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Why spectrum debate is tied to debt ceiling plan

Congress may consider authorizing wireless spectrum auctions as it comes up with a plan to fix the budget and raise the debt ceiling.

Congressional leaders seem to be throwing everything but the kitchen sink into the debate over the budget and raising the debt ceiling. Now it looks like the incentive wireless spectrum auctions proposed by the Federal Communications Commission may end up as part of a package that is being hashed out by Republicans and Democrats in Washington, D.C.

On Monday, Senate Majority leader Harry Reid included the sale of wireless spectrum to mobile broadband providers in his proposed package of cuts and revenue-raisers. He said he expects the sale of wireless spectrum to generate $15 billion in revenue for the government, which could be applied to reducing the nation's budget deficit.

At first blush it seems rather silly that the issue of auctioning additional wireless spectrum would be caught up in the current budget debate and stalemate over the debt ceiling. But when you take a closer look, it may not be so ridiculous after all.

Think of it this way. When a household is looking for some extra cash, the family may start to look at added expenses they can cut. For example, maybe they get rid of cable TV or they stop eating out. Mom may also go back to work. And the family may also consider selling some of its assets, such as dad's coveted sailboat. The proceeds from all of these measures could be used to help pay down credit card debt or fill gaps in the family's budget.

For the government, cutting monthly expenses is like slashing spending on entitlement programs, such as Social Security and Medicaid. Creating new revenue streams could mean raising taxes. And getting cash by selling off some assets is similar to the notion of auctioning unused wireless spectrum from TV broadcasters and government entities.

The first two options--cutting expenses and raising revenue--are already being debated among Democrats and Republicans as they try to figure out a plan to deal with the nation's budgetary and debt issues. So it makes perfect sense that Congressional leaders would also be looking at ways to raise money through the sale of valuable assets.

"At the budget level, it's logical for wireless spectrum auctions to be found in the same conversation as reducing the deficit," said Paul Gallant, an industry analyst with MF Global. "The spectrum auctions will raise money for the government that could help solve the budget and debt problems."

Peter sells wireless spectrum to pay Paul
Indeed, the notion of using wireless spectrum that is voluntarily given up by TV broadcasters to be re-auctioned and re-allocated for wireless broadband use, seems like a no-brainer. TV broadcasters will relinquish spectrum licenses for TV channels that they are not using, in exchange for a cut of the proceeds in an auction. That spectrum is then resold to wireless broadband providers, which will use the spectrum to either add capacity to current wireless broadband networks or build new networks.

Not only does this solution provide additional revenue to the government. But that spectrum that has been sold will be put to use to build wireless broadband networks that will help drive adoption of wireless Internet devices, such as smartphones and tablets. And ultimately this will create new jobs and add cash to the economy.

How much money can be raised through these auctions? The Congressional Budget Office estimates that incentive auctions could bring in nearly $25 billion over the next 10 years. Under one bill that has already been proposed in the Senate, the Congressional Budget Office expects around $6.5 billion that can be used to reduce the deficit. Some House Republicans have come up with a different plan that could raise even more money.

While congressional leaders can't seem to agree on how to raise revenue or how to cut spending, most seem to agree that wireless spectrum auctions are a viable option to help the government raise some much needed cash. And that's a good first start, given that Congress must pass legislation authorizing the Federal Communications Commission to design and conduct the auctions. But working out the exact legislation may be a little tricky.

More than one way to skin a cat
The big question for Congress is whether the incentive auctions should be authorized as part of the bigger debt ceiling and budget legislative package or dealt with in its own bill. Some special interest groups, such as public safety and TV broadcasters would likely get more of what they want if there was a separate bill for the incentive auctions, Gallant said.

Last year, Sens. Jay Rockefeller (D-W.Va.) and Kay Bailey Hutchison (R-Texas) introduced such a bill that would authorize the FCC to auction additional spectrum. The bill, which passed through the Senate Commerce Committee in June, also called for some spectrum, which had not been auctioned off in an earlier FCC auction, to be given to the public safety community at no cost to build a nationwide wireless network for first responders. In addition, Rockefeller's and Hutchison's bill calls for the government to help fund the deployment of this new nationwide public safety network.

Some legislators agree that public safety should be given the D-block of spectrum left over from the 700MHz FCC spectrum auction in 2008. But some House Republicans have taken issue with the spectrum being given away for free. In the original auction, the D-block spectrum was to be auctioned off with the stipulation that it had to be shared with public safety. Not enough bidders bid on the spectrum, and the government has been left with a question of how to handle this swatch of valuable spectrum.

Even among lawmakers who support the D-block spectrum being used for public safety, there is also a debate over whether the government should fund the building of this network. And if it does fund the new network, how much money should be allocated.

Gallant believes that even if the spectrum auctions are attached to the debt ceiling and budget legislation, public safety will still get its spectrum. But he thinks public safety agencies will have a better chance of getting funding to build the nationwide first-responder network if the spectrum matter is dealt with in a separate bill.

"Right now, spectrum is being viewed as a source of money," Gallant said. "The public policy considerations are a distant second. And this is a budget driven process. So it's not clear if there is any appetite to spend money on a public safety."

The other issue is that TV broadcasters are generally not in favor of the incentive auctions. But leaders of the industry's lobbying group, the National Broadcast Association, realize that regardless of whether they like it, the auctions will happen. So now the group is lobbying to protect the spectrum that will be left for broadcast TV. They want to make sure there are specific technical conditions written into the legislation that will protect broadcasters from interference.

The NAB fears that lumping the spectrum auction into the debate over the budget and debt ceiling could harm some broadcasters. The group wants to make sure that if a station relocates to another channel, that the result is not reduced coverage and loss of potential viewers.

The group has already expressed concern over Reid's proposed legislation.

"NAB is deeply concerned about provisions currently in Senate Majority Leader Reid's legislation that would threaten the future of a great American institution--free and local television," Dennis Wharton, vice president of communications for NAB, said in a statement. "We will work with him as the process moves forward in hopes that our issues can be addressed."

But Gallant points out that adding technical provisions into legislation to protect against interference will likely mean there is less spectrum available to be auctioned, which will result in less revenue for the government. While the FCC's National Broadband Plan has identified 120MHz of spectrum that can be reallocated from broadcast TV for the incentive auctions, Gallant said he expects the FCC will likely have about 85MHz of spectrum to auction because of the technical restrictions.

Still, Gallant said incentive spectrum auctions are coming, and some money will be raised to help alleviate the nation's debt problems.

"There will be a spectrum bill sooner later," he said. "And it will either be a part of the debt ceiling bill or it passes as its own bill. But the train is already leaving the station."