Incentive Auctions: A Tool to Be Used with Caution in the FCC’s Battle Against Spectrum Scarcity

Abstract

In its Notice of Proposed Rulemaking (NPRM), the Federal Communications Commission (FCC) voiced current anxiety over the future of wireless services, which while being in increasing demand, are constrained by a limited and essential resource — spectrum. Spectrum is an invisible infrastructure consisting of electromagnetic airwaves that allow for the transmission of voice between cell phones, television shows from broadcasters to televisions, and online information from one computer to the next, wirelessly. As a result of this spectrum crunch, the FCC previews higher prices and bad reception in cell phone services, as well as a stifling of innovation and growth in mobile communications. The FCC plans to address this problem in part by getting the authority from Congress to carry out incentive auctions. Such auctions would consist on broadcasters voluntarily giving up some or their entire current licensed spectrum to the FCC; which would then put the spectrum up for auction to wireless broadband services, and in turn, reward broadcasters with part of the auction proceeds. In this way, the FCC would allow the spectrum now used only for broadcasting, to be used for other needed services. The FCC’s proposal entails relying on the voluntariness of broadcasters to give up their spectrum. There is an important problem with this approach. The FCC already has the power to withdraw broadcasters’ right to use the spectrum without the need to compensate them for it. In fact, broadcasters only have a license to use the spectrum for eight years, after which they may ask for a license renewal. At this moment, the FCC can deny them a license renewal if it finds that it is in the public interest to do so. Nevertheless, the Agency has not used this power effectively and, as a result, broadcasters have obtained license renewals almost as a matter of course, leading to an inefficient use of the spectrum. The FCC’s current proposal is problematic because it may give this Agency an incentive to use only incentive auctions as a tool to get the needed spectrum for the wireless industry, instead of also using its regulatory power to deny license renewals effectively. This result would not be desirable: it would undermine the FCC’s regulatory role and it would in turn let broadcasters, even those who have not served the public interest, benefit from the incentive auction proceeds, when they could have been denied the right to stay in the spectrum without any compensation.After presenting a brief background and the risks of the FCC allowing all broadcasters to participate in incentive auctions, this Comment will argue that Congress should condition such participation on each broadcaster’s record of compliance with public interest obligations. Furthermore, the FCC should assess compliance with these obligations according to a stricter public interest standard, assessed via a two-step test. First the FCC would assess whether a broadcaster has complied with present statutory and regulatory programming requirements, including a stricter showing of an offering of programming that addresses community interests. Second, the FCC would use a system to rate the different programs offered by broadcasters in terms of their desirability to consumers. In this way, the Agency would assess whether broadcasters have used their spectrum efficiently. Only those broadcasters that pass the test would be able to participate in the incentive auctions. Those who do not, would risk having their license renewal denied at the end of their license term and return their spectrum to the FCC. The Agency would in turn auction off such spectrum, but instead of sharing with the broadcaster some of the auction proceeds, it would give them all to the Treasury. In this way, the FCC can balance its desire to use incentive auctions as a means to address the current spectrum crunch while at the same time protecting its regulatory role in the use of the spectrum.