Guiding the USA's coming spectrum auction

FCC Commissioner Michael O’Reilly gave a presentation to the Hudson Institute on 27 January. In this edited extract, we present his views on several issues of relevance to the critical communications industry.

I am the newest FCC commissioner. I was fortunate enough to be confirmed alongside our chairman, Tom Wheeler. In our short tenures, we both have come to be known for certain taglines that have prompted further questioning. His has been “competition”. Mine has been “freedom”.

The chairman has, on a number of occasions, articulated what he means by his term. Today, I would like to explain more about what I mean by mine.

In our system of free enterprise, we hold the belief that consumers and businesses should be able to freely buy and sell, without needing the permission of the government and with minimal restrictions placed on business activities or asset ownership.

Policymakers in Washington, DC should be constantly on guard against unnecessary restrictions that interfere with the freedoms of any willing buyer or seller in our economy because … we have no idea what types of products or services our regulations may discourage from coming to market.

Guiding principles

Championing economic freedom will be my guiding principle when it comes to overseeing the communications industry. To inform my decisions, I will consider the following.

First, the commission must consider whether it has the authority to regulate as well as realising the confines of that authority. There is no place in the rules for policies - even ones that are well meaning - that have no basis in the statute. The commission exists to implement the statute - no less and certainly no more.

Second, the commission must have verifiable and specific evidence that there is market failure before acting. In many cases, competition and industry self-regulation are sufficient to ensure that services are provided and consumers are protected. And it should only regulate when there’s evidence - bona fide data - that an actual problem exists, resulting in real harm to consumers, that the commission can solve.

Third, when the commission does intervene, its solution should be carefully tailored and apply only to the relevant set of providers or services. We must guard against overregulating by analogy.

FCC commissioner Michael O'Reilly. FCC photo.

Fourth, the benefit of regulation must outweigh the burdens. Even when rules are grounded in the statute, based on evidence, addressing a real harm and targeted at a specific problem, there are still costs to intervening, and we must consider those costs as part of our analysis. Let’s accept the reality that costs are always passed on to consumers one way or another.

We often hear it said that the commission’s rules have not kept pace with changes in technology and the marketplace, and that is true. The communications sector is in the midst of a digital revolution. Companies are innovating and thriving. They are investing billions each year in new networks and technologies. And consumers are benefiting from a vast array of services and devices not imagined years ago. But while some advocate automatically applying antiquated rules to new, cutting-edge technologies, I do not believe that legacy rules or constructs are entitled to live on after their usefulness.

When it comes to encouraging competition and consumer choice, I start from the premise that removing regulation where it is not needed will better serve these goals.

To ensure that participants in the communications marketplace are as free as possible to meet consumer demand, I believe that the commission must periodically re-examine its rules and the justifications that underlie those rules. Over time, those justifications may have eroded or changed. That is why I will consistently advocate for sunset provisions to force the commission to make sure our rules are still relevant.

Incentive auctions

One of the last pieces of legislation I worked on as a Congressional staffer that was enacted into law was the Middle Class Tax Relief and Job Creation Act of 2012. It directed the commission to hold a broadcast spectrum incentive auction. Providing this platform to transfer spectrum from willing broadcasters to wireless service providers is a great example of further injecting market forces into spectrum policy. As Congress directed, the resulting revenue will pay for the First Responder Network Authority (FirstNet), the Next Generation 911 program and deficit reduction, among others.

This will be the most complicated spectrum auction in our history. Technically, we will need to simultaneously integrate the reverse auction to obtain spectrum, with the forward auction to allocate the spectrum for wireless use, while ‘repacking’ the remaining broadcasters. In order to be successful, we need many things to fall into place, including broadcaster participation - because without them, the auction simply fails.

Educating broadcasters about their options - whether it be selling spectrum, channel sharing or moving from UHF to VHF - will be an enormous challenge. It will be an even greater uphill climb if the auction rules and processes are complex or confusing. Similarly, we must remain attentive to the concerns of those broadcasters interested in being repacked. Simplicity and transparency are paramount to providing broadcasters the certainty needed to decide to participate or continue to serve their communities. Failure to do so may deter broadcaster participation or lead to legal challenges that could significantly delay the auction.

I also feel strongly that the commission must not implement rules designed to preordain auction results or place undue restrictions on licences. Such efforts have failed in the past. And now, more than ever, we cannot afford to diminish participation or revenues. Instead, the commission must allow licences to go to their highest valued use and ensure spectrum flexibility.

If, as I hope, the auctions are successful, consumers will benefit enormously as wireless providers use the new spectrum to build next-generation networks and provide faster and better service throughout the nation.

You can watch O’Reilly’s address on YouTube.