Subject: [NEXTEL-1] Janice Obuchowski - The unfinished task of spectrum policy reform (1994)

From: Marcel <[email-masked]>
Date: Wed, 05 Feb 2003 21:55:44 -0500

The Unfinished Task
of Spectrum Policy Reform
Janice Obuchowski *
Federal Communications Law Journal
VOLUME 47 December 1994 NUMBER 2

In a landmark event worthy of the sixtieth anniversary of the
Communications Act, the Federal Communications Commission (FCC or
Commission) in 1994 began using competitive bidding to assign
certain radio frequency spectrum licenses. As a longtime advocate
of spectrum auctions, I was heartened by this development stemming
from the Omnibus Budget Reconciliation Act of 1993, which
authorized the FCC to use auctions. As the National
Telecommunications and Information Administration (NTIA) concluded
in a report issued during my tenure there, "greater reliance on
market principles in distributing spectrum, particularly in the
assignment process, [is] a superior way to apportion this scarce
resource among competing and often incompatible users." (note 1)
Based on the outcome of the initial auctions, the FCC deserves
praise for developing a successful auction process. The
Commission's competitive bidding rules ensure that the winning
bids reflect the value of the licenses being auctioned and that
the licenses are assigned to those who value them most. The
introduction of spectrum auctions is an important step toward
applying market principles in the management of the U.S. spectrum
resource. But as NTIA noted in the report, U.S. Spectrum
Management Policy: An Agenda for the Future, another critical set
of spectrum management policy reforms also is needed to ensure the
efficient use of spectrum: greater flexibility must be allowed in
the offering of services within the existing spectrum block
allocation scheme. (note 2) Flexibility in spectrum use and
auctions is an equally crucial component in ensuring that spectrum
is used in a manner that maximizes consumer welfare.

My purpose in this article is to sound a warning. There is a very
real risk that single-minded focus on the first reform-the
introduction of auctions-could undermine achievement of the second
objective-increased flexibility in spectrum use. The ongoing
auction process at the FCC could create new institutional forces,
both within the Commission and in the telecommunications industry,
that are opposed to granting substantial new flexibility within
previously allocated spectrum blocks.

The prospect of generating large amounts of revenue from
auctioning newly allocated spectrum blocks may create unintended
incentives for the FCC to go slowly in granting greater
flexibility in existing blocks. When the FCC does move to allow
increased flexibility, auction winners will cry injustice if the
value of their licenses falls as a result. But the FCC should not
be in the business of creating spectrum scarcity through
unnecessary or obsolete regulatory restrictions. By implementing
auctions and flexibility in spectrum use with equal ardor, the FCC
will ensure that all spectrum is put to the uses that are most
valued.

When the NTIA Spectrum Report was published in 1991, the odds that
its recommendation concerning spectrum auctions would be adopted
did not look favorable. A Newsweek columnist put the odds at "less
than 50-50." (note 3) The FCC lacked authority under the
Communications Act of 1934 (Communications Act) as amended to use
spectrum auctions instead of lotteries or comparative hearings to
select licensees, and key members of the Democratic majorities in
both houses of Congress remained implacably opposed to amending
the Act to grant the FCC such authority. In March 1991, one month
after the Spectrum Report was published, Congressman Edward J.
Markey (D-Mass.), then Chairman of the House Telecommunications
Subcommittee, restated his opposition to competitive bidding and
his preference for comparative hearings to select licensees. He
referred to the auction concept as my "pet rock." (note 4)

But by mid-1993, the budget deficit imperatives facing the new
Clinton administration and Congress, and possibly a public policy
conversion, had prompted a change of heart. Seeking additional
revenues needed to meet the deficit targets of the 1993 budget
deal, Congress amended the Communications Act, granting the FCC
authority to use auctions. (note 5) The administration estimated
at the time that auctions for personal communications service
licenses alone would generate about $10 billion in revenues for
the U.S. Treasury. Although Congress's approval of auctions was
driven substantially by this revenue imperative, the amendments to
the Communications Act sought to insulate the FCC from relying on
a revenue-raising rationale in managing spectrum assigned through
auctions. (note 6) Acting on its newfound authority, the FCC
adopted generic and service-specific auction rules in its general
docket 93-253 proceeding, and in July 1994, the Commission
conducted the first ever spectrum auctions in the United States.

