FCC Wireless Bureau Ignores Incentives in the Broadcast Incentive Auction

” . . . the cooperative process envisioned by the National Broadband Plan is at risk of shifting to the traditionally contentious band plan process that has delayed spectrum auctions in the past.”

The National Broadband Plan proposed a new way to reassign reallocated spectrum. The Plan noted that, “Contentious spectrum proceedings can be time-consuming, sometimes taking many years to resolve, and incurring significant opportunity costs.” It proposed “shifting [this] contentious process to a cooperative one” to “accelerate productive use of encumbered spectrum” by “motivating existing licensees to voluntarily clear spectrum through incentive auctions.” Congress implemented this recommendation through legislation requiring the FCC to transition additional broadcast spectrum to mobile use through a voluntary incentive auction process rather than traditional FCC mandates.

Among other things, the FCC’s Notice of Proposed Rulemaking initiating the broadcast incentive auction proceeding proposed a “lead” band plan approach and several alternative options, including the “down from 51” approach. An overwhelming majority of broadcasters, wireless providers, equipment manufacturers, and consumer groups rejected the “lead” approach and endorsed the alternative “down from 51” approach. This remarkably broad consensus on the basic approach to the band plan promised to meet the goals of the National Broadband Plan by accelerating the proceeding and motivating voluntary participation in the auction.

That promise was broken when the FCC’s Wireless Bureau unilaterally decided to issue a Public Notice seeking additional comment on a variation of the FCC’s “lead” proposal as well as a TDD approach to the band plan. The Bureau issued this notice over the objection of FCC Commissioner Ajit Pai, who issued a separate statement expressing his concern that seeking comment on additional approaches to the band plan when there is a “growing consensus” in favor of the “down from 51” approach could unnecessarily delay the incentive auction. This statement “peeved” Harold Feld, Senior Vice President at Public Knowledge, who declared that there is no consensus and that the “down from 51” plan would be a “disaster.” As a result, the cooperative process envisioned by the National Broadband Plan is at risk of shifting to the traditionally contentious band plan process that has delayed spectrum auctions in the past.

Consumer groups, including Public Knowledge, acknowledged the consensus

Mr. Feld’s “pique” with Commissioner Pai’s view that the “down from 51” approach had become the “consensus framework” for the 600 MHz band plan is surprising. According to Mr. Feld, Sprint, Microsoft, and the Public Interest Spectrum Coalition (PISC) objected to the “down from 51” approach. As support for this position, Mr. Feld cited reply comments filed by the PISC, a coalition that includes, among others, Public Knowledge.

Contrary to Mr. Feld’s assertion, however, the PISC reply comments support Commissioner Pai’s view. The PISC reply comments expressly state that there is a “consensus in favor of a 51-down band plan with a duplex gap,” which is “supported as technically superior by virtually all major industry commenters.”

To be sure, after Commissioner Pai issued his statement, Mr. Feld met with the Wireless Bureau to state for the record that there is no consensus support for the “down from 51” approach. Prior to that meeting, however, Public Knowledge had not expressed that view.

Why has Mr. Feld suddenly become so vehemently opposed to the “down from 51” approach?

“Down from 51” would not reduce revenue

Mr. Feld claims that the “down from 51” approach embraced by the broadcasters and “so many carriers and equipment manufacturers” would be an “absolute disaster” for that very reason – i.e., most of the industry supports it. In Mr. Feld’s view, the fact that the overwhelming majority of industry participants support the “down from 51” approach is evidence that they are “colluding” to reduce auction revenue.

Although the service rules and auction revenue are to some extent interdependent, insofar as band plans are concerned, wireless providers have far greater incentives to promote spectral and operational efficiency than to reduce auction prices. The costs of building and operating wireless networks are significantly higher than the one-time costs of acquiring spectrum at auction, and consumer demand for wireless broadband capacity is rapidly increasing. Given these facts, no rational wireless provider has an incentive to promote a band plan designed to reduce auction revenue.

In any event, Mr. Feld’s theory that the “down from 51” approach could reduce revenue by making too much spectrum available is irrelevant to the band plan issue. Even assuming his theory is correct, the FCC’s other proposed approaches to the band plan, none of which “cap” the amount of spectrum that would be accepted in the reverse auction, would run the same risk. Similarly, Mr. Feld’s proposed solution of limiting the amount of spectrum accepted in the reverse auction could be applied to any approach to the band plan, including “down from 51.”

“Down from 51” is not anticompetitive

Mr. Feld claims that the “down from 51” approach is anticompetitive because, in his view, wireless providers that lack spectrum below 1 GHz “are the only ones capable of using the downlink spectrum, and even then only if they bid exclusively on the supplementary downlinks.” According to Mr. Feld, this means such providers will bid only on the downlink spectrum and leave the paired spectrum to Verizon and AT&T even though, in his view, providers that lack spectrum below 1 GHz are the ones that “most need” uplink spectrum.

