The FCC and incentive auctions (or why admin law matters to City 2.0)

fcc auctionAs a follow up to why municipal law matters to City 2.0, I want to address a second source of law that affects local government in America—federal administrative law. Many agencies create regulations that help (or hinder) smart city growth, and I want to give one example of a federal initiative that I think might help cities.

This initiative comes in the area of public Internet access, a goal of many cities. Indeed, I wrote yesterday about NYC making broader Internet access a core principle of its Roadmap to a Digital City. I not only support this goal but believe that greater access to high-speed Internet is essential to the successful cities of the future.

Yet, interestingly, many cities’ best hope of increasing wireless access lies in the federal government. City initiatives to increase Internet access often fail because they’re too expensive, as with Chicago’s failed attempt at city-wide Wi-Fi.  But the federal government has a plan to raise around $25 billion (!) that it promises to invest in fortifying our nation’s wireless infrastructure.

The plan is for the FCC to raise this money through licensing chunks of the electromagnetic spectrum, the limited range of airwave frequencies that supports wireless services like broadcast television, radio, and, importantly, broadband internet. Since 1994 the agency has been using an auction process, where companies bid for spectrum licenses. Right now, however, Internet providers like AT&T and Verizon are desperate for more spectrum (for data-hungry wireless devices), and the best chunks of spectrum—those that can go further and penetrate walls and windows better—are already licensed to television stations, who many times don’t need all the spectrum they have. To solve that problem, the President and the FCC have recently rolled out plans for a “voluntary incentive auction” where a TV company could voluntarily put some of its spectrum up for auction; the proceeds to go in part to the TV company and in part to the U.S. Treasury.  The FCC chairman, Julius Genachowski, promoted this plan in remarks at this month’s CES, predicting that the program would generate “about $25 billion in cash for the Treasury.” The White House is even more optimistic:

Voluntary incentive auctions, along with other measures to enable more efficient spectrum management, will generate nearly $28 billion over the next 10 years, providing funds that will enable us to build a interoperable wireless broadband network for public safety, expand high-speed wireless broadband to rural America, and establish a Wireless Innovation Fund to accelerate the research and development of cutting-edge wireless technologies and applications. The Budget invests $5 billion in the National Wireless Initiative to increase the availability of 4G wireless networks to at least 98 percent of the country.

The plan is not without controversy, but not how you might think. Lawmakers generally support the idea of incentive auctions but don’t trust the FCC to run them. (The television industry generally opposes these auctions but is realizing they are inevitable.) The distrust comes in part from the FCC’s handling of a 2008 auction, which some people think Google gamed. Here’s why: although AT&T and Verizon were to be the primary auction bidders, Google pressured the FCC to require the auctioned chunk of spectrum to be “net neutral,” meaning that the winner of the auction could not put certain restrictions on its use (restrictions that might have hurt Google). The FCC agreed to impose Google’s proposed conditions if the bidding went above $4.6 billion; Google then entered the race and drove up bidding to make sure that happened. In a related incident, the FCC  tried to impose net neutrality on Comcast and was shot down by a federal court; that situation as well may be furthering distrust.

But now, the FCC needs Congress to approve its incentive-auction plan (the  FCC has authority to run auctions and reclaim spectrum but not to compensate TV stations), so this issue has, of course, become a mess. In December a bill was introduced in the House to allow these auctions, but the bill imposed what the FCC sees as stiff restrictions on what it can do with reclaimed spectrum. Blair Levin, former head of the FCC’s National Broadband Plan, put it this way in an interview: “If you put into law all kinds of handcuffs, you are not going to produce any money or create any spectrum.” As reported by John Eggerton, Levin says that “the right legislation would be one sentence giving the FCC the right to compensate broadcasters” (thus giving broad FCC control over the reclaimed spectrum). And according to Chairman Genachowski, “112 leading economists from across the ideological spectrum” agree with Levin, writing that “[g]iving the FCC authority to implement incentive auctions with flexibility to design appropriate rules would increase social welfare,” which means, says Genachowski, “more innovation, more economic growth, and more improvements in our quality of life” (emphasis mine). Needless to say, critics have decried this approach as giving unbounded control of auctions to the FCC.

But the broad authority the FCC wants would not be unbridled. In creating the FCC in 1934, Congress required that the agency’s regulations be guided by “public interest, convenience, and necessity,” and that rule still constrains the agency’s actions. And the agency’s decisions are reviewable in federal court. Critics also argue that the FCC is an “unelected” agency and thus won’t act in the nation’s best interest, but the President, as head of the executive branch, appoints the FCC’s Commissioners and can remove them for good cause, so the agency, at least in some way, is accountable to the electorate.

I think the answer lies somewhere between Levin’s proposal of one-sentence legislation and the current bill in Congress. I don’t think it’s a good idea for Congress to lay out all the details about what happens to reclaimed spectrum. In a soon to be published paper, I argue for the same idea to be applied to No Child Left Behind: create a fair, transparent process but leave the details to the agency. Congress is often less transparent and accessible than agencies: Among other things, agencies have local offices with staffers who live in local communities and are familiar with community concerns; agencies generally make more data publicly available; and agency decisions are constrained by metrics other than merely the Constitution. Perhaps most important, as Genachowski points out, is that agencies are able to regulate and respond to innovation much quicker than Congress—a big upside in an area with constantly changing technology. As long as Congress sets some minimal transparency and participation rules, I see no problem giving the FCC the reins over other details, especially if it finally makes incentive auctions a reality.

What do you think?

4 Replies to “The FCC and incentive auctions (or why admin law matters to City 2.0)”

  1. Great post! But I think you overstate the President’s control of the FCC:
    “the President, as head of the executive branch, controls the FCC, so the agency, at least in some way, is accountable to the electorate.”

    I think one of the unique aspects of federal administrative law is the idea of independent agencies and bureaucratic expertise. One of the goals in creating independent agencies was to insulate them from politics and the President’s caprice. The FCC, FEC, CFTC, and a host of other alphabet-soup agencies with F’s and C’s in their names all have commissioners who are appointed by the President, but who can only be removed for “good cause.” It’s never been tested, but commissioners generally argue they can’t be fired at all, and Presidents generally argue they can fire commissioners at will. How much the President can really control an agency designed to be independent is unclear, and will probably remain so, since neither side wants to press the issue and lose.

    Overall, though, I’m totally on board with your argument in favor of unfettered incentive auctions.

    1. Thanks, that’s great feedback. I agree that I stated it too broadly; I’m going to add a qualifier. I meant to respond to critics that seem to think the FCC would be completely unfettered, when the President appoints the FCC’s Commissioners and can remove them for cause. You’re right, though, that he can’t just fire the FCC Commissioner to please the American public.

  2. Lexington, KY is, also, currently dealing with a failed city-wide Wi-Fi project! Thank you for shedding some light on the issue and providing such a clear explanation of the current auction proposal. I’m looking forward to learning more about the connections between admin law and city growth. In a way, it directly applies to my neighborhood!

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