In the area of spectrum flexibility, the NTIA Spectrum Report
focused on ways to eliminate inefficiencies caused by the rigid
service distinctions in the existing spectrum block allocation
regime. While acknowledging the benefits of the block allocation
system, the report suggested ways to break down arbitrary and
inefficient boundaries among spectrum users. Specifically, it
recommended that:

Service definitions be made more flexible, in order to accommodate
a wider range of potential uses within a given block of
frequencies;

The FCC reduce the number of spectrum blocks that are subdivided
or "suballocated" among specific groups of users based on those
users' identity or purpose. Suballocations create demand
inefficiencies by artificially excluding similar services from one
another's spectrum, the report found;

Innovation in the various radio-based services be promoted by
allowing greater "technical flexibility" through the use of
adaptable technical standards for services within a frequency
block; and

"User flexibility" be promoted by granting licensees more
discretion to determine the most valuable use for assigned
spectrum and the right to use spectrum flexibly.

As NTIA noted in the Spectrum Report, the FCC had already taken
initiatives in several services to allow greater user flexibility.
(note 7) In the mid-1970s, for instance, when the FCC established
the Specialized Mobile Radio Service (SMRS) in the 800-900 MHz
bands, it defined SMRS to serve a wide range of users. (note 8)
This contrasted with the approach taken before 1974 in the Private
Land Mobile Radio Service (PLMRS), where most allocations were
made for specific categories of users, such as police, taxicab,
and business radio services. In 1984, the Commission acted to
eliminate artificial service barriers in the spectrum bands
allocated for public land mobile services other than cellular
radio by eliminating the separate allocations for wireline and
nonwireline common carriers. (note 9) This change allowed either
type of common carrier to use those spectrum bands.

In another action, the FCC in 1990 granted in part a waiver
allowing FleetCall, Inc. (now Nextel Corp.) to develop its digital
"Enhanced Specialized Mobile Radio" system, which Nextel is using
to offer commercial mobile services similar to cellular telephony.
(note 10) The Spectrum Report recommended that a more
comprehensive approach be adopted to extend the benefits of
increased flexibility across the regulated spectrum bands.

In the almost four years since the Spectrum Report was released,
the Commission has continued to take specific steps to allow
greater flexibility in spectrum use, although its approach has not
been as comprehensive as one might have hoped. In 1991, for
instance, the FCC began the private radio docket 91-170 proceeding
to identify ways to "refarm" or reapportion PLMRS frequencies
below 470 MHz, with the goal of providing for their more efficient
use. The FCC later issued a rulemaking notice proposing specific
changes that would allow greater flexibility in the PLMRS
frequencies, although it has yet to adopt an order implementing
the proposed rule changes.

The FCC should replicate the process undertaken in the PLMRS
spectrum refarming proceeding by identifying opportunities to
allow greater spectrum use flexibility in all of its existing
frequency allocations. Efficient use of the spectrum will be
maximized only if licensees are given the widest possible latitude
in determining which services to offer within their assigned
frequencies. In principle, the flexibility granted to licensees
should be limited only to the extent necessary to prevent radio
frequency signal interference with other users.

To the extent possible, a key objective should be to eliminate
suballocations within frequency blocks and otherwise aggregate
spectrum into larger blocks. The Spectrum Report noted the
development of broadband radio transmission technologies and the
opportunities they afford to achieve greater efficiency in the use
of spectrum through sharing. (note 11) Technological advances have
continued in these broadband transmission systems, including code
division multiple access, and in frequency agile radio receivers.
These advances have made the use of spread-spectrum transmission
techniques more cost effective. (note 12) The spectrum efficiency
gains achieved by these systems can be exploited fully only if
they can be used to transmit signals over a wide band of
frequencies. This fact argues strongly in favor of allocating new
spectrum for radio services in relatively large blocks and, where
possible, aggregating previously allocated spectrum into larger
blocks.

