Seybold's Take: Why auction spectrum?

Andrew Seybold
The February 2012 Tax Relief Law authorizes the FCC to hold another round of spectrum auctions. This time it will be for AWS-2 and 3 spectrum and for TV spectrum in channels above 32 where the TV stations can opt-in to what is known as the incentive auctions. The incentive part means that broadcasters receive part of the revenue from the auction even though they did not have to pay for their 6 MHz of TV spectrum.

The Congressional Budget Office provided Congress with an estimate that these auctions would bring in around $24 billion. Some of the proceeds ($7 billion) will go toward building the new Public Safety Broadband Network, some will go to the TV stations, and the rest will pay down the national debt. The number being thrown around on the Hill is about $10 billion will go toward retiring the debt or paying the interest on the debt. To put this in perspective, the national debt is currently growing at a rate of more than $4 billion per day so this amounts to two days' debt. So why is the Executive Branch and Congress so supportive of these auctions? There are many reasons to auction spectrum but the main reason seems to be that it gives Congress bragging rights about reducing the debt.

Auctions are conducted in other countries as well and they raise money from spectrum. However, in places such as Japan, they are much more forward thinking in how they handle spectrum and how they can make sure that as technologies change the government remains in control. In Japan they lease the spectrum to network operators and others for a yearly fee per megahertz. Further, each commercial network operator pays a one-time fee for each new customer that is added to the network. 

The result of this type of spectrum management is multifold:

  1. Since the operators pay per Megahertz per year, they make sure to use it all, and they move to the most spectrally efficient technology as soon as the newer technologies become available.
  2. The government has a steady stream of income every year, not an occasional pop.
  3. The government continues to own the spectrum. If a new technology requires rebanding or changing where companies operate, the government has more flexibility in reordering the spectrum. This will be important in the future when REAL cognitive and smart radio technology that works is developed.
  4. Those who want spectrum would not have multi-billion dollar payments due after an auction and more companies might decide to try to lease spectrum. This, of course, means that there would have to be some way of determining who is eligible to receive spectrum as it is made available, but if those in power decided to back this plan, that could be worked out.

The downside for network operators is that they cannot carry the value of the spectrum on their books as is presently done in the United States. This would certainly have an impact on many of the commercial wireless network operators, but their accounting practices could be changed. What if the United States started leasing spectrum for all users (except for Public Safety services and non-profits)?

TV stations would pay every year for their 6 MHz of spectrum, large metro stations would have to pay more than rural stations, and there would have to be a scale for how much they paid each year. AM and FM broadcast stations would pay too, as would other companies that use the airwaves to make money. Excluded would be organizations such as public safety, city, county, and state systems, organizations such as the Red Cross, amateur radio spectrum, and others who use wireless for non-commercial purposes.

A leasing plan could be implemented over a series of years. For example, commercial broadcast stations that have never paid for any spectrum could be given two years notice and then their lease payments would start. It would be more difficult for those that have already spent billions purchasing spectrum (or in reality, spectrum licenses). Perhaps a fair way to handle that would be to pro-rate what they paid for their spectrum at the per-Megahertz lease rate and after that they would start to pay the lease fee. Once again, if this idea took hold, all of this could be worked out to be fair to all that have already paid for spectrum.

This is not a new idea and I'm sure that it will set off some discussion both for and against it. But it would raise money for the government every year, it would not be a hardship on the wireless companies, and it would enable spectrum to be reviewed and perhaps reallocated as technologies change going forward. There is already an issue looming on the horizon. Today's Congress and FCC believe that moving forward, all spectrum should be allocated for broadband services. This means that all land mobile radio services (narrowband voice) are being looked at as a source of spectrum to convert to broadband.

The issue with this concept is that it will be many years, my belief is 10 years or more, before broadband spectrum systems will be able to duplicate all of the functions available on these voice channels today, and I am concerned that all systems will come to rely completely on networks. This means that if the network fails, communications cease. Today, in the world of land mobile radio, if the network goes down the users are still able to talk among themselves without having to use the network. This type of service would have to come to broadband systems. I am not convinced that commercial network operators would really want their customers bypassing the network and using the spectrum for peer-to-peer communications for either voice or data services.

I have not done the math, nor have I looked at the timeframe, but leasing could be implemented. Further, it is my belief that we should move toward spectrum leasing instead of auctioning spectrum. A strong case can be made for yearly income to the federal government coffers that could easily more than make up for the one-shot billions raised at auction. The change would have to come over time, and the way to change the mindset in Congress is to discuss this idea with the incoming, younger, representatives and senators and explain the plan to them. The new people in Congress have not been exposed to auctions as the best way to raise money from spectrum, so they might be open to looking at spectrum as a national resource. One that should be leased rather than sold.

Andrew M. Seybold is an authority on technology and trends shaping the world of wireless mobility. A respected analyst, consultant, commentator, author and active participant in industry trade organizations, his views have influenced strategies and shaped initiatives for telecom, mobile computing and wireless industry leaders worldwide.