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Is Net neutrality blocking FCC spectrum auctions?

The FCC is making the case for new authority to auction spectrum critical for mobile broadband growth. But the agency doesn't seem to realize the extent of Congress' seething anger over 2010's "Net neutrality" rules.

What's keeping Congress from authorizing the FCC to auction off underutilized television spectrum badly needed for mobile broadband? The answer, strangely enough, is Net neutrality--specifically, the FCC's "Open Internet" rules passed at the end of 2010 and which are only now being published.

While mobile Internet spectrum is at a premium, most over-the-air television broadcasters are not making full use of the spectrum allocated to them as part of the transition to digital TV in 2009. So the FCC and the White House have been pushing hard for new powers that would let the FCC conduct so-called "voluntary incentive auctions." The VIAs would allow broadcasters to give up some or even all of their licensed frequency in auctions coordinated by the FCC. Winning bids, which could run in the billions of dollars, would be shared between the current licensees and the government.

The FCC does not have legal authority to conduct VIAs without new powers only Congress can grant. But even as consensus for the VIAs grows among economists, policy analysts, and members of Congress from both parties, no legislation has passed.

Several bills have at least been introduced that would authorize the VIAs. In June, a bi-partisan bill was voted out of the Senate Commerce Committee, led by committee Chairman Jay Rockefeller (D-W. Va.) and ranking member Kay Bailey Hutchison (R-Texas). Democrats and Republicans on the House Energy and Commerce Committee introduced similar legislation earlier this month.

VIA authority also figures in the ongoing budget debate. As reported on CNET Tuesday night, Senate Majority Leader Harry Reid's proposal to raise the debt ceiling would give the FCC the needed authorization. Other budget proposals also include VIA provisions.

It's little surprise that spectrum auctions are being included in the long and complex budget process. VIAs could raise billions of dollars in new revenue for the government without raising taxes, an attractive option to both parties.

Net neutrality emerges as key obstacle
So what's the hold-up?

In Washington this week, there are new indications that a significant part of the delay is barely contained anger at FCC Chairman Julius Genachowski over last year's Open Internet proceeding.

On Wednesday morning, for example, Sen. Mark Kirk (R-Ill.), offered an amendment to Reid's bill that would prohibit the FCC from attaching any Net neutrality provisions to VIAs. "A Net neutrality provision," Kirk said, "will only serve to depress the market value of the spectrum, therefore decreasing government revenues and lower our ability to reduce the deficit."

Kirk's comments allude to the 2008 auction for 700 Mhz spectrum freed up as part of the digital TV transition. At the request of Google, the FCC included Net neutrality restrictions for the C block, now being used for Verizon's nationwide 4G LTE service. As a result, bids for the C block were considerably lower than for blocks without neutrality requirements. (Complaints have recently been filed over whether Verizon is abiding by the special conditions, which differ somewhat from the Open Internet rules the FCC ultimately adopted last year.)

Kirk's amendment is the most recent evidence that congressional Republicans have linked the fate of VIAs with the repeal of Net neutrality. Earlier this month, for example, House Republicans introduced a bill that would have authorized the auctions but would have exempted winning bidders from the Open Internet rules.

In short, Congress seems unwilling to give the agency any new authority while the Open Internet rules remain on the books. Republicans, especially members of the Tea Party movement, have cast the Open Internet order as exhibit A in their case against rogue federal agencies exceeding their powers and regulating without adequate cause.

Rep. Darrell Issa (R-Calif.), chairman of the House Oversight Committee, made the connection explicit. In April, Issa said bluntly that Congress would not grant the FCC incentive auction authority while the Open Internet rules remain in place. "Until Net neutrality is rolled back," Issa said, "I don't believe Congress is going to be willing to give the FCC any new power."

Collateral attacks on Open Internet rules expand
Issa's belief is well-supported by collateral attacks on the Open Internet rules outside the VIA debate. On Wednesday, for example, 11 Senate Republicans led by Sen. Dean Heller (R-Nev.), urged Chairman Genachowski to conduct a thorough cost-benefit analysis of the new rules before putting the rules into effect.

An executive order from President Obama issued soon after the new rules were passed strongly encourage independent regulatory agencies including the FCC to conduct such an analysis as part of significant new rulemakings. Heller argues that a thorough review of the costs of the new rules before the Commissioners voted might have changed the outcome in last year's controversial order.

(In February, I testified before a House Judiciary subcommittee about the Open Internet Order, and argued in part (PDF) that the agency had completely failed to analyze the costs of the rules and their likely unintended consequences.)

It's little surprise that spectrum auctions are being included in the long and complex budget process. VIAs could raise billions of dollars in new revenue for the government without raising taxes, an attractive option to both parties.

Several budget proposals and continuing budget resolutions offered over the course of the last months of negotiations over the debt ceiling have also included provisions that explicitly deny funding for the FCC to implement the Net neutrality rules.

On Thursday, key House Republican committee chairmen wrote Genachowski to request documents relating to key events and outside influences in the course of the Open Internet rulemaking. The letter raises concerns that the agency "failed to develop an independent conclusion derived from a balanced fact-based record, which is incompatible with proper rule-making."

The most serious challenge to the new rules, however, came in April. The House passed a resolution of disapproval of the order in a vote that included six Democrats and all but two House Republicans. The resolution is still pending in the Senate. If it passes there and avoids a promised veto from President Obama, the new rules would be immediately struck and the FCC barred from future efforts to reenact them.

