Why Congress Should Not Micromanage Incentive Auctions (Assuming They Happen)
Why Congress Should Not Micromanage Incentive Auctions (Assuming They Happen)
Why Congress Should Not Micromanage Incentive Auctions (Assuming They Happen)

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    Yesterday I attended the White House event on incentive auctions. It was probably the most sensible public event on the pro-incentive auction side I’ve attended to date. While I have had several discussions with Federal Communications Commission (FCC) staff that persuade me that, if Congress gave the FCC generic authority to do voluntary incentive auctions (subject to limitations to protect broadcasters – including low-power broadcasters – that want to stay in the broadcasting business), they could design a pretty good auction that would get more spectrum out for both licensed and unlicensed broadband access. Unfortunately, just about every public discussion on incentive auctions tends to focus on either a few simplistic talking points (more spectrum=good!) or, worse, has been about trying to persuade members of Congress that spectrum auctions are magical money trees that let you solve the deficit problem without raising taxes (just look at how the 2008 700 MHz auction completely eliminated the federal deficit).

    So a pro-incentive auction event that does not make me grit my teeth or put me to sleep is worth celebrating. More importantly, the key take aways bear repeating: 1) Congress should leave the details to the FCC; and 2) Unlicensed spectrum is a big part of promoting broadband and the FCC ought to take the opportunity presented by repacking to expand the available white spaces. Or as Michelle Connolly, former FCC Chief Economist, put it: “”The amount of money gained [at an auction] is less important than the value of reallocation [for new, innovative uses].”

    Because Public Knowledge hasn’t played much on incentive auctions, some folks seem unclear on PK’s position. So allow me to clarify. Incentive auctions could be useful if done right. Yes, it’s a bribe to broadcasters for spectrum they got for free. But a bribe is not objectionable per se as long as (a) it’s worth it, and (b) the other side actually performs what they got bribed to do. The advantage of an auction, as opposed to, for example, lots of promises to provide cheap broadband after a merger, is that we will actually get the spectrum. The FCC ought to have authority to run incentive auctions, and broad discretion to set them up in a way that handles the very complex dance between protecting existing services (including broadcasting), getting new spectrum out there for commercial use (for both licensed and unlicensed use), and furthering the other goals for auctions set out in Section 309(j) of the Communications Act (promoting competition, promoting opportunities for traditionally disenfranchised communities).

    But if Congress sets this up so that revenue drives the policy, it will end up a total disaster from a policy perspective, and quite likely from an auction/revenue maximization perspective as well. First, Congress is going to fund a bunch of very important projects (public safety network, wireless innovation) on the basis of revenue that may or may not actually be there. As I’ve written before, guessing auction revenue is a crap shoot at the best of times. I understand that auction revenue is what makes this attractive for the majority of members of Congress, who otherwise would not know a spectrum auction from a kiwi fruit, and that nothing moves on the Hill these days without a score from the Congressional Budget Office (CBO). Nevertheless, there is a difference between noting that this is likely to be revenue positive and pretending that auctions are a license for the federal government to print money.

    The second way it becomes a disaster is that as much as members of Congress don’t trust the FCC, you should trust members of Congress to understand this even less. That’s no knock on members of Congress, or their staff. It is a simple acknowledgement that this stuff is super hard and that it requires both expertise and flexibility to address (and that by the time the statute passes and the FCC is actually implementing this, many things may have changed). So you want to set boundaries with care. Myopic notions of “maximizing revenue” are almost certain to lock the auction design and repacking into something destructive (such as an inability to compensate licensees for unforeseen costs, or squeezing out secondary services such as Low Power TV or cable headends). Worse, no one can accurately predict what is going to “maximize revenue.” So efforts by Congress to incorporate specific instructions are likely to screw things up pretty good.

    Therefore, express limitations on FCC discretion ought to be reserved for things that are amenable to bright line rules, such as the limitation that auctions be voluntary. But to get members to vote for the bill, supporters will say what they think members want to hear. Sadly, that includes working on the general anti-government and specific anti-FCC sentiment prevalent among many members and promising that spectrum auctions are just gushers of gold waiting to be tapped.

    Bottom line is that we have the usual problem here in Washington, lots of people interested in doing the right thing for the wrong reason. Hopefully, that won’t screw up the actual bill.