Subject: [NEXTEL-1] A Private Windfall For Public Property

From: [email-masked]
Date: Sat, 16 Aug 2003 23:24:38 -0400

A Private Windfall For Public Property

By Norman Ornstein and Michael Calabrese

August 12, 2003
Page A13

We're no fans of the attempt by the Federal Communications Commission to
relax ownership requirements for TV stations and newspapers, but it would be
a shame if the battle between FCC Chairman Michael Powell and Congress on
this issue distracted attention from another harmful move being contemplated
by the commission.

We're talking about the privatization of the airwaves, a public resource
worth hundreds of billions of dollars in both market value and future
federal revenue. The contemplated FCC action could result in the biggest
special interest windfall at the expense of American taxpayers in history.

The rapid trend toward wireless communication has made access to the prime
frequencies that pass easily through walls, trees and weather an
increasingly valuable right. A recent study estimated the market value of
this spectrum at $770 billion. These airwaves are owned by the public. For
more than 75 years broadcasters, cellular phone companies and other
commercial service providers have acquired exclusive access to scarce
spectrum space only under temporary, renewable licenses; in return, they
serve the public interest.

But if the FCC has its way, that social contract will be voided. In recent
months, through a series of rule changes, the FCC has begun to implement a
radical shift in the nation's spectrum allocation policy. Recently it
adopted rules allowing licensees -- whether or not they paid the public for
their license -- to sell or rent unused capacity to other firms. It also
proposed to let universities and other holders of free licenses sell their
spectrum to private firms, thus encouraging these hard-pressed nonprofit
institutions to abandon their educational use of the airwaves in return for
a quick buck on the new private spectrum markets.

The blueprint for this privatization of the public airwaves is a pair of FCC
staff reports released last November. In essence, the FCC's Spectrum Policy
Task Force proposes that incumbent licensees be granted permanent,
private-property-like rights in the frequencies they currently borrow. The
task force proposes that future licenses grant firms "maximum possible
autonomy" to decide what services to offer, what technical standards to
adopt or whether instead to sell or sublease their frequency assignments to
other firms. In the future, access to the airwaves would be a commodity
traded on secondary markets and free of virtually all public interest
obligations.

This is not all bad. The FCC's outdated command-and-control approach -- 
based on rigidly zoning the airwaves by service and assigning exclusive
licenses at zero cost -- has exacerbated the scarcity of wireless bandwidth,
stifling competition, slowing innovation and restricting citizen access to
the airwaves. The problem is not the stated goals of the task force but the
means of achieving them.

The commission's senior economists have added a proposal that these new and
valuable rights to sell and sublease frequencies be given away to incumbent
licensees at no charge. The proposal is dressed up as an "auction," but it
is one in which any incumbent opting to sell its license would be entitled
to keep 100 percent of the revenue -- money that under current law would
flow into the public treasury. The logic of the proposal is that
broadcasters and other spectrum incumbents have so much political clout that
the only practical way to reduce scarcity is to bribe them to bring their
spectrum to market.

But this approach confers a massive and undeserved financial windfall -- up
to $500 billion -- on a few lucky industries. And freezing the old zoning
system into permanent private property rights would forestall emerging
"smart" radio technologies that can dynamically share today's underutilized
spectrum space. Today the fastest-growing demand for telecommunications
involves inexpensive WiFi -- short for "wireless fidelity." College campuses
and "hot spots" in airports and Starbucks offer this cheap and mobile
Internet access by creating a wireless local area network on a small band of
"unlicensed" frequencies shared with cordless phones, microwave ovens and
baby monitors. Unfortunately, privatizing frequencies would turn this
sharing into "trespassing," allowing licensees to demand payment for access
to their airwaves.

Market-based spectrum reform can be achieved without a massive giveaway. The
flexible new licenses proposed by the FCC task force could be rented for
fixed terms. This would put all companies on a level playing field, permit
property-like rights for limited periods, protect capital investment by
incumbents and internalize incentives to use spectrum efficiently.

The good news is that the FCC cannot transfer a wireless windfall to special
interests without additional authorization from Congress. Both the
administration and some influential members of Congress have expressed
support for spectrum user fees. The bad news is that Congress is not exactly
trustworthy when it comes to protecting the public interest from
broadcasters and other powerful license holders. The champions of the
public, led by Sen. John McCain, have their work cut out for them.

Norman Ornstein is a resident scholar at the American Enterprise Institute.
Michael Calabrese directs the Spectrum Policy Program at the New America
Foundation.

http://www.washingtonpost.com/wp-dyn/articles/A46939-2003Aug11.html

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