Generally, rules the FCC has adopted or proposed in the 1990s to
govern the provision of services in newly allocated spectrum
blocks are model implementations of the flexibility principles I
am advocating. In allocating 120 MHz of spectrum for personal
communications services (PCS), the FCC deliberately adopted a
broad definition of the service in order to give future licensees
the maximum possible flexibility in developing new mobile
communications services. (note 13)

Similarly, in the FCC's rulemaking proposal to make 18 Gigahertz
of spectrum in the "millimeter wave" frequency bands above 40 GHz
available for the introduction and development of new commercial
communications services, allowing flexibility appears to be a
priority for the Commission. (note 14) Under the proposed rules,
the eventual licensees in those frequencies would have wide
latitude in selecting the types of services to offer via
millimeter wave technologies. Also, given the interference
characteristics of radio signals transmitted above 40 GHz, the
Commission proposed to allow additional flexibility by permitting
the use of unlicensed radio devices in 8.5 GHz of the proposed
spectrum allocation. These proposals are consistent with the
Spectrum Report's recommendation that the FCC experiment with
greater user flexibility in frequencies above 10 GHz that are not
heavily used. (note 15)

The PCS rules and the proposed rules to govern millimeter wave
communications services can and should serve as models for
increasing flexibility in previously allocated spectrum bands. The
most significant fact about the PCS and millimeter wave rules,
however, is that they will apply to services for which the
licenses will be auctioned. It is no coincidence that the FCC
incorporated substantial flexibility into the rules for these
services. The greater the flexibility allowed in the use of the
spectrum, the higher the value of the spectrum to potential
licensees. Higher-value licenses will fetch higher prices at
auction.

Conversely, however, granting greater flexibility to spectrum
licensees in other services will reduce the value of licenses sold
at auction, particularly if the flexibility is sufficient to allow
a licensee to offer services that compete with the auction
winner's offerings. Given these trade-offs, I see a danger that
the introduction of auctions to assign licenses in the PCS,
millimeter wave, and other newly allocated spectrum blocks could
have the unintended consequence of hindering the extension of
flexibility in previously allocated spectrum blocks.

First, increased flexibility in other services is inimical to the
interests of the successful bidders in the auctions. Having paid
large sums of money to win the right to offer mobile services, for
instance, the new PCS licensees are likely to oppose proposals to
allow the provision of similar services in spectrum bands
previously limited to nonmobile applications. The PCS licensees
will argue that it is unfair to grant existing licensees in other
services the right, free of charge, to compete with PCS. Auction
winners also will argue that increased flexibility in other
services will devalue their licenses. Indeed, such arguments were
made in the 103d Congress by parties opposed to legislative
provisions that would have allowed broadcasters to use new
technologies to provide additional radio-based services over their
broadcast frequencies. In summary, the auction winners likely will
form a significant interest group opposed to allowing increased
flexibility in spectrum use.

Second, and of greater concern to me, the auction may create
perverse incentives for the FCC itself to slow or halt progress in
granting flexibility within existing spectrum allocations. Despite
the statutory prohibition that bars the FCC from taking potential
auction revenues into account in its allocation decisions,
political realities are likely to intrude. Implicitly, the
"success" of the auctions is being judged, in part, by how much
money they raise for the U.S. Treasury.

The value of the licenses assigned through competitive bidding,
and hence the prices bidders are willing to pay, are determined by
several factors, including the total amount of spectrum available
for use in providing comparable services. License values also will
be affected by perceptions of the extent to which the FCC is
committed to allowing flexibility in the use of other parts of the
spectrum. Just as the substantial flexibility allowed under the
PCS rules increases the value of PCS licenses to prospective
bidders, increased flexibility in other services will depress the
value of PCS licenses. Unless it is checked, the FCC's instinct
may be to seek to maximize revenues from the auctions, rather than
overall consumer welfare.