Congressional anger over the Net neutrality rule-making was apparent from the beginning. The FCC, after a year of rancorous and often unprofessional proceedings, passed the new rules by a bare majority the day before Christmas--after Congress had adjourned. As soon as the new Congress was sworn in in January, it was clear that Republicans in particular were seething over both the process and substance of the rulemaking.

After a federal appellate court ruled in April, 2010 that the FCC lacked authority to enforce Net neutrality over broadband provider Comcast, for example, the agency threatened to "reclassify" broadband as a wired telephone service, where the agency still has the authority to establish rates and force carriers to share their equipment.

After a bi-partisan majority of Congress pleaded with the agency not to take such a drastic backward step, Genachowski proposed instead to reclassify but refrain from applying the most onerous telephone rules to broadband. Neither threat was carried through, though the reclassification docket remains open at the agency.

Congress's anger at the FCC is also focused on what the agency didn't do last year. The Net neutrality proceedings occupied much of the agency's senior staff. This meant little progress was made on spectrum issues, reform of the Universal Service Fund, and on giving adequate attention to the agency's visionary National Broadband Plan, released in March, 2010 but lost in the animosity over Net neutrality.

Other obstacles remain potent
To be sure, approval for VIA authority faces other significant hurdles. Besides the overall partisan stalemate that has permeated the new Congress, the National Association of Broadcasters has been publicly lukewarm on the idea, and privately has been pressuring Congress to stall any decision.

What Genachowski really has is a problem not of policy but of politics. If the chairman can't find a way to mend fences with Congress, authority for the agency to proceed with VIAs seems increasingly unlikely. And that process can't begin if the chairman keeps looking for policy solutions to a political problem.

The trade association, representing thousands of over-the-air radio and television stations, fears that "voluntary" auctions may become involuntary if insufficient spectrum is offered for reallocation to mobile broadband.

Their fears may be well-founded. Chairman Genachowski has been raising the specter of catastrophic "spectrum exhaustion" for mobile broadband since first taking office. The National Broadband Plan elevated those fears, estimating that at current explosive growth rates, mobile broadband would need 500 MHz of additional spectrum in the next five years. Without it, the mobile revolution could come to a screeching halt, putting out one of the few bright lights in the otherwise dim economic outlook.

So far, however, the FCC has only managed to offer mobile broadband providers 25 MHz of additional spectrum. The agency also issued new rulesopening the use of so-called "white spaces" between television channels to mobile providers. These efforts, though commendable, will not head off an imminent spectrum crisis.

The fate of an interoperable public safety network, a key recommendation of the 9/11 Commission, has also complicated the authorization of spectrum auctions. Some of the proposed spectrum legislation, for example, would use the government's share of VIA proceeds to fund the development of the network and would allocate outright the so-called D block. The D block is spectrum in the valuable 700 Mhz range that did not receive bids above the reserve price in a 2008 auction--the last significant auction the FCC has conducted.

But there is strong disagreement in both parties about how best to make the public safety network a reality. Some in Congress, for example, still favor the original plan, which was to auction the D block to a private entity, which would build and operate the network as a for-profit enterprise. While that debate continues, VIA authority is further stalled.

Much ado over nothing?
Still, it's clear now that anger over Net neutrality is the biggest barrier to VIA authorization. Yet defending the Open Internet rules may not be worth the cost of holding up needed spectrum reallocation. That's because the rules seem unlikely ever to go into effect. While the House's Resolution of Disapproval seems unlikely to pass the Democratic-majority Senate or overcome a promised veto from President Obama, the rules could still wind up as a bargaining chip in the larger budget negotiation process.

And once the rules are finalized, perhaps as soon as this fall, promised court challenges by Verizon and MetroPCS seem likely to prevail. Earlier decisions from the D.C. Circuit Court of Appeals already create a high barrier for the agency to overcome in proving it has legal authority to regulate any aspect of the broadband Internet ecosystem.

But following the Comcast decision, which came in the middle of last year's rulemaking process, the FCC was left with almost nothing in the way of statutory authority to support the Open Internet rules in particular. Though Genachowski promised in November that his legal team had developed a novel theory of jurisdiction, the final order offered little more than a rehash of arguments already rejected in the Comcast case.

An important Supreme Court decision in June over violent video games may have made the FCC's case even harder to win. In ruling that video games constitute a form of information protected by the First Amendment, the court's decision gives teeth to an argument that the Open Internet rules violate the free speech rights of broadband providers.

That reading of the video games case came first from an unlikely source. Law professor Susan Crawford, a former Obama White House official and a strong proponent of Net neutrality generally, wrote on her blog that the video games case "may further strengthen the carriers' arguments that any nondiscrimination requirement imposed on them should be struck down." That's because the nondiscrimination rule, the most controversial of the new rules, restricts how providers distribute speech, and must therefore overcome a strong presumption against regulation.

Note to Genachowski: it's politics, not policy
While the Net neutrality rules stand, the FCC faces continued delay in securing authority to conduct VIAs. And Genachowski has shown little indication that he recognizes the connection between the two. In encouraging Congress to grant the agency new powers, the FCC continues to stress economic and policy rationales for the auctions. Those arguments have largely been accepted, however.

What Genachowski really has is a problem not of policy but of politics. If the chairman can't find a way to mend fences with Congress, authority for the agency to proceed with VIAs seems increasingly unlikely. And that process can't begin if the chairman keeps looking for policy solutions to a political problem.

Adding insult to injury for consumers, the agency has offered little in the way of a backup plan to find urgently needed new spectrum. So the ultimate victims of this inside-the-beltway drama will be mobile Internet users. We really need that spectrum.