FCC faces monumental test

Officials at the Federal Communications Commission are facing a historic challenge.

The agency is being asked to do something that has never before been tried: a two-step auction of American airwaves that is intended to shift resources from broadcasters to wireless companies.

{mosads}If all goes according to plan, the sale could be a cash cow that earns billions of dollars for the federal treasury while helping wireless carriers meet a growing demand for data from smartphones and other devices.

Success, however, is far from guaranteed. In order for the sale to get off the ground, the FCC has to convince companies in both industries that it is in their best interest to participate.

“The problem is that you have to make opposing pitches to the broadcasters and the wireless carriers,” said Harold Feld, senior vice president at the advocacy group Public Knowledge. “So it’s kind of a difficult balancing act.”

“The question is, now that it’s here, is the FCC going to be able to walk that line of convincing the broadcasters that it’s going to be a huge payout but not so huge that they scare off the wireless carriers,” Feld said.

The FCC also has to make that the potential buyers and sellers are comfortable with the never-before-used methodology behind the auction. In the first phase, the FCC will purchase spectrum from the broadcasters. Then, it will be packaged for sale to the wireless carriers.

Information Technology and Innovation Foundation policy analyst Doug Brake said in an email that the FCC will “have to undertake extensive outreach and education about these processes — especially for broadcasters who have not participated in such an auction before.”

Participation is key to the auction’s success. If not enough broadcasters give up spectrum, it will cut into the expected proceeds from selling the airwaves to wireless providers.

“The stakes are pretty big,” Brake said, “especially in markets that the FCC needs to clear a certain amount of spectrum in order to free up enough for nationwide licenses.”

A failed auction would be a major blow to the FCC. The agency has been planning the sale for years at the direction of Congress, and observers say it could create a new model for conducting spectrum auctions around the world.

Commission officials say educating potential participants is one of their top priorities before the auction, which is currently scheduled to start on March 29 of next year.

This fall, the team in charge of planning the complex sale will hold a series of events to walk potential participants through the auction process. They plan to offer web-based sessions on the many rules that govern bidding, along with workshops at the FCC’s Washington headquarters to give companies a preview of the bidding software.

The agency wants to cap off that preparation with a mock auction next year where approved participants will be able to test the system.

“We look forward to working with you to give you the information you need to make the incentive auction a success,” said Incentive Auction Task Force Chair Gary Epstein and Vice-Chair Howard Symons in a blog post last week.

FCC staffers also plan to continue meeting with representatives of the companies one-on-one, according to Epstein, partly because of strong interest.

The talks will be delicate, as the agency is effectively the middleman between two industries.

Auction staffers will have to make one case to wireless providers, who are buying, and another to broadcasters, who are selling. They will tell the former that this is likely the last chance in the near future to buy low-band spectrum, which is particularly valuable because it can more easily penetrate dense, urban environments, Epstein said.

To the broadcasters, staffers will argue that this is a rare chance for them to make money off their airwaves while the FCC has the authority to repack broadcasters into new spectrum. They also say that broadcasters have more protections from the financial costs associated with moving from one location on the airwaves to another.

FCC Chairman Tom Wheeler has proclaimed the auction to be a “once in a lifetime” opportunity for broadcast stations on multiple occasions.

Still, both wireless carriers and broadcasters have concerns.

In a letter this week, the wireless trade group CTIA said that there should be more mock auctions where applicants, not just companies who have been cleared to participate, could try out the software that will underpin the auction proceedings. They also said that companies would benefit from having more access to data related to the sale.

“What we want to see is we want to see a framework that promotes wireless participation in the auction,” said Scott Bergmann, vice president for regulatory affairs at CTIA.

“That’s making sure that winners in the auction have rights to use that spectrum, that bidders in the auction have the information available in order to make bids and that we have the right process leading up to it to make sure that folks understand how it’s going to work, have clarity about the auction.”

Broadcasters also say that they too would like more information about how the sale will proceed. Observers say that preparing the broadcasters will be particularly important, since TV stations have no history of participating in spectrum auctions.

National Association of Broadcasters spokesman Dennis Wharton said that “education explaining just how this would work in more granular detail would be helpful.”

The broadcasting industry also argues that Congress did not allocate enough money to help stations relocate on the spectrum band and that broadcasters may need more time than allowed to deal with being relocated.

The two industries have also raised concerns about the way that the FCC has dealt with the risk of interference on airwaves that might be for sale. Epstein said that the task force considers that settled — though still subject to a petition for reconsideration or a court challenge — after an FCC vote last month putting the procedures in place.

The FCC still needs to set the opening prices for spectrum, as well as sign off on application procedures for potential participants.

At that point, it will be up to the companies to decide whether the agency has made a persuasive case for participating.

“This is their call,” Wheeler said earlier this month. “This is a once in a lifetime opportunity. They don’t make spectrum like this anymore and they will decide what they want to decide.”