Will the FCC’s National Broadband Plan Really Be Costless?

by on March 15, 2010 · 19 comments

After working my way through the Executive Summary of the Federal Communications Commission’s (FCC) National Broadband Plan, there are a number of things I find troubling that I will get to in a subsequent post. But here’s the thing about “The Plan” that I found most surprising — even audacious — in its arrogance: The FCC wants us to believe the whole scheme is costless. The agency bases this astonishing claim on the following assumptions:

Given the plan’s goal of freeing 500 megahertz of spectrum, future wireless auctions mean the overall plan will be revenue neutral, if not revenue positive.  The vast majority of recommendations do not require new government funding; rather, they seek to drive improvements in the government efficiency, streamline processes and encourage private activity to promote consumer welfare and national priorities. The funding requests relate to public safety, deployment to unserved areas and adoption efforts. If the spectrum auction recommendations are implemented, the plan is likely to offset the potential costs.

Let me translate: “Pay no attention to all the bills we are racking up, because spectrum revenues shall set us free!”

Perhaps that logic works in the reality-free zone we call the Beltway, but back in the real world this simply doesn’t add up. Regardless of how well-intentioned any of these goals and proposals may be, it should be equally clear that there is no free lunch, even with spectrum auction proceeds fueling the high-tech gravy train. The proposals and programs the FCC sets forth will impose serious economic costs that shouldn’t be so casually dismissed, especially using the weak reasoning that “improvements in the government efficiency” will magically manifest themselves thanks to massive new government intervention in the field. (If you think you’ve heard this one before, you have. See: The current health care debate.)

Moreover, if everything really does hang on the promise of spectrum auction revenues covering the broadband spending binge, well, bad news: The agency is never going to bring in enough to cover what they’ve proposed here. The reason is simple: Most of the spectrum they want to grab is currently occupied by someone else! In fact, a huge chunk of that 500 megahertz would come from licensed television broadcasters, who aren’t exactly excited about getting and an eviction notice from the government. Even if one agrees with the FCC that the broadcast band is currently under-utilized, that doesn’t mean that the broadcasters should be forced to vacate it. Moreover, any attempt to force them off would result in an epic legal battle that would take years to resolve and ultimately would not likely be resolved in the government’s favor.

Of course, the folks at the FCC aren’t completely oblivious to these political realities. They know that they need to get the broadcasters to come to the bargaining table voluntarily to hammer out a deal.  But, as Barbara Esbin and I noted in our paper on this issue, there is one thing that will incentivze broadcasters to come to that table and talk turkey: Cold hard cash—and lots of it.  The FCC even admits as much when they note in the plan, “Mechanisms [for encouraging spectrum reallocation] include incentive auctions, which allow auction proceeds to be shared in an equitable manner with current licensees.”

But therein lies the folly of the FCC’s “broadband free lunch” scheme. They’re never going to be able to make both their masters happy. Both Congress and the broadcasters will want the spectrum auction revenue split to be something like 70-30 or 80-20, but both will demand the bigger slice of the pie. Thus, to get the broadcasters to the bargaining table, the FCC must make them a deal they can’t refuse. And that means that the spectrum auction revenues the agency predicts will cover all the costs of the National Broadband Plan will get eaten up by buyout checks for broadcasters. Finally, whatever proceeds are left after buying out the broadcasters will likely get thrown at a million other unfunded spending initiatives that Congress prefers over broadband.

So, something’s gotta give. There really is no free lunch.  Just like health care “reform,”  this FCC broadband plan will be anything but costless.

  • Brett Glass

    Spectrum is licensed, not sold. Why should the government have to pay ransom to get it back from licensees to whom it has licensed it for too little and who are wasting it?

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  • http://www.techliberation.com Adam Thierer

    Brett… Broadcast entities have invested millions of dollars in their stations, towers, employees, programs, etc, and government cannot simply yank the rug out from underneath them and deprive them of their investment on the theory that “anything goes” in the world of FCC licensing.