What should be done? The FCC's spectrum management duty is to
ensure the efficient use of the U.S. spectrum resource. Allowing
greater flexibility in spectrum use is consistent with this
responsibility. Thus, even as the auctions unfold, the FCC should
give clear and consistent signals of its commitment to spectrum
use flexibility. It can do so in many ways, such as by completing
the long-pending private radio docket 91-170, the PLMRS spectrum
refarming proceeding.

In order to value the spectrum being offered at the auctions,
potential bidders have the right and the need to know the FCC's
intentions regarding spectrum use flexibility. The FCC should meet
their needs by committing itself to the systematic implementation
of the flexibility recommendations contained in the NTIA Spectrum
Report.

Notes
  *Janice Obuchowski is President of Freedom Technologies,
Incorporated, a communications research and consulting firm based
in Washington, D.C. From 1989 to 1992, she served as the Assistant
Secretary for Communications and Information for the Department of
Commerce and Administrator of the National Telecommunications and
Information Administration. Kevin McGilly, Director of Strategic
Analysis at Freedom Technologies, assisted in preparing this
article. Return to text

  1.. National Telecomm. and Info. Admin., U.S. Dep't of Commerce,
Special Publication No. 91-23, U.S. Spectrum Management Policy: An
Agenda for the Future 1 (1991) [hereinafter Spectrum Report].

  2.. Id.

  3.. Robert J. Samuelson, The Quiet Giveaway, Newsweek, May 13,
1991, at 52, 52.

  4.. A Bill to Establish Procedures to Improve the Allocation and
Assignment to the Electromagnetic Spectrum: Hearings on H.R. 531
Before the Subcomm. on Telecommunications and Finance of the House
Comm. on Energy and Commerce, 102d Cong., 1st Sess., 87 (1991)
(statement of Congressman Edward J. Markey (D-Mass.)).

  5.. 47 U.S.C.A. 308, 309 (West Supp. 1994).

  6.. 47 U.S.C.A. 309(j)(7) (West Supp. 1994) (prohibiting
Commission from basing allocation decisions on revenue
expectations, and limiting Commission in basing design of auction
procedures on revenue expectations).

  7.. Spectrum Report, supra note 1, at 60; Douglas W. Webbink,
Radio Licenses and Frequency Spectrum Use Property Rights, Comm.
and the Law, June 1987, at 3, 3.

  8.. In re Future Use of the Frequency Band 806-960 MHz, Second
Report and Order, 46 F.C.C.2d 752, para. 29-43 (1974), Memorandum
Opinion and Order, 51 F.C.C.2d 945, para. 2 (1975); see also
National Ass'n of Regulatory Util. Commissioners v. FCC, 525 F.2d
630, 642 (D.C. Cir.), cert. denied sub. nom. National Ass'n of
Radiotelephone Sys. v. FCC, 425 U.S. 942 (1976).

  9.. In re Elimination of the Separate Frequency Allocation
Structure in Public Land Mobile Services, Report and Order on
Reconsideration, 57 Rad. Reg. 2d (P & F) 547, para. 1 (1984).

  10.. In re Request of FleetCall, Inc., for Waiver and Relief to
Permit Creation of Enhanced Specialized Mobile Radio Systems in
Six Markets, Memorandum Opinion and Order, 6 FCC Rcd. 1533,
reconsideration denied, 6 FCC Rcd. 6989 (1991).

  11.. Spectrum Report, supra note 1, at 1, 62.

  12.. See George Gilder, Auctioning the Airways, Forbes, Apr. 11,
1994, at 99, 100; George Gilder, The New Rule of Wireless, Forbes,
Mar. 29, 1993, at 96, 96; George Gilder, What Spectrum Shortage?,
Forbes, May 27, 1991, at 324, 324.

  13.. In re Amendment of Commission's Rules to Establish New
Narrowband Personal Communicating Services, First Report and
Order, 8 FCC Rcd. 7162, 7163 (1993).

  14.. New Rules Proposed to Increase the Amount of Spectrum
Available for Commercial Use, Notice of Proposed Rulemaking in ET
Dkt. No. 94-124 (Oct. 20, 1994).

  15.. Spectrum Report, supra note 1, at 7.

http://law.indiana.edu/fclj/pubs/v47/no2/obuch.html

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