Democracy & Technology Blog House spectrum bill protects taxpayers — and progressives are not happy

Congress is considering a bill which would authorize the Federal Communications Commission to reassign certain electromagnetic spectrum for mobile broadband services through “voluntary incentive auctions.” Speaking at a trade show earlier this month, FCC Chairman Julius Genachowski was critical of provisions in the “Jumpstarting Opportunity with Broadband Spectrum Act” (H.R. 3630, Title IV) limiting the FCC’s power to impose conditions on successful bidders that have nothing to do with maximizing revenue for the Treasury.
One provision would prohibit the commission from unreasonably restricting who can participate in a spectrum auction, such as large firms. Another provision in the JOBS Act would prevent the FCC from requiring a successful bidder to sell access to its network on a wholesale basis.
“It’s a mistake,” according to Genachowski, “because it preempts an expert agency process that’s fact-based, data-driven and informed by a broad range of economists, technologists and stakeholders on an open record.”
Genachowski’s old boss, former FCC Chairman Reed E. Hundt, reportedly criticized the proposals during a Capitol Hill briefing on Tuesday, as well.

He worried that the bill would allow the largest wireless carriers to buy up all of the spectrum at auction, expanding their dominance of the airwaves. He said the carriers might not even plan to use some of the spectrum but could buy it just to kill off competition.
He argued that Congress should rely on the FCC to use its technical expertise to set the conditions of the auction.

These guys apparently will never learn.
The FCC has a poor track record of trying to improve on the free market, and the Reed Hundt era is recent exhibit “A.” Seeking to promote competition in local telephone service during Hundt’s tenure in the late 1990s, the FCC required incumbent local telephone companies to provide below-cost wholesale access to their networks while preventing them from competing in the long-distance market. According to Hundt, in You Say You Want a Revolution? (2000),

The Clinton administration had the conviction that astute and sharp-edged rules could open markets to competitors … some firms would succeed, others fail. But the competition would create choice for consumers, and the diversity of the competitors would weaken the political influence of the big, established (and typically Republican-leaning) firms. The new competitive markets would stimulate investment in new technologies and lead to fair prices for consumers. All five lanes of the information highway would converge in a race to tomorrow (which we would not stop thinking and talking about).

The FCC’s “pro-competition” framework was an abject failure which led to overinvestment in the core of the network and underinvestment in the local connections at the network’s edge. According to Robert W. Crandall of the Brookings Institution,

For the most part, these policies simply transferred billions of dollars from incumbent telephone companies to fund marketing campaigns required to sell the same services under a different name [that of an unaffiliated retail competitor].

While Reed Hundt and other idealists were busy helping to precipitate an investment bubble that burst in 2000-02, meaningful voice competition was emerging, unbeknownst to the FCC, from the wireless and cable industries which are not subject to active FCC oversight.

Extensively-regulated telecommunications firms seem to represent the ideal social order for the Left. As technology evolves in exciting new ways, the Left seems to be getting increasingly restive.
Earlier this month New York Times columnist Thomas L. Friedman criticized the Republican presidential candidate debates, because no one mentioned broadband policy. Friedman thinks each of the candidates ought to have a plan for ensuring that America has a “strategic broadband advantage” vis-�-vis our international competitors.
Overtaking the “broadband superpowers,” Seattle Times guest columnist Timothy Karr has suggested, warrants investment from the public and private sectors as well as government intervention on behalf of consumers. Unlike telephone service, broadband is essentially unregulated in the U.S. and receives minimal subsidies.
The private sector invested $65 billion in broadband infrastructure in the U.S. in 2010 alone, according to the Federal Communications Commission’s Seventh Broadband Progress Report. More than 95 percent of the U.S. population lives in housing units with access to fixed-line broadband service capable of supporting actual download speeds of at least 4 megabits per second, and the average advertised speed purchased by broadband users has increased by approximately 20 percent each year for the past decade, according to the National Broadband Plan (Chap. 3, at 20-21).
Almost 92% of the U.S. population can also choose between two or more providers of mobile wireless broadband service, and several wireless service providers are deploying fourth generation broadband technologies that permit faster mobile broadband connections, according to the FCC’s Fifteenth Wireless Competition Report. Mobile broadband is becoming an increasingly popular means of Internet access, and for some consumers, substitutes for fixed broadband.
Not everyone chooses to purchase fixed broadband where it is available. In terms of the number of households that subscribe to fixed broadband services, the U.S. is behind a handful of countries like South Korea and Denmark, notes Karr. Broadband subscribership was 63 percent of households in the U.S. (72 percent in Washington State) in 2009, versus 84 percent in South Korea and 76 percent in Denmark, according to the FCC’s Second International Broadband Data Report(Appendix D).
The FCC cautions that data sources on international broadband adoption and pricing are incomplete and challenging to compare. For example, the household fixed broadband data includes mobile broadband for South Korea, but not for the U.S. Setting that aside, the same report shows that broadband adoption by U.S. consumers exceeds that of other countries commonly viewed as major competitors. Adoption in the U.S. exceeds Japan and the European Union average, and no one alleges that the U.S. is in danger of losing strategic broadband superiority to China, India or Russia according to this measure.In terms of pricing, a ranking of broadband prices for 2009 by the International Telecommunication Union places the United States among the least expensive countries for fixed broadband services.
Yet the FCC is determined act. “We need universal broadband adoption,” claims Chairman Julius Genachowski, “so that every American is taking advantage of our 21st century communications platform”.
No one is proposing a government mandate requiring every household to purchase broadband service, at least not yet, although that is what it might take to achieve universal adoption. The FCC was created in 1934 with the same goal for telephone service. By 1996, when Congress reformed the Communications Act to allow competition and reduce regulation, telephone adoption was still under 94 percent.
Intervention would likely take the form of competition policy designed to reduce the size and increase the number of broadband service providers, which the JOBS Act would prevent the FCC from unilaterally imposing, at its sole discretion, in the spectrum auctioning process.
Broadband service is widely available in the U.S., and the evidence does not reveal a serious gap in broadband adoption in the U.S. relative to other countries. Claiming there is a need for government-led strategic planning for broadband to maintain our nation’s competitiveness is a cynical indictment of a free market success story. Even if government action were indicated, proposals for government subsidies and reinvigorated competition policy could prove costly and counter-productive.
Progressives can rest assured that broadband services show unmistakable signs of continuous improvement as a result of massive private investment. Meanwhile, there are genuine government failures — bankrupted green energy firms, Chevy Volt fires and stubbornly high unemployment among them — that progressives should be worried about.

Hance Haney

Director and Senior Fellow of the Technology & Democracy Project
Hance Haney served as Director and Senior Fellow of the Technology & Democracy Project at the Discovery Institute, in Washington, D.C. Haney spent ten years as an aide to former Senator Bob Packwood (OR), and advised him in his capacity as chairman of the Senate Communications Subcommittee during the deliberations leading to the Telecommunications Act of 1996. He subsequently held various positions with the United States Telecom Association and Qwest Communications. He earned a B.A. in history from Willamette University and a J.D. from Lewis and Clark Law School in Portland, Oregon.