FCC’s Charlie Brown Spectrum Auction

“Without action, demand for spectrum will soon outstrip supply.”-FCC Chair Julius Genachowski 

The Federal Communications Commission (FCC) says it’s serious about spectrum.  They have authority from Congress to unleash up to 65 megahertz (MHz) during the next three years, even though the looming spectrum crunch will require much more than that.  And this time, the Commission promises it will auction spectrum without a hitch.

In theory, it should be an easy process.  Congress and the FCC expect to net billions from the auctions of spectrum, which will be available for eager companies to purchase and use to build out new advanced next generation networks for customers.  However, like Charlie Brown approaching the football, FCC always seems to pull back from congressional intent.  Leave it to a few in Washington, D.C., puffed up with regulatory hubris, to screw up the sale of spectrum worth billions of dollars, which could benefit Americans across the country.

When spectrum auctions passed in February, Congress included a specific provision forbidding FCC from preventing “a person from participating in a system of competitive bidding.”  However, FCC retained the right “to adopt and enforce rules of general applicability.” At the time, the American Action Forum (AAF) warned, “Given FCC’s recent regulatory overreach, the Commission might promulgate rules excluding certain bidders in an effort to promote the administration’s concept of competition.” 

This is exactly what happened, as the Commission treated Congress’s language as an annoying paper tiger.  In the name of “certainty” and “competition,” FCC could exclude certain bidders from “competing” in the spectrum auction.  This would not only violate the spirit of the spectrum legislation but actually cost taxpayers money, creating a regulatory morass leading to another fiscal nightmare.

The goal of bringing as much revenue as possible into the U.S. Treasury should be a relatively easy task.  However, by excluding certain bidders (read large mobile companies), FCC distorts the bidding process.  For example, during the “C Block” auction, FCC set aside spectrum for “designated entities,” forgetting that some of these preferred companies might not be able to pay competitive prices for prime spectrum.  This caused valuable spectrum to remain unused for years, hurting consumers.  It was estimated that a more recent spectrum “fiasco” cost the government $3.1 billion. 

One would think it would be easy for the federal government to collect money from large companies willing to invest it directly in the U.S. economy.  The Commission thinks otherwise.

FCC’s Fondness for Complexity

Fumbling the football on the proposed spectrum auction is not the Commission’s first forced error.  At the outset of the process, Commissioner Jessica Rosenworcel stated, “simplicity is key … [A]t every structural juncture [of the auction design], a bias toward simplicity is crucial.”

Of course, 205 pages and 87,404 words later, when FCC revealed its draft language, simplicity got lost in the mix.  Thankfully, for attorneys at least, the Commission has granted an extension to file comments. 

Reviewing the Commission’s history, it should come as no surprise that FCC favors the regulatory, the complex, and the costly.  This summer, AAF found a tremendous increase in FCC’s regulatory tab.  Since that writing, the Commission has added more than a million paperwork burden hours.  During the last four years, this “simplicity” regime at FCC has produced a 30.3 percent increase in paperwork.  To put this paperwork burden in perspective, it would take 40,513 employees working full-time simply to comply with the Commission’s annual red tape.

FCC’s apparent fondness for paperwork is just part of the problem.  As an independent agency, they have broad authority to carry out their statutory mandate, but not absolute authority to ignore it.  Congress could not have been clearer in its authorizing legislation: “Sec. 6404. Certain Conditions on Auction Participation Prohibited.”

Taxpayers, consumers, and businesses have seen this game before: so close to the football, only to have FCC add layers of regulation to distort the process, and the outcome.  The Commission’s goal of ensuring fairness will end like other previous attempts to create their preferred market: a self-defeating exercise that hurts consumers and companies bidding for their service.