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McAdams On: FCC Schism and its Impact on the Auction

UNDER, WATER—The monthly open meeting of the five FCC commissioners this week was three-hour affair of protests, exposition and verbal pugilism according to Robert’s Rules of Order. A cross between “Survivor” and a Henry James novel that illustrated a deep divide at the commission over how the TV spectrum incentive auction should play out.

The commission is under the gun to hold the auction, even though it’s been postponed by several months into early 2016. If it doesn’t go down before the 2016 election and Republicans take over the White House, it could get surgically dismantled. The two Republicans on the commission most definitely do not like the direction Democratic FCC Chairman Tom Wheeler is taking it.

“Rather than shore up our overall path, the commission proposes a series of unnecessary, outcome-driven machinations and tentative conclusions to bolster its ability to claim success at the close of the auction,” said Michael O’Rielly, one of the two.

The other, Ajit Pai, a young firebrand who frequently invokes his rural Kansas roots, said, “I was disappointed by the rules that the commission adopted on a party-line vote back in May. These rules introduce unnecessary complexity into the incentive auction. They restrict participation in the forward auction. Instead of allowing market forces to govern, they attempt to manipulate the results through the blunt levers of command and control. And they unnecessarily provoked litigation. Now the incentive auction won’t start until at least 2016.”

The litigation he mentions refers to lawsuits filed in the D.C. Federal Court of Appeals by Sinclair Broadcast Group and the National Association of Broadcasters. Final briefings in both are due in mid-January. I’ve heard zero discussion about odds on which way the court will go, but the judges are faced with some pretty abstruse engineering concepts in one, and basic points of law in the other.

If the court orders the FCC to reconstruct its auction rules, the likelihood of it being pulled off before the election is irrationally optimistic. The FCC staff obviously is pulling the oars downstairs at peak power already. Pushing the auction process in the name of getting it done during the Obama Administration could throw the TV spectrum into chaos—of no avail to anyone.

Thursday’s meeting involved a Public Notice seeking comment on suggested particulars for the final auction rules. These included a spectrum clearing target totaling 84 MHz, at an average price of $1.25 MHz/pop (or population per megahertz, but the abbreviation is in Yoda-speak), bidding rules, interference thresholds and the calculatory criteria for determining opening bid prices.

Pai has a point about complexity. The final Notice has not yet been released, but it was presented in Thursday’s meeting by Martha Stancill of the Wireless Bureau.

“The comment proposes to limit overall impairments on a national basis to less than 20 percent of weighted pops, meaning the population in each market will be weighted by the relative value of the market based on prior auction prices,” she said. “This weighting will help to ensure that most of the spectrum in the most heavily weighted [partial economic areas] remains unimpaired, so as not to cause too many impairments across the most valuable markets.”

As far as I can discern, this means the commission will accept up to 49 percent interference in 20 percent of the spectrum auctioned, inordinately in rural areas. Frankly, I look forward to learning what this actually means and what the potential impact is on both broadcasters and wireless carriers, and ultimately on the people who use their services.

“At the end of each round, the auction system will assess whether the final stage rule has been satisfied,” Stancill continued. “For this, the comment proposes an average price per megahertz/pop of $1.25 in traditionally high-demand markets and a spectrum benchmark of 70 MHz, which requires clearing 84 MHz.”

How this $1.25 was devised versus the $1.50 in the recently released Greenhill Report has not yet been revealed. The same report calculated a $45 billion haul based on clearing 126 versus 84 MHz of spectrum. Here’s Wells Fargo’s Marci Ryvicker on the discrepancy:

“We have no idea why the PN figures differ from what the FCC provided via the Greenhill Report, and sort of confirms broadcast distrust of the FCC—recall most groups didn’t view the Greenhill Report as an honest assessment of take-home valuations….”

There are several more items in the Public Notice, each equally if not more recondite, including one for “dynamic reserve pricing” which essentially gives the FCC discretion over opening bid prices. O’Rielly said the strategy could strand some TV stations in the duplex gap or guard bands—the buffer zones between wireless up- and downlink spectrum, and between wireless and broadcast services. How this would come about is not quite clear.

As much as the staff has undoubtedly tried to keep the auction process simple, doing so appears to be an impossibility. As Wheeler stated, “There are multiple moving pieces, none of which, or few of which, move independently. So you make a decision here, it affects this here, and the balancing and the give and take and the connectivity between all of these issues is immense.”

So it is, making November of 2016 closer than it might appear.

On a separate note, I want to commend FCC Chairman Tom Wheeler for allowing net neutrality protesters some airtime.

“FCC is accommodating Title II protestors at meeting,” D.C. media policy sleuth John Eggerton tweeted. ‘We’re not blocking protesters’ access,’ says spokesperson for chairman.”

Wheeler said the protests exemplified the First Amendment in action, and were “what this country is all about.” This was after a team of protesters blocked his driveway a month ago and captured the episode for YouTube. It’s to the chairman’s credit that he’s trying to keep the situation respectful and civilized, though somewhat baffling to the protesters who are clearly prepared to be dragged off, presumably by jack-booted thugs. Hopefully they were not disappointed.