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  • Brett Glass

    Adam, taking back unused spectrum would not be “yanking the rug” out from underneath the broadcasters. It would be recovering resources that the broadcasters are not using and do not need to do what they're already doing. And it certainly wouldn't harm their investments in towers, programs, etc.

    What's truly amazing about spectrum is that it's like Tolkien's ring: it makes anyone who acquires a license to use the tiniest sliver of it incredibly, desperately greedy.

  • http://srynas.blogspot.com/ Steve R.

    Interesting, Adam you say that the government shouldn't yank the rug out from a company and deprive them of their investment. But what about all those consumers who lose their investment in a product(s) when a company willfully ceases to support a product? I suppose the economic losses to the consumer and the overall economy (because functional products have been made obsolete (non-functional) and are regulated to the dump) mean nothing?

  • Matt

    The spectrum is public property, licensed out in whatever way our elected representatives deem most in the public interest. It's pathetic cheerleading for the rights of shareholders over the rights of the public to think it anything but an excellent idea to take back public property from licensees who aren't utilizing it in the way that maximizes the public utility and auction off the rights to use it for other activities that maximize said utility.

    If we can use that auction money to fund further improvements in our technology infrastructure instead of just giving it away to the whiniest corporations who can buy the most influence (see TARP, other Wall Street bailouts, Health Care Bill), that again seems just self-evidently the right thing for the public. If the networks' CEOs don't like it, well they can cry all the way to their 8 zeros bank balance about how they don't get to add a 9th zero…

  • http://www.techliberation.com Adam Thierer

    Instead of wasting my breath refuting that statist tripe about the “people own the airwaves myth,” I'll just direct everyone's attention to what not less an authority that THE FCC ITSELF has had to say about this nonsense:

    http://www.fcc.gov/ownership/materials/already-

    “The premise is incorrect. No law states that the airwaves (to the extent that they exist at all, see pages 8 and 9 above) are owned by “The People.” No law, in fact, states that the airwaves are owned by any person. Section 301 of the Communications Act, to the extent that it mentions ownership of “channels of radio transmission,” explicitly prohibits it. The statute does grant the federal government, to the exclusion of any state government and individual, control over the medium.

    Moreover, The People’s Airwaves Rationale is a dubious basis for the kinds of regulation described in Section II. Even if the federal government did own the radio spectrum, that alone should not grant the federal government the kinds of regulatory powers described in Section II. The United States Postal Service is part of the federal government, but is not therefore allowed to license persons before they may send mail or, short of obscenity, regulate the words they write.107 Most likely, some newspapers and musical instruments are made from trees that grew on government land. No one would claim that they are therefore made of The People’s Wood and that the federal government may regulate the content of those newspapers or require that the music played on the instruments address controversial public issues and express differing
    views. Residents of government housing and employees of public universities do not, because they use public resources, lose their First Amendment rights. Local governments, for their part, control the roads and sidewalks on which newspapers are delivered and sold, but local governments are not therefore authorized to regulate newspapers.108 Indeed, in granting access to public forums such as sidewalks and parks, the Constitution carefully limits government officials’ right to prefer some speakers and some messages over others.109 Finally, even if the airwaves did belong to the people, the same cannot be said of traditional broadcasters’ land, transmitters, buildings, studio equipment, personnel, and audiences gained through years of sending out popular content. Those things belong exclusively to the broadcasters and their shareholders.

    Thus, The People’s Airwaves Rationale is both incorrect as a matter of law and illusory as a rational basis for the kinds of regulation described in Section II.”

  • Brett Glass

    And on the title page of the paper, it says, clearly:

    The views expressed in this paper are the author's and do not necessarily represent those of the Media Bureau, the Commission, George Mason University School of
    Law, or other members of their staffs.

  • Brett Glass

    Spectrum is licensed, not sold. Why should the government have to pay ransom to get it back from licensees to whom it has licensed it for too little and who are wasting it?

