based upon no hearings
or other testimony that the repeal of these rules is in the public interest. The committee
has received no testimony in this Congress on the impact of this provision on various
broadcasters, including minority broadcasters, nor was there testimony on the impact on
the viewing public.
We preach the virtues of thinking and planning for the future, yet the forced sale of spectrum contained in this bill sets just the opposite example. We are squandering a scarce and valuable public resource by providing more spectrum for those services that are here and now, at the expense of emerging technologies that will be in higher demand and, not incidentally, more valuable to the public purse in the future.
During the consideration of this legislation the Minority sought to provide the Commission with the necessary flexibility to protect the taxpayers and auction the spectrum in the public interest. Our amendments would have achieved the maximum benefit for taxpayers and users of the spectrum, both in the short term and long term. Spectrum auctions must be based upon sound communications policy and should not be mandated to fill budget holes. The success of auctions based upon the 1993 reconciliation provisions, and the failure of the most recent auction on wireless communications, are proof that market conditions, and not government mandates establish the amount of revenues that can be achieved. Neither our proposals nor those of the Majority will provide $26.3 billion. Our proposals, however, would have provided a better opportunity to maximize the spectrum's value. We strongly encourage the Budget Committee to review its assumptions concerning spectrum auctions, as the legislative process continues. Otherwise, a balanced budget will be as real as the phantom revenues from spectrum auctions.
John D. Dingell
Edward J. Markey
Diana DeGette
Bobby L. Rush
Rick Boucher
Thomas J. Manton
Gene Green
Tom Sawyer
Anna G. Eshoo
Elizabeth Furse
Frank Pallone, Jr.
Sherrod Brown
Peter Deutsch
Ron Klink
Henry A. Waxman
Edolphus Towns
Karen McCarthy
Bart Stupak
105th Congress: Democratic Perspectives
House Committee on Energy and Commerce Democrats Welcome Page