Of course, if this were true, it would be irrational for any wireless provider to join Verizon and AT&T in supporting the “down from 51” approach. Yet, T-Mobile, the only nationwide provider that lacks nationwide spectrum below 1 GHz, is a signatory to the “Joint Accord” supporting the “down from 51” approach, an approach that is also supported by rural and regional providers.

Given the current state of the record, a finding based on Mr. Feld’s hypothesis would require the FCC to assume that wireless providers generally behave irrationally when developing band plans – an assumption so absurd it would fail even the most deferential application of the Chevron standard for judicial review.

“Down from 51” is not inefficient

Mr. Feld claims the “down from 51” approach is spectrally inefficient because it “maximizes the total number of guard bands” while retaining a duplex gap.

To the contrary, the “down from 51” approach proposed by the FCC would require the minimum total number of guard bands while retaining a duplex gap: one.

If enough spectrum is cleared to place the guard band adjacent to Channel 37 as proposed by T-Mobile, the “down from 51” approach would also minimize the amount of spectrum that must be allocated to guard bands. This specific version of the “down from 51” approach would require a total of only 4 MHz of guard band spectrum while providing 10 MHz of protection against interference (6 MHz in Channel 37 plus an additional 4 MHz yielded by broadcasters in the reverse auction).

In comparison, the “down from 51 reversed” approach proposed by the Wireless Bureau in the Public Notice would require at least two guard bands.

If the FCC intends to maximize spectral efficiency by minimizing the total number of guard bands, it will not adopt the “down from 51 reversed” approach proposed by the Wireless Bureau. That is why the FCC proposed to place the 600 MHz uplink band adjacent to the lower 700 MHz uplink band in the “lead” proposal in its Notice of Proposed Rulemaking.

A TDD approach is inefficient

Mr. Feld claims that a “down from 51 TDD” approach would make “maximum use” of spectrum above Channel 37 because it would eliminate the duplex gap required for FDD deployments. He neglects to mention, however, that a TDD approach would require an additional guard band that would be the same or substantially similar in size to the FDD duplex gap in the “down from 51″ approach. Compare the FCC’s “down from 51” approach with the Wireless Bureau’s “down from 51 TDD” approach:

As I’ve noted previously, the switching times inherent in LTE TDD systems also produce latency and reduce coverage – issues that would be exacerbated in rural deployments in the 600 MHz band. LTE TDD operates in two modes: a 10-millisecond mode (more latency, but more coverage) and a 5-millisecond mode (less latency, but less coverage). In the 10-millisecond mode, LTE TDD is generally not suitable for the streaming applications that stress mobile networks the most (e.g., video chat applications). In the 5-millisecond mode, LTE TDD is generally suitable for streaming applications, but suffers from significantly reduced coverage. According to Qualcomm, in a coverage-limited system using the same frequency, TDD requires 31 to 65 percent more base stations than FDD to maintain the same throughput.

This doesn’t mean that TDD technologies have no role to play in the wireless marketplace. In the absence of channel aggregation opportunities, TDD is the only choice when paired spectrum is unavailable. It can also be used to enhance capacity when coverage is not the delimiting factor.

The primary driver behind LTE TDD deployment generally, however, appears to be Chinese industrial policy, not spectral efficiency. After China’s TDD-based SCDMA technology failed to gain traction internationally, it focused its efforts on developing a TDD version of LTE that would be backward compatible with its SCDMA standard and expand China’s technological influence globally. As a result, China became the primary promoter of the LTE TDD standard and a major owner of the standard’s essential patents (i.e., Huawei states that it leads the world in essential LTE patents). Based on likely deployment scenarios in the 600 MHz band, an FCC-mandated TDD approach would benefit Chinese patent holders, not American consumers.

The Public Notice Should Not Have Been Issued by the Bureau

Finally, Mr. Feld accused Commissioner Pai of “poisoning” the rulemaking process by calling attention to the Wireless Bureau’s disregard for his role as a Commissioner. Mr. Feld portrayed the Public Notice as a routine matter, but as a former Chief of the Wireless Bureau, I know that Bureaus do not circulate routine items to the Commissioners. A Bureau typically circulates an item to the Commissioners with a waiting period only when its authority to issue the item at the Bureau-level is unclear. If a Commissioner objects to the issuance of the item at the Bureau level, established practice requires that it be submitted to the Commission for a vote.

In my experience, the Bureau’s decision to ignore Commissioner Pai’s objection was, at a minimum, a serious breach of comity and established protocol. If anything “poisoned” the process in this instance, it was the Bureau’s insistence on issuing a Public Notice on authority delegated to it by the Commission over the objection of a Commissioner.

Conclusion

The surest path to “disaster” in this proceeding is for the FCC to take the incentives out of the incentive auction. The Bureau’s insistence on pushing an approach that most broadcasters, wireless providers, and equipment manufacturers don’t support is more likely to deter participation in the auction than incent it. It is the industry – not the Wireless Bureau – that ultimately must agree to risk its capital in the auction and deploy new wireless infrastructure. If the Wireless Bureau’s preferred approach wins and, as a result, the industry declines to participate in the auction, everyone loses.

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