Pai: Storm Clouds on Incentive Auction Horizon

Will warn Congress that limiting bidders could have serious consequences

By John Eggerton -- Broadcasting & Cable, 3/12/2013 9:56:39 AM

FCC commissioner Ajit Pai says he sees some "storm clouds" on the spectrum auction horizon, primarily by limiting participation and not raising enough for public safety.

According to his prepared testimony for the Senate Commerce Committee's FCC oversight hearing on Tuesday, those clouds include not raising enough money through the auctions to fund the FirstNet interoperable broadband public safety network. That is because the only closing condition on the auction was that the revenues from the auction of spectrum reclaimed from broadcasters cover the costs of the incentive auction that clears that spectrum. He says the goal must then be to maximize the revenues.

Pai's emphasis on FirstNet is understandable given that the chairman of the Committee, Jay Rockefeller (D-W.Va.), helped motorman the incentive auction legislation primarily as a way to pay for that network, which was one of the 911 Commission recommendations.

That leads to the next cloud for Pai: The prospect of limits on auction participants.

The FCC has proposed modifying its local market spectrum screen -- which is the amount of spectrum any wireless company can hold in a market before it triggers further FCC review. That could be a de facto limit on spectrum bidders in the auction, particularly the largest carriers.

"If the Commission starts picking and choosing who may participate in the forward auction -- such as by setting a spectrum cap or narrowing the spectrum screen despite the robust competition in the wireless market," he says. "It will result in less participation, less revenue, less spectrum available for mobile broadband, and less funding for public safety."

He is also concerned about the FCC limiting the price broadcasters can ask for the spectrum. While that might sound like a good idea in terms of maximizing revenues -- the cheaper the FCC can get the spectrum, the more it can make reselling it -- Pai doesn't think so according to his testimony. "[I]f the Commission preemptively tells broadcasters, 'You may bid this high, but no higher,' many may not show up for the reverse auction."

Pai also pitches AT&T's proposal of all-IP test beds to help the FCC decide how it should approach oversight of an all-IP delivered telecom world. Pai says consumer protections must remain in place, like 911. But he also says the FCC "must not import the broken, burdensome economic regulations of [traditional phone service] into an all-IP world," which he says means "no tariffs. No arcane cost studies. And no hidden subsidies that distort competition to benefit companies, not consumers."

But he also says the FCC must "retain the ability to combat discrete market failures and protect consumers from anticompetitive harm."

That's a tall order, but Pai suggests the FCC needs to make it given that the country is ahead of the FCC in migrating to IP. "[M]ake no mistake: our transition to an all-IP future will happen. But what we do will have a dramatic impact on the speed and success of that transition," he tells the committee.

Pai puts in a pitch for getting rid of the newspaper/broadcast cross-ownership rules, but concedes there is no consensus yet on how to proceed with the chairman's proposals. For example, Pai is willing to support loosening rather than lifting the ban, but not the part about attributing joint sales agreements or shared services agreements under local ownership caps. He also called for relaxing restrictions on foreign investment.