Wait a secondary
In December, the FCC issued a policy statement. For those who are unfamiliar with the term “policy statement,” think of the Florida Supreme Court’s policy statement on pregnant chads. It had the force of law and the attention of the nation for about as long as it takes my brother-in-law to down a six-pack.
Still, policy statements make amusing reading.
This time, the commissioners spoke to “principles for promoting the efficient use of spectrum by encouraging the development of secondary markets.” (I will resist the temptation to comment on FCC use of the word “principles” in any document.) What the commissioners were looking into is which second tier markets might be encouraged by access to blocks of auctioned spectrum whose licensees might not really need or want them to effect business plans.
The agency was speaking about entities that might accept spectrum via disaggregation and partitioning and then create a secondary service, such as dispatch, on channels that were originally auctioned for, say, PCS.
The FCC put this in the form of a policy statement because the idea is not well-founded in logic, law or the motivator of large licensees – money. To be fair, the FCC supports the use of “marketplace forces,” but its nod to competition falls short of recognizing that its addiction to auctions might have caused what it now sees as a large amount of “unused or underutilized spectrum.”
To offset the problem of awarding auction participants spectrum that they cannot possibly use or afford to build out within a reasonable time, the FCC is suggesting that maybe the licensee could lease a portion of the geographic area encompassed by the license (partitioning by lease), or lease a portion of the spectrum (disaggregation by lease), or it might make an assignment of all or a portion of the license for permanent disaggregation or partitioning.
Underlying the FCC’s approach is the agency’s belief that spectrum is a “commodity,” and that the agency should facilitate trading.
In the old days, the FCC understood that spectrum was placed on analyzers, not auction blocks, for the sole purpose of serving the public interest via the construction and operation of communications systems.
How quaint that appears now.
Today’s view is that spectrum is equivalent to soy bean futures and that the FCC should become the Commodities Futures Trading Agency for Radio Spectrum.
How might the FCC facilitate the hoped-for transactions that might be held in the trading pits it designs? It might reduce regulation of assignments and transfer of control, broaden eligibility for licensing, reduce regulation of spectrum use for specific services, lessen buildout requirements, and generally remove from its rules all barriers to the buying, selling, trading and swapping of spectrum rights.
To further their ability to engage in this proposed commodity marketplace, current licensees should ask the FCC to ignore their collective underutilization of spectrum and to restrain its urges to retrieve and reauction unused spectrum.
The FCC’s policy statement nearly recognized that underlying the ability to trade commodities is the trader’s right to own the commodity. (If I buy two carloads of pork bellies, I own them. I can sell the right to own them to someone else, or I can have them delivered to my house for a holiday feast. But there is no doubt that I own every belly.)
However, the FCC isn’t giving up its presumed right, title and interest to the radio spectrum. The agency isn’t ready to say, “We sold it at auction, so it’s yours now.” So the FCC is trying to find a way to prop up a licensee’s revocable easement to use spectrum without diluting the agency’s ability to assert ownership.
The FCC promoted similar initiatives in the past by creating substantial renewal expectancies. These days, those renewals can only be defeated by an entity’s failure to serve the public interest: payment of fees to the agency.
To make licenses resemble property, without the actual deed, the commission wants to grant longer licensing periods, allow persons to give or take a security interest in a license and allow persons who sell a license to take a reversionary interest in the license if the buyer reneges.
The agency says it is shooting for “spectrum fungibility,” flexibility in use, and efficiency. What it is really trying to do is metamorphose out of its regulatory cocoon – from spectrum management larva to securities administrator butterfly.
The FCC is attempting to allow the marketplace to set its own price and terms for spectrum rights. The real issue is what price will the public pay in the creation of a spectrum commodity market? The FCC calls it “secondary” only because the “first” market was the FCC auction that granted the brokers the “fungible spectrum.”
Even if the agency means well, what is the real effect of unleashing this proposed exchange? First, it will make nearly all spectrum commercial in nature. Forget industrial uses – United Parcel Service better get ready to get into the radio business with both brown feet.
Licensees will no longer be expected to deliver a service to the market (unless one counts brokerage as a service). Certain services will not be delivered unless the carrier can cover the costs of construction and tribute to the geographic licensee who paid the king for the right to operate the barony.
A simple “value-added” analysis shows that the cost of services to the public will be increased to offset fees for brokerage, leases, auctions, transactions, and regulation. Even if some service might be created by a party using spectrum acquired through leasing, partitioning or disaggregation, the cost-per-unit will make it unsellable.
My problem is more basic. Any auction winner accepted that license with the charge to construct facilities to provide a service. If it didn’t, it understood that the FCC would retrieve the license (or some portion thereof). Spit. Shake. “Deal.”
So why does the FCC want to let the winners off the hook?
A “license” used to confer a privilege to provide radio service pursuant to specific rules to serve the public interest. Refusal or inability to perform under the rules rendered the licensee persona non grata, and the license was cancelled. What happened to these values? Or, put another way, what did we sell at those FCC auctions?
Perhaps too much.