From the Lips of the Commission's First Auction Czar

What!!!!! The primary motivation for FCC auctions was to raise money for the Federal Treasury!!!! Why next thing you know they’ll be telling us there was gambling going on in the backroom of Rick’s Café.

Ever since Congress gave the FCC authority to auction spectrum (with the stern admonition that raising revenue was not to be a consideration) the Commission has held steadfast to the claim that economics has nothing to do with its enthusiasm for awarding licenses by competitive bidding. The mantra always has been that it isn’t the money; auctions are simply a vehicle for getting spectrum quickly, efficiently and fairly into the hands of those that value it most highly. Some FCC economists even went so far as to argue that the best auctions would be those in which licenses went for the lowest possible price, since that would indicate sufficient spectrum was being been made available to the right parties in the right areas.

Those claims generally were met with a high degree of skepticism by this industry and virtually every other telecommunications industry segment. It certainly looked like money was important when the FCC held its first, open outcry auction and used young, attractive blondes (twins no less) to work the crowd and encourage active bidding. Money seemed to play a role in the Commission’s absolute intransigence when asked to show mercy for those who were a day or two late in making their installment payments. Money certainly appeared significant to then-FCC Chairman Hundt, who displayed a mega-sized, blown-up, multi-billion dollar auction check in his office. But, hey, they insisted we had it all wrong and what they cared about was getting spectrum out into the marketplace, where it could be used to cure cancer, eliminate poverty, and ensure world peace.

Well, what a difference a day and a change in administration make. When that very same Reed Hundt was asked at the recent EWA meeting how/why the FCC had embraced auctions, he confessed that the Federal Treasury needs just might have had something to do with that decision. We can only hope that confession was good for his soul. It certainly was satisfying for the audience to learn that its instincts had been right all along. We always knew in our heart of hearts that revenue-raising was a, perhaps the, key motive for auctions. Hearing it from the lips of the Commission’s first auction czar confirmed those long-held suspicions.

But at this point, other than a childish ability to crow “We told you so,” there’s not much satisfaction to be gained from having those suspicions acknowledged. Auctions now are so embedded in the FCC’s regulatory mindset that it would be difficult, probably impossible, to dislodge them. And while they undoubtedly retain an economic allure for the Federal Government, particularly for an administration mired in debt with no relief in sight, they have gained popularity with the FCC for other reasons as well.

The reality is that the FCC has to have some mechanism for selecting among mutually exclusive applicants, and auctions are one way to do that. This was not an issue when PLMR licensees enjoyed a “first-in” channel assignment policy. But that system works only for already allocated spectrum and, even better, spectrum that is not available on an exclusive basis. It ensures that all comers got a license; it doesn’t guarantee how usable the channels will be.

The first-in-time approach breaks down entirely with a new allocation, since the spectrum becomes available to all comers at the same time. You may recall the lines that formed in frequency coordinator parking lots days before the start date for accepting applications for 900 MHz Business and Industrial/Land Transportation channels. You also may remember setting an alarm to wake you just before midnight so you could fax an application to a coordinator as close as possible to 12:00 a.m. on the day that a particular exclusive channel was to be made available. Auctions certainly have their downside, but so did previous systems when not viewed through the rose-colored glasses of our memories.

So if you need a mechanism for selecting among mutually exclusive applications in some rational manner, what are the options? For decades, the FCC used comparative hearings in which winners and losers often were chosen based on legalistic hairsplitting that bore little relation to the ultimate use of the spectrum. Hearings were good for lawyers and consultants, but it would be a stretch to claim that they advanced the public interest, even if they were concluded in less than the decade or more that some of them ran. The FCC then switched to lotteries in the hope that this would at least accelerate getting the spectrum deployed. But, alas, lotteries were the worst of all systems. They put spectrum in the hands of those who didn’t know a hertz from a hearse and still engendered disputes and litigation that not infrequently tied the spectrum up for years or even decades.

Given this history, it is not surprising that the FCC finds auctions attractive, now that they have the process down to a science. They are relatively quick, but even when they drag on, the time burden falls primarily on the bidders, not FCC staff since auctions practically run themselves. The post-auction environment also is appealing to the FCC. Site-based licensing is messy and resource-consuming for the staff. Granting a license in Boston can impact potential assignments in Richmond because of the daisy-chain effect. By contrast, auctions equal geographic licenses. As far as the FCC is concerned, once such a license is issued, it requires minimal regulatory upkeep other than confirmation that the required construction has been completed and that it has been timely renewed. There still can be cross-border issues, but they are few and far between by comparison with the ongoing disputes between co-channel site-based licensees. If you’re a regulatory agency that really doesn’t like to be involved in licensing, which seems to be the current FCC mindset, the geographic licenses awarded by auction are like catnip.

So make no mistake about it, auctions are here to stay. The key will be to get them properly sized for our industry. If each auction block includes the “right” amount of spectrum covering the “right” geographic area, it is possible for small businesses, both commercial and private internal, to bid successfully. Just look at the results of Auctions 40 and 48. They may not have generated much revenue for the Federal Treasury, but they created business opportunities for many companies that might have doubted their ability to win in a competitive bidding process. It was a quick, efficient and fair way to get that spectrum into the hands of those who would use it. Perhaps this time the government actually got it right.