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S. 3610: The Carrot And The Stick Make Their Appearance

Auction pay-outs for repurposed spectrum, annual spectrum fees enter the legislative debate in Kerry-Snowe bill

In March, 2009, we reported on S. 649, a Senate bill that would have required the FCC and NTIA to undertake a “radio spectrum inventory”. A year later that bill was reported out of the Senate Commerce Committee and placed on the Senate Legislative Calendar. And there it sits.

But wait! Its sponsor, Sen. John Kerry, and one of its co-sponsors, Sen. Olympia Snowe, have just introduced yet another bill along the same lines. S. 3610, the “Spectrum Measurement and Policy Reform Act” popped up on July 19. According to Kerry, the new bill “tasks the FCC and the National Telecommunications and Information Administration (NTIA) to perform much needed spectrum measurements to determine actual usage and occupancy rates” – in other words, pretty much what last year’s version did. 

But wait, there’s more! The new bill – which weighs in at a hefty 27 pages, as opposed to last year’s two or so – provides for lots more than just a spectrum inventory: among other things, it opens the door for (a) the sharing of spectrum auction proceeds – an ominous harbinger of broadband-induced spectrum repurposing – and (b) even more ominously, the specter of annual spectrum fees.

 Of course, to read the Kerry/Snowe press release, you might not realize that.

The release speaks in conventionally upbeat, BIG PICTURE, press-release jargon about “moderniz[ing] the nation’s radio spectrum planning, management, and coordination activities”, “laying the groundwork” for lots of stuff (Lower prices! More reliable service!), avoiding the “looming spectrum crisis”, “empower[ing] innovation”, “encourag[ing] competition”, “ensuring that the proper framework is in place” and so on and so on. 

It isn’t until the antepenultimate line that we learn that the bill would require “more market-based incentives to promote efficient spectrum use”. 

Incentives as in carrot and stick.

To get any idea of what they’re really talking about, you have to read the bill itself. On page 17, in Section 6(b)(2), you find that the bill would amend Section 309(j)(8) of the Communications Act to include the following provisions: 

 (F) AUCTION REVENUE SHARING PLAN.— Notwithstanding subparagraph (A), if the Commission determines that it is consistent with the public interest in utilization of the spectrum for a licensee to relinquish some or all of its licensed spectrum usage rights in order to permit the assignment of new initial licenses or the allocation of spectrum for unlicensed use subject to new service rules, the proceeds from the use of a competitive bidding system under this subsection may be shared, in an amount or percentage determined in the discretion of the Commission, with any licensee who agreed to participate in relinquishing such auction usage rights.

(G) SPECTRUM LICENSE FEE.—

(i) IN GENERAL.—The Commission shall have the authority to assess and collect from each licensee an annual fee for the spectrum assigned to such licensee that is based on the fair market commercial value of that spectrum and the public interest of the service the spectrum is being used for, using a methodology adopted by the Commission, after providing notice and opportunity for public comment.

* * *

And so the race toward the finish line of Repurposed Spectrum lines up in the starting blocks.

Readers will doubtless recall that, as part of the National Broadband Plan, the Commission has made clear that it would like to skim some 120 MHz of spectrum from TV and auction it off for use in mobile broadband. To cushion the blow for Eligible-for-Eviction broadcasters, the Commission suggested that it might be willing to throw them a few bucks out of the auction proceeds. OK, that sounds good – but, oops, the FCC doesn’t have the authority to dole out auction cash like that. To get that authority, the Communications Act would have to be amended.

Cue Senators Kerry and Snowe, who have now started that amendment process.

Of course, this is just the first step – the legislative process can be long and slow, and the end result may not look much like the initial bill. And that’s probably a good thing here. After all, the Kerry-Snowe bill is a tad thin on any significant details. In fact, there pretty much aren’t any details. Instead, the bill would give the FCC essentially complete discretion to dole out as much – or as little – of the auction proceeds as it feels like. And who would be getting those proceeds? “Any licensee who agreed to participate in relinquishing such auction usage rights” might get some, again if the FCC feels like it.

So the potential carrot of some payment in return for going along with the spectrum repurposing process is now at least a bit closer to reality than it was when the FCC first floated the idea.

What about the stick? That would be the annual spectrum fee. Unlike the annual regulatory fee which all FCC regulatees already pay – and which is based on covering the costs of the FCC’s operations – the spectrum fee would be calculated based on (a) the “fair market value” of the licensed spectrum as the FCC determines that value to be and (b) the “public interest of the service the spectrum is being used for”. Again, the FCC would be the one defining those crucial terms.

While broadcasters would be able to make a strong argument about the value of the public service they provide, their problem here is that the Commission is obviously smitten with mobile broadband as a panacea. So it would not be a huge surprise if the FCC were to conclude that, in the overall public interest balancing process, broadband might outweigh broadcast. And given the challenging economics of broadcasting just now versus the supposedly sky’s-the-limit prospects for broadband, the “fair market value” of the spectrum is likely to be set by the latter rather than the former. That would mean that broadcasters would likely be billed based on a value bearing little or no economic relation to their business. The potential for putting a heavy squeeze on broadcasters to “encourage” them to hop on the repurposing bandwagon would be substantial.

Again, we have a long way to go before all of this plays out. But it’s safe to say that the games have begun.

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