Divided FCC Delivers Rules for Its Incentive Auction

The incentive auction is a world-first that's unlikely to be repeated. How it should be run is hotly contested, even within the FCC.

FCC spectrum auction

A very divided Federal Communications Commission (FCC) has released a report about how it intends to run its upcoming wireless spectrum auctions.

One auction will involve 65MHz of high-band spectrum—spectrum above 1GHz that's considered "capacity spectrum" and ideal for deployments across vast distances. The other, a 600MHz Incentive Auction, will include significant amounts of low-band spectrum, or "coverage spectrum," that's coveted by the wireless carriers for its ability to reach deep into homes and buildings.

The Incentive Auction, the first of its kind, includes a reverse auction, in which television broadcasters will offer their spectrum, and a forward auction in which the wireless carriers can bid for it.

FCC Chairman Tom Wheeler, in a personal statement on the report, called himself an "unabashed believer in competition" and noted that there are three "interrelated parts" to the rules that the FCC has established.

The first is that the FCC has increased its spectrum screen to reflect spectrum that is currently suitable and available for mobile broadband. Second, the FCC clarified that it will continue to "look closely at low-band spectrum transactions" in its competitive review. Third, it set pre-auction rules regarding spectrum aggregation.

Regarding which carriers can bid for what types of spectrum, Wheeler wrote twice, "Every bidder, regardless of size or spectrum holdings, will be able to bid on spectrum in every market throughout the country."

Addressing another controversial aspect of incentive auction, Wheeler wrote that the FCC has also established a "market-based reserve" for bidders that don't hold significant amounts of low-band spectrum in specific markets.

Framing it one way, he wrote, "We are adopting a limited rule that says the biggest holders of low-band spectrum can't run the table as long as there is sufficient demand for reserved spectrum."

Only Commissioner Jessica Rosenworcel called herself pleased with and in support of the report.

Commissioner Mignon Clyburn acknowledged her support for parts of it but expressed frustration with the amounts of spectrum to be put in reserve. While Wheeler's original draft split the unreserved/reserved amounts of 60MHz and 50MHz of spectrum into 30/30 and 30/20, respectively, in the final proposal, those splits were changed to 40/20 and 40/10.

A number of carriers have told her office that they want to acquire 20MHz in the auction, she wrote. "By allocating 30 megahertz of spectrum for unreserved spectrum, we would have created an incentive for these companies to compete intensely to acquire that 20 megahertz of spectrum."

Commissioners Ajit Pai and Mike O'Reilly both dissented.

"Rather than choosing competition, we restrict it. Rather than embracing the free market, which has sparked constant innovation in wireless services over the last two decades, the commission places its faith in centralized economic planning," wrote Pai, criticizing the reserves. "Rather than relying on private carriers to decide which spectrum is most suited to their needs (or business models), the commission decides for them."

O'Reilly also criticized what he sees as the commission getting in the way of its own good intentions.

"At the heart of this item is an enormous thumb the agency places on the scale of future secondary market transactions involving low-bandwidth spectrum and, most concerning, the upcoming Broadcast Incentive auction," O'Reilly wrote.

He added that the commission's "subjective judgment" is likely to result in consumer-harming inefficiencies and potentially the failure of the auction."

Wheeler, again, had a different take, concluding his statement by saying that "for the first time ever, we have established a viable spectrum reserve for competitors in every market nationwide."

The reserves, he added, will help the commission deliver its core objective: "Better service, more choices and ongoing innovation."

EDITOR'S NOTE: This article was corrected to properly describe the meaning of the terms "capacity" and "coverage" as they relate to the FCC spectrum auction. The definition of these terms was reversed in the original version of this article.