  • http://www.techliberation.com Adam Thierer

    Brett… Broadcast entities have invested millions of dollars in their stations, towers, employees, programs, etc, and government cannot simply yank the rug out from underneath them and deprive them of their investment on the theory that “anything goes” in the world of FCC licensing.

  • Brett Glass

    Adam, taking back unused spectrum would not be “yanking the rug” out from underneath the broadcasters. It would be recovering resources that the broadcasters are not using and do not need to do what they're already doing. And it certainly wouldn't harm their investments in towers, programs, etc.

    What's truly amazing about spectrum is that it's like Tolkien's ring: it makes anyone who acquires a license to use the tiniest sliver of it incredibly, desperately greedy.

  • http://srynas.blogspot.com/ Steve R.

    Interesting, Adam you say that the government shouldn't yank the rug out from a company and deprive them of their investment. But what about all those consumers who lose their investment in a product(s) when a company willfully ceases to support a product? So we should feel sorry if a company looses its investment. However, if a consumer looses their investement it is simply a good ethical business practice?

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  • Matt

    The spectrum is public property, licensed out in whatever way our elected representatives deem most in the public interest. It's pathetic cheerleading for the rights of shareholders over the rights of the public to think it anything but an excellent idea to take back public property from licensees who aren't utilizing it in the way that maximizes the public utility and auction off the rights to use it for other activities that maximize said utility.

    If we can use that auction money to fund further improvements in our technology infrastructure instead of just giving it away to the whiniest corporations who can buy the most influence (see TARP, other Wall Street bailouts, Health Care Bill), that again seems just self-evidently the right thing for the public. If the networks' CEOs don't like it, well they can cry all the way to their 8 zeros bank balance about how they don't get to add a 9th zero…

  • http://www.techliberation.com Adam Thierer

    Instead of wasting my breath refuting that statist tripe about the “people own the airwaves myth,” I'll just direct everyone's attention to what not less an authority that THE FCC ITSELF has had to say about this nonsense:

    http://www.fcc.gov/ownership/materials/already-

    “The premise is incorrect. No law states that the airwaves (to the extent that they exist at all, see pages 8 and 9 above) are owned by “The People.” No law, in fact, states that the airwaves are owned by any person. Section 301 of the Communications Act, to the extent that it mentions ownership of “channels of radio transmission,” explicitly prohibits it. The statute does grant the federal government, to the exclusion of any state government and individual, control over the medium.

    Moreover, The People’s Airwaves Rationale is a dubious basis for the kinds of regulation described in Section II. Even if the federal government did own the radio spectrum, that alone should not grant the federal government the kinds of regulatory powers described in Section II. The United States Postal Service is part of the federal government, but is not therefore allowed to license persons before they may send mail or, short of obscenity, regulate the words they write.107 Most likely, some newspapers and musical instruments are made from trees that grew on government land. No one would claim that they are therefore made of The People’s Wood and that the federal government may regulate the content of those newspapers or require that the music played on the instruments address controversial public issues and express differing
    views. Residents of government housing and employees of public universities do not, because they use public resources, lose their First Amendment rights. Local governments, for their part, control the roads and sidewalks on which newspapers are delivered and sold, but local governments are not therefore authorized to regulate newspapers.108 Indeed, in granting access to public forums such as sidewalks and parks, the Constitution carefully limits government officials’ right to prefer some speakers and some messages over others.109 Finally, even if the airwaves did belong to the people, the same cannot be said of traditional broadcasters’ land, transmitters, buildings, studio equipment, personnel, and audiences gained through years of sending out popular content. Those things belong exclusively to the broadcasters and their shareholders.

    Thus, The People’s Airwaves Rationale is both incorrect as a matter of law and illusory as a rational basis for the kinds of regulation described in Section II.”

  • Brett Glass

    And on the title page of the paper, it says, clearly:

    The views expressed in this paper are the author's and do not necessarily represent those of the Media Bureau, the Commission, George Mason University School of
    Law, or other members of their staffs.

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