Contrary to nearly everything you may have read or heard from self-interested parties since an “FCC official” first leaked word last month that the new rules were coming, Thursday’s vote will be the beginning — not the end — of a long process.
Whatever the commission ultimately decides, it is simply untrue to say that the rules will “authorize” ISPs to offer Internet “fast lanes” to preferred content providers. They won’t authorize anything. Like the FCC’s previous two attempts to regulate broadband Internet, the new draft will only place limits on what ISPs can and cannot do to manage Internet traffic over their networks.
Those limits may or may not provide adequate safeguards for those who fear Internet users may someday fall victim to fights between Internet content and service companies and residential access providers. But that will be the actual — and far less newsworthy — focus of the coming debate.
The item on the FCC’s agenda with real and immediate consequences for consumers is farther down on the list: a vote on upcoming auctions for spectrum licenses that will take place, after many delays, sometime next year. Though the auctions aren’t getting any of the press, they’re what actually matters at this week’s meeting.
Getting the auctions right, as the FCC fully understands, is critical. According to the agency’s visionary 2010 National Broadband Plan, the explosion in demand for wireless network capacity that began with the 2007 release of the iPhone and has continued with Android, tablets, and the proliferation of high-definition video applications, has put tremendous strain on existing mobile broadband networks, both licensed and unlicensed.
Delays for permission from local zoning authorities to install new cell towers and even new antennas affixed to utility poles are increasing. So the only significant way to expand mobile broadband supply is to use different radio frequencies to handle all the new traffic. The Broadband Plan conservatively calculated an urgent need for 300 MHz of new spectrum by next year, and 500 MHz by 2020. Former FCC Chairman Julius Genachowski summarized the report’s findings as the “spectrum crisis.”
Why a crisis? For over a decade, the FCC hasn’t had anywhere near that much usable spectrum available to license. The spectrum frontier has closed, leaving the agency scrambling to find creative ways to free up already-licensed frequencies that aren’t currently being put to their best and highest use.
That includes reassigning spectrum earmarked for satellite use at the request of current licensee Dish Network, trying to pry underutilized frequencies from federal government licensees including the Department of Defense, and encouraging innovation in new technologies for sharing spectrum, especially when the licensed user only needs access in certain locations or certain times.
But the linchpin of the FCC’s efforts to head off the crisis is a first-of-its-kind plan authorized by Congress in 2012 known as the voluntary incentive auction. The auction will encourage over-the-air television broadcasters to give up some or all of the spectrum they received as part of the mandatory 2009 transition from analog to digital broadcasting, in exchange for a share of whatever revenue the government collects in a subsequent auction to mobile network operators.
Over-the-air viewership continues to decline in favor of cable, satellite, and fiber-based alternatives. There’s an accelerating move to Internet-based video from services including Netflix, YouTube, Amazon and iTunes. Many broadcasters would like to exit the over-the-air business, but can’t sell their existing licenses to anyone but another broadcaster, and then only with FCC permission. The voluntary incentive auctions are aimed at breaking a large logjam, opening as much as 120 MHz of underutilized spectrum for better use in mobile applications.
Design of the voluntary incentive auctions has taken the FCC more time than anticipated, however, adding to the pressure to get it right. And while much of what has so far been revealed by the agency about the complicated process has been encouraging, there are also worrying signs. According to recent reports, the agency intends to defy Congress by setting aside as much as 30 percent of the frequencies recovered from the broadcasters for auctions restricted to smaller network operators, notably T-Mobile USA and Sprint.
The idea behind the set-aside is to help T-Mobile and Sprint become stronger competition to Verizon and AT&T, who will be banned from the restricted auctions. The restrictions are part of Chairman Tom Wheeler’s broader vision for the FCC’s top priorities. Wheeler has often stated his tenure at the agency will be defined by three words: “competition, competition, and competition.”
Vigorous competition is surely the best regulator of dynamic markets. But both Sprint and T-Mobile are now owned by non-U.S. companies with deep pockets and no obvious need for U.S. taxpayer subsidies. SoftBank, which owns Sprint, has also made no secret of its intention to acquire T-Mobile from Deutsche Telekom. And neither company has shown much interest in using their resources to expand networks into rural areas, where the FCC believes competition is the weakest.
In trying nonetheless to engineer the winners and losers of the auction, the FCC may unintentionally spook the broadcasters from participating in the first place. Restricted auctions mean lower prices, and lower prices mean broadcasters at the margins won’t offer as much or any of their licensed frequencies. Instead of more competitive mobile networks, we may get the opposite.
The FCC should know better than to detour onto such a dangerous path. In every previous effort to engineer auction outcomes, the result has always been failure. In 2008, for example, a key auction for spectrum allocated to build a nationwide public safety network was so burdened by conditions that it got no minimum bids.
And earlier this year, Sprint and T-Mobile systematically outmaneuvered the FCC in an auction for the so-called H Block, demanding conditions that made the license unattractive to their competitors. Their mission accomplished, both companies simply walked away, leaving Dish Network as the sole bidder at the reserve price of $1.5 billion. The auction, as FCC Commissioner Jessica Rosenworcel had warned, had become a “retail sale.”
Despite the warnings of the broadcasters and other groups including the Consumer Electronics Association, the FCC seems determined to undermine the VIA auction with similar and unnecessary conditions. Distracted by the net neutrality PR crisis, the agency so far has not responded to these and other sensible arguments for letting the auctions operate as, well, auctions.
Which is doubly unfortunate. Getting the auctions right would go a long way toward heading off the spectrum crisis. But it would also accelerate the speed with which mobile broadband networks become fast enough and robust enough to offer a truly competitive alternative to wired broadband. Which in turn would do far more to protect the open Internet than whatever rules the FCC ultimately gets past the courts.
During the last open Internet free-for-all in 2010, the FCC accurately if awkwardly referred to its proposed rules over a dozen times as “prophylactic,” acknowledging that the practices it feared had yet to materialize despite the absence of FCC rules prohibiting them. That hasn’t changed.
Getting more spectrum to mobile users, on the other hand, is an immediate and urgent need. How the agency wields its potent authority over the nation’s radio frequencies will truly determine the future of the Internet.
Downes is co-author with Paul Nunes of “Big Bang Disruption: Strategy in the Age of Devastating Innovation” (Portfolio 2014). He is a Project Director at the Georgetown Center for Business and Public Policy.