A former chief economist for the Federal Communications Commission insists that consumers are losing billions of dollars each year due to spectrum policies blocking innovative technologies from competing with cable and satellite TV operators.

“Federal budget number crunchers estimate that bids for licenses to share satellite TV spectrum would bring in $60 million,” said Thomas Hazlett, a senior fellow at the Manhattan Institute, in an Oct. 14 press release. “But consumers are likely to be losing $230 million each month due to delays and an ill-conceived spectrum policy.”

Hazlett has served as a consultant to Northpoint Technologies, a company that has been vying for Federal Communications Commission approval to offer terrestrial services or Multichannel Video and Data Service (MVDDS) in the 12.2 to 12.7 GHz band since the mid-1990s. The band is used by broadcast satellite TV providers DirecTV Inc. and EchoStar Communications Corp.

The satellite TV industry opposed any sharing, but failing in that effort, now supports the FCC's decision to auction MVDDS licenses to use the spectrum. The auction is scheduled for Jan. 14 with 214 licenses available for any digital, fixed, non-broadcast uses in 214 Designated Market Areas (DMAs) with 500 MHz of unpaired spectrum each.

When issuing an initial ruling in April, Commission Chairman Michael Powell and Commissioner Kathleen Abernathy said they agreed that the efforts of Northpoint Technologies should qualify it for an advantage in the market, but that it would be illegal for the FCC to do so.

“Many have claimed that Northpoint deserves a nationwide 500 MHz terrestrial license for free based on its regulatory and technical efforts to make this service a reality. We sympathize with the sentiments that underlie these claims. There is little question that had it not been for Northpoint, the MVDDS service would not be ready to move forward today. Northpoint has put significant time and resources into developing its service model as well as its Commission and congressional advocacy over a long period of time. We applaud these efforts.

“But the statute does not support exempting this spectrum from auction nor does it grant Northpoint the exclusive privilege it seeks. We also do not believe other licensing distribution mechanisms that avoid mutual exclusivity are appropriate for this service,” Powell and Abernathy said.

But Hazlett said: “Forcing innovative, land-based competitors like Northpoint Technology to get in line for a federal auction protects incumbents and taxes entrepreneurship, creating huge disincentives for investment and competitive risk taking.”

Terrestrial competitors of Northpoint Technologies have entered the argument and claimed successful, noninterfering deployments in places such as Europe. All the companies hoping to provide terrestrial service dispute each others claims as to who has the best technology and who was first with the idea.

While it may be too late to stop the auction, critics such as former FCC economist Hazlett see it as an example of flawed system that stifles and delays innovation.

“The goal should be to award licenses to innovators quickly, so that consumers benefit from additional choices, and entrepreneurs have incentives to gain new spectrum allocations,” Hazlett says.

The current approach by the FCC “appropriates upstart competitors, seizing their business plans and demanding a ransom to sell them back,” according to Hazlett.

Hazlett adds: “FCC license auctions are, in this case, an extremely inefficient way to raise a trivial amount of revenue compared to the vast consumer gains that are squandered.”

Hazlett says that entry by wireless land-based competitors would likely lower retail prices for subscription TV and high-speed Internet access by at least 5 percent.

“A 5 percent price decline for cable and satellite subscribers results in consumer gains of about $2.78 billion annually,” Hazlett said. “The goal of increasing broadband competition overwhelms any other consideration.”

Hazlett says his numbers may be conservative, given that the General Accounting Office recently reported to Congress that where there is more than one cable TV company competing within a market prices are fully 17 percent lower.

According to Hazlett, “the purpose of the satellite TV operators' campaign to force an auction is to create a barrier to entry: Increased competition would force incumbents to lower prices. Blocking this pro-consumer rivalry costs consumers at least tens of millions of dollars each month.”

Commissioner Michael Copps said at the time of the ruling that he also had concerns about the auction process ensuring competition.

The Commission “should have limited auction participation to entities that would provide new competition in the multi-channel video market. That would have meant excluding DBS licensees. In addition, we should have committed to explore ways to ensure that the process placed a priority on the value of local ownership, sustainable rural service, diversity, small business ownership, and the provision of local television stations.

Instead, the Commission sacrificed these public interest mandates to the theory that an unconstrained auction will, by itself, yield the best result,” Copps said.

Licensing MVDDS serves the public interest, Copps said, and he agreed with the decision for the most part. “I continue to believe, however, that the Commission can reduce uncertainty and promote greater efficiency by establishing a more universal understanding of the meaning of harmful interference rather than establishing new standards each time a dispute arises.”

Last spring, Commisisoner Kevin Martin objected in part because of the possible intereference problems.

“I believe we should proactively seize opportunities to encourage, and even insist on, more efficient use of current spectrum, particularly through sharing,” Martin said. “But the Commission needs to do so while still protecting the rights of existing licensees and their customers.”

Martin said the Commission's decision “injects uncertainty into the spectrum market” as he dissented from the majority in the decision, and approved only the auctions, eligibility, and broadcast carriage sections of the order.

“By law, DBS service is entitled to protection from harmful interference. And even more important, existing DBS customers deserve to be protected from unreasonable interference. The majority, however, refuses to quantify a harmful interference standard,” Martin said.

The implementation and resulting limits on interference are arbitrary and do not afford enough protection from interference for those who may need it most — those in rural areas outside the 32 major television markets, Martin said.

Powell and Abernathy said, however, that the Commission wisely adopted a reasonable, but strict interference limit on MVDDS operations to ensure a regulatory regime that is clear and enforceable, yet flexible. The Commission has adopted “a safety valve,” by allowing individual DBS licensees or distributors to present evidence that the appropriate EPFD for a given service area should be different from the EPFD applicable in that zone, according to Powell and Abernathy.

Powell and Abernathy believe the Commission exercised regulatory restraint to allow MVDDS to evolve in the marketplace first, and as a topic of regulation second. They said the Commission “can and should be proud of efficient and effective spectrum sharing on a broad scale that allows us to license an entirely new service.”