Voice
Communication in Business Volume 2
Essays on telecommunications,
1981-2002
It was one thing for the
Federal Government to sell off land in the far west to get the
country settled, but quite another to sell off to the highest bidder
a major national resource that invades the land, the homes, and even
the heads of all citizens. I sort of liked the original concept of
granting the use of the radio spectrum to those who would best serve
said citizens, but I guess that is old fashioned.
Selling Off The Spectrum
(1991)
(See also
Survey of
the Spectrum, the sidebar that accompanied this in
Business Communications Review.)
The plan to auction off some of the radio
spectrum, presently being advanced by Al Sikes, chairman of the FCC,
with technical assistance from fellow lawyer Janice Obuchowski of
NTIA, has some advantages. In my opinion, however, it is not quite
what it seems. Described in minute detail in Reference 1 (referred
to below as the NTIA Report or NR), auctions are touted as a fair
way to minimize red tape while efficiently allocating radio
frequencies, and also as a source of revenue for the government.
"A market for spectrum licenses or rights ...
can maximize ... efficiency (i.e., those who value the spectrum the
most will use it)..." NR, p.98), and "...the market would be an
efficient mechanism 'in the sense that the alternative with the
highest economic value among all competing applicants will be the
one that receives the license'" (NR, p 100, quoting the Department
of Justice). A few pages and eighty-some footnotes later, "In NTIA's
view, competitive bidding could improve the current FCC assignment
process...(and)...would rationalize the assignment process while
recovering a portion of the spectrum's value for American taxpayers"
(NR, p 115).
In all the furor, attention is being directed
to the PROCESS and diverted from consideration of the RESULT. We are
told all the advantages of an auction as a means of selecting the
winner of some coveted frequency although, in spite of many denials
throughout the 200+ pages of NR, the actual intent seems directed
toward ultimately insuring private OWNERSHIP of radio frequencies,
overriding one of the few specifics in the Communications Act of
1934 which insists that the public owns the spectrum and the FCC
grants limited rights to use it.
What makes the whole auction approach suspect
is that the most valuable spectrum is already gone: the boat has
sailed for AM, FM and TV broadcasting, and the balloon has gone up
for Cellular Radio. Most of the many new projects hungering for
bandwidth (wireless LANS, wireless PBXs and the like) are cost
items, not sources of new revenue for their owners. If the customer
has to add the cost of bidding for spectrum to the high cost of a
product just starting down the learning curve, it may be that such
new products will be priced out of the market before they ever get
started.
NR insists that it does not (as yet) expect
local police to bid for frequencies against taxi companies, or air
traffic controllers to bid against those who want to offer radio
paging. Emphasis is on new services which would like to use some 200
MHz of bandwidth presently held by the Federal Government, or new
frequencies in the unexplored range "above 890" (see the companion
article which follows). But most of NR's examples demonstrating the
value of spectrum are taken from broadcasting or cellular radio.
Never once does NR suggest how much the owner of a CB radio should
bid for the right to use the air.
This comes clear in even a hurried reading of
NR. Just who will bid for frequencies? Will it be the equipment
manufacturers who are hoping for bands in which their wireless LANs
and PBXs can be used by their customers, or will it be each customer
for these new products? If the latter, what happens when the office
moves? Will a new bid be required for the right to use the same
frequencies at the new location? An auction that might have worked
for VHF TV or Cellular Radio does NOT seem to make sense here.
Reporters suggest that "incumbents" such as
broadcasters and cellular radio operators, supposedly exempt under
NTIA's suggested plan of action, are the strongest objectors (See
Reference 2, for example). They have had the right to use their
frequencies for years and, as the argument goes, do not want to have
the FCC set a precedent where they might sometime have to pay for
something which has always been free. If so, their complaints would
seem to be like those of Br'er Rabbit as he pleaded with Br'er Fox
not to throw him into the briar patch.
From a broadcaster's point of view, obtaining
a radio or TV license from the FCC is a nightmare come true:
government interfering with free enterprise. First, you have to
prepare an elaborate application, promising to do all sorts of
things such as make time available for news broadcasts and public
service programming. Then, you have to wait forever for the
bureaucrats to act. And when you finally get on the air, you have to
start planning to get your license renewed: you have to prove that
you have lived up to your promises even when groups of local
trouble-makers insist that all you have done is make money.
