The New U.S. Spectrum Policy Has Big Problems

Published July 8, 2013

The future of the U.S. wireless industry changed substantially last week, with hardly any public discussion.

A new Presidential Memorandum, “Expanding America’s Leadership in Wireless Innovation,” effectively has transformed longstanding U.S. spectrum policy and with it the future of America’s wireless industry.

Since Congress authorized auctions as the preferred mechanism to enable spectrum to find its highest use twenty years ago, U.S. spectrum policy has been market-driven – until now.

Under the new Presidential Memorandum, U.S. spectrum policy will now be government-driven, with the Federal Government becoming the preferred mechanism to determine how future spectrum is allocated, under the political euphemism of “spectrum sharing.”

Tellingly, the new Memorandum revoked the 2004 Presidential Memorandum that promoted spectrum auctions and resulted in all of the wireless broadband auctions to date and over $30b in deficit reduction for the American taxpayer.

Even more tellingly, the new Memorandum made no mention of the need for “clearing” spectrum, which obviously is the necessary prerequisite for future spectrum auctions of cleared government spectrum.

Ominously, the words “competition” or “competitive bidding” are found nowhere in the new memorandum, despite Congress having centered their telecommunications and spectrum policies on those concepts and words for the last twenty years.

What is the problem with this substantial U.S. spectrum policy reversal?

First, Congress believes it is their Constitutional role to set spectrum policy via the authorization and appropriations processes. Moreover, Congress already has set U.S. spectrum policy via authorizing auctions, originally in 1993, and updated in 2012.

If this new Memorandum is found to effectively reverse Congressional auction policy long-term, expect bipartisan concern from Congress for being ignored, bypassed, and unilaterally overturned by the Executive Branch.

Second, this new memorandum could be challenged in court: as exceeding, or contrary to, Federal authority; for violating the Administrative Procedures Act; or for being arbitrary and capricious.

Expect bipartisan questioning from Congress concerning what authority the Executive Branch is claiming to effectively shift statutory spectrum responsibilities from the FCC, an independent agency and “creature of Congress,” to the Executive Branch.

Third, “sharing” is normally a voluntary process between people implying some equality amongst sharers. Government does not “share” equally with citizens or companies.

The government prioritizes, allocates, rations, and controls uses and usage of Government property. Implying that “sharing” with a Government, which has sovereign coercive power, is anything like private voluntary “sharing” between equals, is grossly misleading and inaccurate.

Fourth, the Memorandum effectively envisions the creation of a whole new category of spectrum, different from licensed (owned), and unlicensed (public) spectrum. It effectively creates a third category of spectrum, government-controlled or rationed-spectrum.

This is high-risk because it effectively would return the Federal government to a process similar to the dysfunctional government spectrum-allocation system that the Government used prior to 1993 and spectrum auctions.

That 1980-1993-era of government spectrum allocations and lotteries was well-known to be rife with abuse and cronyism. The natural temptation to politicize spectrum allocation via favors for political supporters is a big reason why Congress authorized spectrum auctions — an objective, transparent and auditable process — as the best spectrum allocation mechanism.

In the absence of specific legal authority and Congressional oversight, this new Executive-Branch spectrum-allocation system could be rife with abuse like it was in the past. As the old adage says, those who ignore history are destined to repeat it.

Fifth, this reversal of U.S. spectrum policy could rock the economic and infrastructure foundation of the current U.S. wireless industry, i.e. that spectrum is a property right that wireless companies can rely upon, control and use as they determine in the marketplace.

Simply, America’s spectrum availability pipeline just got much less predictable.

Thus, this de facto new U.S. spectrum policy that discourages auctions long term could introduce substantial long-term investment uncertainty into the wireless industry, undermining long-term capital investment, economic growth and infrastructure innovation.

That’s because this Memorandum represents an abrupt, unnecessary and potentially hugely disruptive reversal of successful market competition policy that has enabled America to lead the world in 4G wireless adoption and innovation.

Moreover, it also threatens to shut down the market’s expectation that the Federal Government is committed to reclaim under-utilized Federal spectrum to meet exploding private sector demand and need for spectrum. Simply the wireless industry’s spectrum crisis has been exacerbated.

