As the old adage goes, “you can bring a horse to water, but you can’t make it drink.” So it is with two problems that will affect the FCC’s upcoming broadband spectrum auctions. To understand the serious of these problems, it is helpful first to know why the auction is so important for consumers.
The fact is that consumers have an insatiable appetite for high-speed wireless services that enable video and music streaming, financial transactions, communications, news, entertainment, traffic navigation, health monitoring and a host of free web-based applications. However, spectrum is in short supply.
To remedy this shortage, Congress instructed the FCC initiate an auction that would encourage local TV stations to give up their broadcast spectrum, and enable wireless providers to bid for that spectrum. This two-part (reverse) auction process is complex, but it seeks to repurpose valuable spectrum to its highest and best use.
As for local TV stations that successfully sell broadcast licenses on the auction block, they will be paid by wireless providers for relinquishing licenses, with a portion of the proceeds going toward a national first-responder network and the remainder going to the U.S. Treasury. For those broadcasters not able to find willing buyers or wanting to keep their spectrum and continue broadcasting, the FCC will move (repack) them in order to clear large blocks of spectrum for wireless consumer services. Repacking will mean that stations will need to incur significant costs for antennas, transmitters and other equipment. However, Congress set aside a $1.75 billion fund to offset these costs and to hold local TV stations harmless. The FCC will soon begin this auction process.
All of this sounds good. However, two flaws could affect the auctions and lead to serious repercussions on local TV stations, wireless providers and, ultimately, consumers.
The first problem is that the FCC put restrictions on the two largest bidders in hopes of favoring smaller providers in the auction. The stated purpose of these restrictions is to make the wireless market more competitive. I have written about this before, citing that when rules favor some bidders over others, they do not encourage competition at all, because they promote a form of cronyism and lead to a less than competitive outcome. These unbalanced rules act to eliminate prominent bidders from the auction, thereby reducing total auction proceeds. Also, the new rules work to misallocate resources by pushing some bidders to less optimal licenses.
These biased rules are bad for the marketplace. The wireless market is already fairly competitive, if you consider the deluge of radio, newspaper, TV and online ads that promote wireless services, as well as the fact that there are four or more wireless competitors covering over 90% of the US population, with 90% of this coverage capable of faster (4G) broadband services.
The effects on broadcasters and wireless providers has been noted. Since the rules are likely to limit some competitive bidding and result in a lower auction proceeds, TV stations will be less likely to trade in their spectrum, since it will fetch fewer dollars. That means that less spectrum will come to market, which means that consumer services will not get as much spectrum redeployed as possible.
Now it turns out that there is yet another problem that could lead to other negative consequences. According to a study, as some local TV stations decide to keep their licenses and continue broadcasting, repacking costs will soar and the $1.75 billion repacking fund will be quickly depleted. In fact, it appears that repacking will take much longer to complete than the FCC has provided, a point recognized by one FCC commissioner who supports extending this time.
In short, the FCC could be dealing with auction failure. First, it needs to make the bidding process competitive. Second, broadcasters need assurances that they will be made financially whole when repacking occurs, including having more time to complete the repacking process. Of note, there is now a new bill that would provide broadcasters additional funding, if the repacking fund is depleted. This legislation is important in keeping broadcasters whole and keeping all the parties fully participating in the auction, if it is to be successful.
In the end, it should be all about benefiting consumers, but the FCC’s focus on favoring some bidders and sticking it to broadcasters will certainly produce the opposite effect.
