Keeping the Incentive in Incentive Auctions

March 13, 2013

What if the FCC held a broadcast incentive auction and no one came? That’s a distinct possibility if the Commission does not heed the advice that a coalition of television stations filed recently with the agency.

Congress passed legislation last year to help meet wireless carriers’ growing need for spectrum while at the same time generating funds for a nationwide, broadband public safety network. Originating in the House Communications and Technology Subcommittee and passing as part of the Middle Class Tax Relief and Job Creation Act of 2012, the law allows the FCC to share spectrum auction proceeds with television broadcasters that voluntarily return some or all of their airwaves. The FCC will package those airwaves with additional spectrum, relocating other broadcasters so that it can auction desirable blocks for wireless broadband use. Some of the proceeds would help implement the still unfulfilled 9/11 Commission recommendation of building an interoperable communications system for First Responders.

Implemented well, the legislation could clear 120 megahertz of spectrum, a substantial down payment towards the FCC National Broadband Plan goal of making 300 megahertz available by 2015 and a total of 500 MHz available by 2020. The legislation could also raise up to $7 billion for the public safety network.

For that to happen, however, the FCC must encourage as many broadcasters as possible to participate, since without broadcasters there is no spectrum to auction. The FCC must also maximize the amount of money it raises, since the FCC will need to compensate the broadcasters that relinquish spectrum and reimburse broadcasters that relocate, with $7 billion left over for public safety and preferably more to help with the deficit.

The good news is that the Expanding Opportunities for Broadcasters Coalition, representing more than 40 stations in the top dozen markets, has indicated that its members may be interested if the auction is structured properly. In one of the most important filings in the FCC proceeding to implement the law, the coalition listed three critical elements for a successful auction.

First, the Commission must not artificially limit the potential compensation to broadcasters. This is, after all, an incentive auction, and it would be foolhardy to limit the incentives from the get-go. The market forces of the auction will apply competitive pressures on the compensation broadcasters require and determine the prices wireless carriers are willing to pay while still maximizing broadcaster participation.

Second, the Commission must not exclude potential wireless bidders. Closing the auction to certain carriers would reduce competitive pressures and likely suppress the final bid amount, leaving crucial revenue on the table.

Third, the FCC must auction all the airwaves it clears rather than giving some away for unlicensed use. Freeing the spectrum will come with appropriate but considerable cost, and the FCC needs not only to cover that cost but earn a healthy return if it is going to meet the legislation’s objectives. Although some blocks of spectrum will be worth more than others, bids will be proportional to the value. So while spectrum allocated to guard bands, for example, may be less useful, bidders will end up paying a price commensurate with the potential use. Every dollar’s worth of spectrum the FCC fails to monetize raises the risk that the FCC won’t cover its costs and garner enough money for the public safety network or deficit reduction. This is not the place for the Commission to try to push its unlicensed agenda. Plenty of other spectrum is already available for unlicensed use and other provisions of the spectrum law identify even more without cannibalizing the spectrum from the incentive auction.

We have an unprecedented opportunity before us to help meet Americans’ growing thirst for mobile Internet service, advance the public safety network, and even raise needed federal revenue. Let’s not squander it.