At CES, FCC chair warns of mobile 'spectrum crunch'--for the third time

LAS VEGAS--In a keynote address yesterday, FCC Chairman Julius Genachowski sounded a warning for mobile broadband users. "We're threatened by a looming spectrum crunch," Genachowski said. "This is the dark cloud around the silver lining."

The explosion in innovation in mobile computing, evident everywhere here at CES, could come to a crashing halt if the government can't provide more bandwidth to mobile broadband carriers and their customers. And that, Genachowski said, would threaten U.S. jobs and technical supremacy.

Trouble is, that's precisely the warning Genachowski has delivered in his previous two appearances at CES. And in the interim, almost no new spectrum has been allocated for mobile broadband.

"Almost three years ago we started sounding the alarm, at the time to some debate," Genachowski said. "But in a world of tablets, smartphones, and now machine-to-machine communications, the debate has been settled. The plain fact is that aggregate demand is increasing at very rapid pace, while supply is flat."

The reality of a looming spectrum crunch has now been acknowledged by all public and private participants in the mobile ecosystem, Genachowski said.

How much spectrum is required? In numbers that now seem conservative, the FCC's 2010 National Broadband Plan estimated that growth in mobile broadband applications, customers, and usage required an additional 300 Mhz of prime spectrum by 2015, and 500 Mhz by 2020.

Yet by the end of 2011, only 25 Mhz has been added to the allocation available for mobile broadband. A crisis is imminent, and obvious to any mobile user experiencing slow connections or delays in getting the latest 4G LTE devices.

What's the holdup?
If everyone agrees that more spectrum is essential, what's holding up progress? The most significant issue is a lack of inventory. Since 1994, when Congress finally embraced spectrum auctions first proposed by Nobel prize-winning economist Ronald Coase in 1959, the FCC has conducted more than 80 auctions, generating more than $50 billion in revenue for the Treasury and incalculable value to consumers and the economy overall.

But there is almost no spectrum left. It's all been allocated, much of it given away for free in the early days of radio and television. So in order to hold new auctions, some current license holders will have to give up their frequencies to better and higher users.

There are plenty of places to start looking. In the private sector, television broadcasters are holding some of the most valuable frequencies--the "beachfront property" for mobile broadband. Yet even after the transition to digital broadcast, the number of U.S. households that rely on over-the-air signals continues to plummet. Perhaps fewer than 10 percent of homes get their TV exclusively over-the-air.

Government agencies are also major holders of spectrum, and there is widespread belief that much of that bandwidth isn't being effectively used--or used at all. But prying spectrum out of the hands of government agencies has proven difficult at best for the National Telecommunications and Information Administration, which manages federal spectrum.

That's why the National Broadband Plan first proposed a new system of "voluntary incentive auctions," under which broadcasters and other private license holders could offer some or all of their current allocations to the FCC to package into new auctions. The proceeds from the incentive auctions would be split between the license holder and the government.

But the FCC cannot conduct VIAs without authorization from Congress. And given a pattern of worrisome actions by the FCC since Genachowski took over as Chairman in 2009, Congress has shown little interest in giving the agency any new powers, including authority for incentive auctions.

Legally, the FCC is an independent "expert" agency that reports to Congress. But the agency has strayed dangerously close to the White House, and shown signs of a political agenda.

For example, even supporters of the agency's 2010 Net neutrality rule-making found the year-long process chaotic and the result unsatisfying. The agency's zeal to kill AT&T's proposed merger with T-Mobile USA also raised eyebrows. The eventual approval of the Comcast-NBC Universal deal in early 2011 came loaded down with dozens of on-going conditions, many irrelevant to legitimate concerns over harm to competition.

Broadcasters also objected to the proposed auctions, fearing that "voluntary" auctions might become involuntary if insufficient spectrum was offered.

Over the last year, however there have also been signs the agency and Congress were moving closer to detente. A spectrum reform bill that included incentive auction authority, co-sponsored by Sen. Jay Rockefeller (D-W. Va.) and Sen. Kay Bailey Hutchison (R-Texas), passed out of committee in June. Late last year, the House also introduced spectrum legislation, though Republicans and Democrats there sharply disagreed over the terms of the new authority.

There were also indications late last year that authorization for incentive auctions might be attached to ongoing budget proposals. VIAs could raise billions of dollars to help offset the cost of the benefits, a key requirement of the on-going horse-trading between Congress and the White House. Congressional staffers and other insiders speaking at CES this week believe there's still a chance the authority will come as part of the next stage of negotiations over extending unemployment benefits.

FCC: Don't limit our flexibility
The discussion now seems to be shifting from doubts about whether to grant VIA authority to arguments over how narrowly the FCC's new powers should be crafted. Ironically, the new debates are the first sign of real progress in nearly three years of discussions.

