FCC holds a few aces on spectrum

While the congressional battle to pass spectrum legislation may have ended last week, the process of actually getting spectrum into the hands of wireless companies and making it available for smartphones, tablets, and other wireless technologies has just begun.

And how much of that spectrum will be available rests in large part on how good of a job the Federal Communications Commission does in persuading broadcasters to give up some of their airwaves. In fact, many of the key provisions in the spectrum legislation that lawmakers passed on Friday as part of a payroll-tax package hinge on how much spectrum broadcasters choose to give up and how much money the FCC can generate from selling their airwaves.

The money from these auctions would come from wireless operators who will bid for spectrum they say they desperately need to meet the nation's growing use of wireless technologies. The FCC is under pressure to design the auctions in a way that would generate the most revenue possible given that the proceeds have been slated to pay for a variety of proposals. They include $7 billion to help pay to build a national broadband network for public safety officials. At the same time, lawmakers are counting on $15 billion for the federal Treasury after paying off broadcasters for giving up their spectrum.

Broadcasters "have leverage and if the price isn't right ... most everything falls flat on its face," said Jeffrey Silva, a senior policy director with Medley Global Advisors.

The FCC will be charged with setting up two types of auctions: "reverse auctions," which would allow broadcasters to bid on what it would take for them to give up their spectrum, and "forward" auctions, where wireless companies can bid on the spectrum that comes available from broadcasters.

Broadcasters have three ways they could participate in reverse auctions: give up their spectrum and stop broadcasting; give up their spectrum and share a new stretch of frequency with another broadcaster; or give up their more valuable UHF spectrum and move to a VHF channel, which is less suitable for digital broadcasting.

At least two broadcasters must participate in order for a reverse auction to take place in that market. One of the issues that is not spelled out in the legislation and appears to be left to the FCC is how many reverse-auction bids the FCC will accept from broadcasters in each market. David Oxenford, a partner with Davis, Wright and Tremaine who represents broadcasters, said it will likely depend on how much spectrum the FCC thinks is needed in each market.

"It really will be up to the FCC to implement rules as to the mechanics of the auctions, subject to the limits placed by the legislation," Oxenford said.

The legislation only allows the FCC to conduct one round of reverse auctions but it does not spell out how many "forward" auctions it can hold and when both types of auctions will take place. Chris Guttman-McCabe, vice president for regulatory affairs for the wireless industry group CTIA, said he expects the FCC will likely do the reverse auctions first and then follow with forward auctions of that spectrum. The FCC will likely set minimum bids for wireless operators to cover the amount that has to go back to broadcasters, he added.

The legislation does set some limits on how the FCC can structure the forward auctions. Some of the biggest wireless operators such as AT&T voiced concern before the legislation was passed that the FCC may try to keep them from bidding for the broadcast spectrum to help promote competition among smaller providers.

The legislation prohibits the FCC from barring eligible wireless firms from bidding, but it leaves open the door for the commission to launch a rulemaking that could limit the amount of spectrum a wireless carrier could hold in each market.

Meanwhile, the FCC was tasked with a few other chores in the spectrum legislation. They include determining whether it's feasible for unlicensed technologies such as Wi-Fi to operate in a few identified bands including "guard bands" in between the swaths of spectrum that would be auctioned to wireless carriers and in a chunk of spectrum set aside for "dedicated short-range communications" for advanced technologies being added to cars, according to Rob Schill, a lawyer with Fletcher, Heald & Hildreth.

How quickly we'll see the first concrete moves from the FCC is still a guess at this point. So far the FCC hasn't commented on how it will proceed once the legislation is signed into law, but stakeholders in the process say the FCC has already done some of the groundwork. "There's already been a lot of thought [by the FCC] on what's coming," Guttman-McCabe said.