From the FCC's point of view, the problem is
even worse. The FCC has to consider dozens and sometimes hundreds of
applications, all competing for the same frequencies, and then
decide who comes up lucky. When there were only two VHF TV channels
available for a given city and ten different groups wanted them,
eight very angry losers always resulted, no matter how carefully
hearings were conducted or how much evidence was considered
(Reference 3, Chapt. 2).
VHF TV channels, rightly considered licenses
to make money, have all been assigned for decades, but when cellular
radio was finally allowed to go ahead, after a fifteen year delay to
be sure it could be provided by competitive sources, the number of
applications was staggering. The only way the FCC could deal with
the inundation was to use a lottery to select the winner in each
market. In a frenzy of speculation, anybody who could afford a
lawyer and an engineer filed an application to qualify for the
drawing; many of the lucky ones immediately sold their licenses to
the highest bidder. This has encouraged some to ask, "Why shouldn't
the government have gotten that money in the first place?" It would
also seem that if applicants had been required to bid for cellular
radio frequencies, putting up real cash, fewer would have injected
paper work into the already overburdened FCC. Others have pointed
out that the income tax paid on the sale of franchises for cellular
radio or broadcast stations generate a lot of the money the
government might have gotten from an auction in the first place (NR,
p121).
The question NOBODY has asked is why the
public has been forced to subsidize pseudo-competition in cellular
radio in the first place. Had the telephone companies been permitted
to go ahead, we could have had cellular radio fifteen years earlier,
better service could have been provided by one large frequency band
rather than two small bands in competition, and the public wouldn't
have been saddled with the buy-out cost of speculation the FCC
lotteries handed them.
Another consideration is that not all
frequencies are equally valuable. The UHF TV signal, for instance,
has the curious property of vanishing somewhere between the
transmitter and the receiver, or else coming in with so many
reflections that each "talking head" on the receiver's screen looks
like a committee. In the early days, UHF didn't work because tuners
on TV sets only covered VHF (Reference 3, Chapt. 6). After the FCC
required UHF tuners as well, it still didn't work for a variety of
other reasons. Several years ago, Channel 48 in Philadelphia gave up
the ghost. After a pause, two more UHF stations have taken its
place, but only because cable was installed in the interim, and
cable companies are required to carry local TV signals. The point,
however, is that nobody in his or her right mind would bid for a UHF
TV channel. The FCC should pay broadcasters to use them to encourage
competition in the marketplace of ideas.
Prior to the arrival of Newton Minow,
President Kennedy's FCC Chairman, the renewal of broadcast station
licenses was more or less perfunctory, even in such outrageous cases
as that of "Goat-Gland" Brinkley. Actually, Brinkley's application
for the renewal of his radio station license was one of the few
turned down, but he won on appeal (Reference 4, Chapt. 3) and later
sold out to a Wichita insurance company, moving his broadcasting
venture just across the boarder into Mexico.
Minow, best known for the startling and
previously unsuspected observation that TV was a "vast wasteland,"
took seriously the mandate of the Communications Act of 1934 and
began carefully comparing promises with performance when licenses
came up for renewal. This awakened the long-time dream of
broadcasters: if one could buy and actually own one's frequency,
there would be no need to worry about officious bureaucrats, the
"fairness doctrine," public service programming, news, special
events, etc. Reruns of Lucy and Cosby could go on forever, with 15
minutes of commercial in each half hour, generating infinite riches.
But what about competition? Wouldn't other
stations put on better shows to steal listeners and with them,
advertisers? Not likely.* While there are often three network TV
stations, a PBS station, and a few independents in major markets
such as New York and Chicago, most cities have only one or two VHF
channels, and many have none at all. Similarly for radio stations,
both AM and FM. Big markets have lots of radio, but smaller markets
usually give you little more than a choice between top 40 rock,
country/western, and perhaps an opportunity to contribute to certain
religious groups. If you don't like what you get, you have no place
to go.
[*Footnote: Has the coming of cable with its infinite channels
produced an improvement in programs? In quantity, perhaps, but
hardly in quality.]