In Genachowski's comments, as well as those earlier in the day by FCC Wireless Bureau Chief Rick Kaplan, the emphasis quickly pivoted from making the case for spectrum reform to strong words about the agency's calls for an open-ended mandate.

Kaplan claimed that the House bill voted out of a key House Energy and Commerce subcommittee "doesn't give us flexibility."

Genachowski agreed. "My message today on VIA is simple," he said. "We need to get it done now, and we need to get it done right."

The FCC is troubled by provisions in the House bill that would limit the agency's ability to attach use conditions and bidder qualifications as a way of shaping competition.

Neil Fried, senior telecommunications counsel for the House Energy and Commerce Committee, said those provisions are essential to avoid "FCC shenanigans" that have plagued previous auctions.

For example, in the 2008 auctions for 700 Mhz spectrum freed up in the transition to digital television, the FCC attached open access conditions to the C block. The conditions were proposed late in the process by Google, which hinted it wouldn't bid without them. In the end, Google didn't win any of the auctions, and the C block was licensed to Verizon. (It now forms the basis of the company's 4G LTE network.)

"Larger carriers went to the A and B blocks to avoid the C block conditions," Fried said, "pushing out smaller carriers." That was the opposite result to what the agency had intended.

The open access conditions also reduced the amount of the winning bids. According to a study (PDF) by Gerald R. Faulhaber, the FCC's former chief economist, and David J. Farber, the agency's former chief technologist, open access conditions on the C block led to a 60 percent reduction in bid price relative to the A and B block. Open access cost the government billions of dollars.

Conditions attached to the D block, which is intended for use as an interoperable public safety network, were so severe that the auction failed to meet its reserve price. That block is now sitting idle, and there are still disagreements over how to build the public safety network. (Fried and others today indicated today that there is room for compromise on the fate of the D block.)

The House bill is written to avoid similar problems going forward. Giving the agency control over the mechanics of auctions is fine, Fried said, "but we can't shackle particular winners of licenses." If the FCC wants to regulate, he said, it should go through the normal rulemaking process and apply new rules to everyone.

What's the agency's plan B and beyond?
It's still possible that Congress and the FCC can find a workable solution for incentive auctions in the next few months, before the 2012 presidential election brings substantive legislating to an effective halt.

But Genachowski's single-minded pursuit of VIAs has left the agency without substantive alternatives to head off the "spectrum crunch." Given the timetable for new auctions under the best of circumstances, the lack of any real Plan B is baffling. As the FCC's Rick Kaplan acknowledged, the design and execution of new auctions will take three to five years, and the agency won't even start the process until Congress gives the go-ahead.

FCC Commissioner Robert McDowell, speaking after the chairman's keynote, said the more realistic time frame is closer to 10 years.

Either way, incentive auctions on their own could never have solved the short or medium-term need for more spectrum identified in 2010 by the Broadband Plan. Even if Congress had authorized incentive auctions when the FCC first proposed them, the first reallocated spectrum still wouldn't be online today. If the agency doesn't start the process until this year or later, it's simply impossible to get 300 Mhz reallocated before 2015. The "crunch" seems certain to hit users in the meantime.

Asked about a back-up plan, Kaplan reiterated the possibility of freeing up government spectrum and encouraging more license transfers through secondary markets.

McDowell had more concrete proposals to offer. "We need to review all of our rules and see how they are frustrating spectral efficiency or hindering the effectiveness of secondary markets," he said. He called on Genachowski to convene workshops with industry participants on improving spectrum uses in the short term, and for the FCC to target local zoning rules that make it difficult to add distributed antennae to existing telephone poles.

Up until now, mobile carriers have gotten around these and other regulatory obstacles principally through mergers and acquisitions. In the last five years, for example, the FCC has approved a dozen such transactions. But the agency's open hostility to the AT&T/T-Mobile deal, and now concerns about Verizon's plan to acquire spectrum from a coalition of cable providers, suggest that avenue may be foreclosed in the future.

And even if everything goes according to the FCC's plan from here on out, mobile broadband will continue to expand, requiring even more bandwidth for new applications including device-to-device connections, smart grid technology, and other services the chairman has long argued are vital to the U.S. economy.

The mobile revolution simply cannot continue without more and better use of the limited range of usable spectrum, a crucial natural resource for the 21st century. So even if Congress does sort out incentive auction legislation quickly, the spectrum crunch will be far from over. In fact, it's only just starting.

As mobile broadband continues to evolve in exciting ways, longer-term needs will require more dramatic solutions. A new, comprehensive strategy for managing the nation's radio frequencies is long overdue. Depending on the results of this fall's presidential election, however, that task may now fall to Genachowski's successor.