Companies and investors now have real experience estimating the timing and legal risks of the public auction process. However, they have no baseline knowledge or understanding of a new process that by design will be made up as the Government goes along.

Simply, the Administration appears to be abandoning the spectrum auction “horse” that has helped America lead the world in the 4G wireless broadband growth and innovation race, and is switching “horses” mid-race to a government-allocation “horse” that has a well-known, poor track record.

Sixth, the Memorandum threatens to permanently entrench the Government’s long standing practices of spectrum hoarding and wasteful utilization.

The core reason for the government’s waste of spectrum is that most current spectrum allocations were based upon inefficient, legacy, analog technologies from literally several decades ago. This means many government spectrum holders operate expensive redundant wireless systems that could be much more efficiently, effectively, and cheaply managed centrally.

This is a profoundly backward-looking approach to spectrum management in the 21st century. It is akin to taking a nation that first was organized around rivers and canals, and deciding to build all future railways and highways alongside the waterways and canals and not other places where boats can’t go.

Organizing the digital wireless future around the current obsolete analog spectrum allocation system is an expedient, short-sighted policy decision to sub-optimize the future of America’s wireless potential in order to not inconvenience government agencies today.

Seventh and most disturbing, is that the memorandum leaps to the apparent conclusion that wireless companies must “share” spectrum with government before the Government has explored or exhausted the potential for Government agencies to “share” spectrum better amongst themselves.

This obvious cart-before-the-horse approach exposes a serious policy bias against market forces and for more government control of private sector uses and usage of spectrum.

It also represents a government-first mentality that the public should organize around the convenience of Government agencies rather than Government agencies organizing around the convenience of the public.

Lastly, and most importantly, this new Memorandum is a part of a broader Administration wireless industrial policy to pick winners and losers.

Remember, the FCC and DOJ have already made it abundantly clear that they would prefer to exclude Verizon and AT&T from competing and bidding for 600 MHz spectrum in the upcoming incentive auction in order to steer choice spectrum to their preferred bidders Sprint and T-Mobile.

By unilaterally and effectively sun-setting auctions as the mechanism for allocating spectrum long term, the Government — under the PR cover of “sharing” and “innovation” — can eventually steer spectrum effectively to whomever in Silicon Valley it most wants to steer it to – for free and without Congressional oversight.

Tellingly, the tech companies lobbying hardest behind-the-scenes for lots of new free spectrum for their use also happen to have the largest corporate cash hoards and wherewithal to bid and win in spectrum auctions.

Make no mistake, this new Government spectrum “sharing” could function as a multi-ten-billion-dollar long term subsidy of Silicon Valley at taxpayers’ expense.

As many Washington insiders appreciate, it is usually those companies who have the least need government subsidies, which are the most able and aggressive in seeking corporate welfare.

Importantly, this Presidential Memorandum also could provide a back door method to de facto impose wireless net neutrality and/or a ban broadband usage caps for those who commercially use this government “shared” spectrum. Remember, if the Government becomes the spectrum landlord they easily can impose their own “house” rules formally or informally.

In addition, this Memorandum could also provide a convenient net-neutrality-regulation-backstop, if the D.C. Court of Appeals rules as expected that the FCC does not have the legal authority to regulate broadband providers.

In conclusion, the Administration apparently appreciates that the best time to stage an inter-governmental power grab is when Congress and the press are preoccupied and transfixed with other matters (i.e. NSA spying, IRS, DOJ and State Department scandals, etc.).

The big takeaway here is that this Presidential Memorandum represents an effective power grab by the NTIA and Executive Branch at the expense of the FCC, Congress and the Courts.

Over time as people appreciate the brazenness and breadth of this power grab, expect it to create bipartisan consternation in Congress, new legal challenges, and new investment, economic, and spectrum-availability uncertainty.

Sadly and ironically, when market-driven wireless competition is most vibrant and spurring unprecedented innovation, the government is reversing course and attempting to seize policy control over the means of wireless production – spectrum.

America’s wireless future changed substantially last week — and not for the better.

[First Published by The Daily Caller]