And this is what it is all about. In smaller
cities, the local newspaper put up a radio station fifty years ago,
and later expanded into TV, an estimable way to keep up to date and
bring new technology to its customers. What was less known, until
the FCC held a series of hearings, was that the newspaper often
owned a major interest in whatever other stations wanted to get on
the air, and a singleness of viewpoint for local news (often total
suppression of anything interesting) was quite common. The FCC
ultimately split up this monopoly ownership, under the assumption
that having several owners of media in a given area might encourage
more variety. In theory, it looked like a good idea, but experience
suggests that "heartland" TV station owners have surprisingly
similar points of view.
A major worry of "heartland" broadcasters, in
addition to the possibility that they might be forced to broadcast
alternative points of view themselves, is the way the TV Networks
sometimes succeeded in injecting a different point of view into
their local communities; this was particularly inconvenient during
the heyday of the civil rights movement and the Viet Nam war
(Reference 5, p171, for instance, and 213 ff).
When local media monopolies were broken up,
the same principles had to be applied to major markets, even though
there were already more stations and newspapers in those areas
offering competitive sources of information (Ref.6, Chapt. 2). Each
network, for instance, is not permitted to own more than five TV
stations, and nobody can own more than one TV station in any given
market. These rules were looked upon as less than satisfactory
fifteen years ago, but today, the FCC is considering an increase in
the number of stations a network can own to save over-the-air
broadcasting from cable. Cable, of course, gives Ted Turner (among
others) a number of TV channels in every market, but this doesn't
seem to bother the FCC or Congress in the slightest.
But the whole exercise could have been
avoided if stations had owned their frequencies in the first place
so that the government couldn't cancel their licenses. That, I
think, is what the present auction concept is actually about. The
auctioning of new frequencies is a diversion to establish a
precedent for frequency ownership; then, existing businesses will be
given the comparable right to own the frequencies they have been
using for years. It is just a way to let those with the most money
own a natural resource free from government interference, another
form of deregulation. Ownership, and the control that goes with it,
is what counts. Then the tobacco companies can come back on the air,
more vigorous action adventures can be built around expensive toy
promotions in programs for children, political advertising can be
accepted or rejected on the basis of sound management decisions, and
above all, those trouble-makers who know better than station owners
what the public should see and hear can be sent packing.
So Al and Janice will auction off some
frequencies for PCNs, data networks, etc., and this will take part
of the load off the FCC's Reagan-depleted staff. But then Sikes can
get down to business, and in spite of protestations to the contrary
in NR, allow the broadcasters to buy their frequencies, too.
Allowing them to own outright their radio and TV frequencies is
almost certainly the real issue; if broadcasters were only allowed
to bid for a fixed-term lease, subject to public approval for
renewal, the idea of auctions would vanish like Reagan's balanced
budget.
If the auction plan is actually implemented,
it won't take long for someone to note that paying the government
for radio frequencies is a form of taxation (NR, p 106, for
instance). One thing we have learned from the last ten years is that
neither businesses nor individuals want to pay taxes; rather, they
will pay any price to "get the government off their backs." I'll bet
dollars to doughnuts that a few years after the first auction, the
FCC will have to give back the proceeds of its sales, just as, back
in 1977, it had to give back the modest fees it had hoped to charge
for CB radio licenses. But by then, ownership will be established
and the rich will have inherited the air.
The auctions that
followed, mostly for new cellular radio above 890, could be
considered a disaster in that many companies bid far more than they
could afford, couldn't make payments, and lost their spectrum back
to the FCC which had to try again. If one is going to have auctions
for the spectrum, I think bids should have been in the form of
percentage of gross revenue after the system started to pay off, not
a flat up-front price. Then, at least, the winners who wished to
enter the cellular radio business would have had more capital
available for investment in infrastructure and, if they turned out
to be successful, the Government would have had a steady stream of
revenue in perpetuity.
REFERENCES:
1. US Spectrum Management
Policy: Agenda for the Future. NTIA Special Publication 91-23,
US Dept. of Commerce. Feb., 1991. US Government Printing Office,
Washington DC 20402.
2. Robert J. Samuelson: "The
Quiet Giveaway." In Newsweek, May 13, 1991.
3. Newton Minow: Equal
Time. Atheneum, New York, 1964.
4. Harold Mehline: The
Scandalous Scamps. Henry Holt and Company, New York, 1959.
5. Fred Friendly: Due to
Circumstances Beyond Our Control... Random House, New York,
1967.
6. Nicholas Johnson: How to
Talk Back to your Television Set. Atlantic-Little, Brown,
Boston, 1973.
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