FCC Commissioner Ajit
Pai calls the agreement between the biggest wireless companies and the
broadcast incumbents over the Incentive Auction band plan a ‘consensus,’ ignoring
objections from consumers and competitors. But an auction designed by the
biggest incumbents will be a disaster for everyone, and a ‘consensus’ of
incumbents that ignores consumers is no consensus for an FCC Commissioner.
Last week, the Federal
Communications Commission (FCC) Wireless Bureau issued what should have
been a fairly routine and highly technical Public
Notice about possible alternative band plans for the 600
MHz Auction aka the Incentive Auction.
This could also be called “that incredibly crazy,
complicated deal Congress came up with last year where broadcasters sell back spectrum licenses to the FCC so the FCC can sell them to wireless companies.”
Since public comment makes it clear that the various
proposals present a lot of challenges (see my incredibly long and wonky
explanation here),
it shouldn’t surprise anyone that the Wireless Bureau asked for further comment
after holding a band plan
workshop a few weeks ago.
But Commissioner Pai issued a
separate statement blasting the Wireless Bureau. In particular, Pai berated
the Bureau for departing from what he called the “consensus framework” for one
particular band plan – the band plan favored by AT&T, Verizon, the National
Association of Broadcasters (NAB) and the largest equipment manufacturers. Pai
ignored objections to the AT&/VZ/NAB plan from consumer groups
(including Public Knowledge), competitors such as Sprint, or tech companies
such as Microsoft.
Over and over in his statement, Pai cited to the comments of
AT&T, Verizon and NAB as proof of a “broad consensus” as if none of these
objections existed.
As if to emphasize just who counts for Pai’s “consensus” and
who doesn’t, AT&T,
Verizon,
and the
NAB posted identical blog posts reiterating the core of Pai’s criticism.
To paraphrase:
“We, the most important and powerful people in the auction,
have come up with marching orders for the FCC on how to run the Incentive
Auction to our benefit. The Wireless Bureau should stop wasting time worrying
about what those stupid consumers and competitors say and get cracking on
setting up the band plan we came up with in our spectrum smoke-filled room. How
dare those auction experts and engineers in the Wireless Bureau suggest they
could design something better than we could, when we are the biggest, most
powerful, most important players in the wireless and broadcasting industries?
Don’t you know this auction is supposed to be all about us? Now stop
wasting time on all this ‘public comment’ and ‘independent judgment based on
the evidence’ and start implementing our consensus framework like Commissioner
Pai told you!”
This is particularly insulting after the Wireless Bureau
went out of its way to solicit consumer input by inviting me to participate in
the band plan workshop.
I do not necessarily agree with everything the Bureau has
proposed, but I give them credit for genuinely trying to reach an independent
judgment rather than just rubber-stamping the “consensus framework” of the most
powerful industry players.
An Auction Designed
By Incumbents Will Be A Disaster
It is bad enough when a regulator thinks “consensus” means
“whatever the biggest incumbents decide.” As I keep trying to explain in rather
long and wonky blog posts (see here
and here),
an auction designed by the incumbents (particularly with the broadcasters and
largest wireless carriers in agreement) will be a disaster. Not just because it
will allow AT&T and Verizon to capture all the good spectrum, as they did
in the
last two major auctions. I
grant that Pai seems utterly indifferent to the competition implications of the
auction. It will also be an utter disaster on the one thing Pai and other
Republicans seem to care about — revenue.
Ten years ago, UK auction expert Paul Klemperer wrote a
paper called “Using
and Abusing Auction Theory.” In it, Klemperer distilled the lessons from
successful and failed efforts by governments around the world to auction
wireless licenses to the cell phone industry.
To translate very loosely, Klemperer’s advice boils down to:
‘Given the chance, industry players will set up rules that favor themselves.
Don’t give them that chance. Focus on encouraging new entry and preventing
collusion among the powerful incumbents. Everything else follows from that.’
As I keep trying to explain, this sound general principle
applies with particular force here. I will not repeat the 1000+ words I wrote over
here on why the “consensus framework” beloved of the incumbents and
Commissioner Pai “creates the biggest problems for
efficient use of spectrum, competition and — in my opinion — auction revenue.
So of course this is the plan backed by the majority
of carriers (including AT&T and Verizon), the majority of equipment
manufacturers, and the broadcasters.”
Instead,
let me just quote the punch line:
“You may ask why so many carriers and equipment
manufacturers love Down from 51 if it creates so many problems. The answer is
that carriers do not give a crap about raising money for Treasury. Same thing
for broadcasters.”
From the point of view of the largest wireless
incumbents and the NAB, the best plan lets the broadcasters capture as much
revenue as possible and shorts the U.S. Treasury as much as possible, because
every dollar paid by a wireless carrier to a broadcaster is one dollar less
going to the Treasury.
For their part, wireless carriers will happily
fork over all their money to broadcasters and zilch to the Treasury if that is
what gets spectrum on the auction block. It’s a payment – why should they care
where the money goes?
Left to form a “consensus” plan, the rational
broadcaster and the rational giant wireless incumbent will collude together to
cut out the middle-man (the U.S. Treasury) and keep the cash to themselves.
So designing a successful auction means
actually stepping on the toes of NAB and the biggest wireless, not rubber
stamping their “consensus framework.” Yes, the FCC needs to hold out enough
money to broadcasters to make it worthwhile for them to show up, and the band
plan needs to be attractive enough for the wireless incumbents to get them to
bid. But that requires an independent judgment based on evidence, and a
willingness to push back on the incumbents as needed.
Conclusion
It is bad enough when a regulator thinks that
agreement among the most powerful industry constitutes a “consensus framework.”
But for Commissioner Pai to berate the Bureau for refusing to run roughshod
over consumer and competitor objections is simply inexcusable.
Agreement between NAB, AT&T and Verizon –
supported by their largest vendors – is not a “consensus framework.”
In the ordinary case, brushing off consumers
and competitors to cater to the incumbents would be offensive. For the
Incentive Auctions, treating the incumbent wish list as holy writ that the
Wireless Bureau dare not question is not merely offensive – it will be a
disaster.
Image by Flickr user gfpeck.