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McAdams Goes Long On: Net Neutrality and TV Spectrum Auctions

WASHINGTON: Today’s cogitation begins with two incidents: The proposal to open the TV spectrum up for wireless broadband use; and the decision to abandon a Title II redesignation for broadband service. Title II would have tightened broadband regulation and feasibly reduced the bids on spectrum that broadcasters are expected to hand over in return for a chunk of auction proceeds.

Thus the question is begged--was backing off of Title II a compromise with the big wireless providers most likely to bid on spectrum? I posed that question to several folks in Washington, D.C., asking if I was in the ball park. I got two off-the-record “home runs,” a “speculation but nothing confirmed,” and a variety of other responses, including dead silence from the chairman’s office.

The non-response was to be expected. If ditching Title II was a compromise, it implies that the “looming spectrum crisis” repeatedly cited by the chairman’s office as justification for taking broadcast channels is slightly overblown. It’s more of a “potential annoyance.”

To frame this thing, the FCC is charged with rounding up 500 MHz of spectrum for wireless broadband. From the get-go, it put a bead on 120 of the 300 MHz dedicated to television. The current plan is to motivate broadcasters to give up spectrum in return for a piece of the auction proceeds. Tighter rules would seem logically to curtail bids.

The 500 MHz chunk is deemed necessary to avert the aforementioned “looming spectrum crisis,” said to be driven by exploding mobile data usage. “Looming,” which means “to appear indistinctly,” seems the pivotal term, as no such crisis exists today. Verizon is flush with spectrum and not currently shopping. Qualcomm is now trying to get rid of Ch. 55, a 6 MHz swath in the UHF band that covers the United States. AT&T was reported in mid-November to be sniffing at it, but nothing further has developed since then.

“There is no shortage of spectrum today,” said John Hane of Pillsbury, Winthrop, Shaw and Pittman in Washington, D.C. “There is an infrastructure shortage, arguably. There is more available spectrum than there is capital available to exploit it. We have a substantial surplus of spectrum today that is chasing money.”

While mobile data usage is rapidly increasing, by how much is anyone’s guess. Spending projections from the Telecommunications Industry Association suggest a 23 percent growth rate over five years. An FCC white paper--factoring in unlimited data-use packages--puts the usage growth rate between 480 and 980 percent over the same period. If the two are concomitant, wireless data service would have to be dirt cheap by 2015.

Opinions abound on what’s going on in the commission, but no one is predicting dirt-cheap mobile data service in 2015. Particularly not if providers are allowed to charge by the bit, something the FCC is considering.

“I don’t think anybody knows what will be needed in five years,” Hane said, but that “if they wait until they need it, they’re behind the curve.”

To that end, this week’s Notice of Proposed Rulemaking to open TV channels up for broadband is one way for the FCC to get more spectrum into the market down the road. Or to eliminate free television, depending on one’s perspective. That the FCC went straight for the TV spectrum before doing an inventory is suspect. The Commerce Department has since identified 2,200 MHz of “candidate” spectrum that could be redesignated for broadband.

Several D.C. sources said the TV spectrum NPRM and the retreat from Title II likely were coincidental. The NPRM was late. It was supposed to be issued in the third quarter of this year. As for the Title II retreat, it was tied to FCC Chairman Julius Genachowski’s network neutrality draft proposal. The draft had to be circulated this week in order to meet the deadline for a commission vote at the Dec. 21 meeting.

Genachowski has been under pressure to establish net neutrality rules in conjunction with the Obama Administration’s National Broadband Plan. Network neutrality was a hot potato on Capital Hill long before the NBP was unveiled last March. Net neutrality regulations would prohibit Internet Service Providers from throttling bit rates on high-traffic users. Proponents contend such rules are necessary to prevent big multimedia ISPs like Comcast from throttling competitors out of existence.

The FCC popped Comcast in ’07 for throttling, but a federal court this year said the commission had no such jurisdiction under broadband’s current Title I classification. Title I provides the FCC with “ancillary” authority over wired and wireless services. Soon after the court ruling, Genachowski floated the notion of reclassifying broadband under Title II, which provides more explicit authority.

He opted instead for rules said to reflect voluntary open Internet principles established by the FCC five years ago. Basically, broadband providers would have to allow subscriber access to all legal content, applications and services available over high-speed networks. Additionally, Genachowski’s draft makes allowances for usage-based pricing, and managing congestion and spam, so long as providers disclose how they do it.

“The proposal is grounded in a variety of provisions of the communications laws, but would not reclassify broadband as a Title II telecommunications service,” Genachowski said in remarks delivered Wednesday morning.

Marci Ryvicker of Wells Fargo said the retreat from Title II was “a positive for telecom and cable providers.” She said that less regulation on wireless networks would be “a significant positive for the sector as the concern was [that] the FCC was going to significantly regulate these networks, which carriers have spent literally billions on in terms of both spectrum and build-out.”

The typical anti-regulatory position in Washington is that tighter rules inhibit further investment. By extension, Title II would have inhibited further investment in broadband architectures.

“Stricter regulations on broadband service would likely drive down investment in all areas of deployment, wired and wireless,” one media attorney said.

Or not, in Hane’s perspective.

“If you have unfettered flexibility to manage traffic on your network--in theory, you can manage your network in the most efficient possible way. You can operate the network with less spectrum and capital,” he said.

“If you’re subject to Title I or Title II, you have somewhat less flexibility to manage your network, which translates to less efficiency,” Hane said. “To maintain a given level of efficiency, you need more spectrum or more capital if you get new regulations that impair efficiency. Network neutrality would be more likely to bid up the value of spectrum because. . . it would make operation less efficient.”

Hane was the only one among six D.C. attorneys who thought tighter Title II regulation would increase demand for spectrum. Two were neutral, one said the impact on demand was a stretch, one demurred comment and two said tighter regs would have a devaluing effect.

One of the few certainties related to network neutrality and TV spectrum auctions is that neither are on the fast track. Republicans oppose network neutrality, though providers may be willing to jump through a few hoops in return for usage-based pricing. Either way, someone will sue. And Congress has to pass a law before the commission can pay broadcasters to give up spectrum.

The games have just begun.
-- Deborah D. McAdams