Commissioner Pai: A ‘Consensus’ Of Incumbents Without Consumers Is No Consensus And means Disaster For 600 MHz.

Last week, the Federal Communications Commission (FCC) Wireless Bureau issued what should have been a fairly routine and highly technical Public Notice about possible alternative band plans for the 600 MHz Auction aka the Incentive Auction aka “that incredibly crazy, complicated deal Congress came up with last year where broadcasters sell back licenses to the FCC so the FCC can sell them to wireless companies.” Since public comment makes it clear that the various proposals present a lot of challenges (see my incredibly long and wonky explanation here), it shouldn’t surprise anyone that the Wireless Bureau asked for further comment after holding a band plan workshop a few weeks ago.

 

But Commissioner Pai issued a separate statement blasting the Wireless Bureau. In particular, Pai berated the Bureau for departing from what he called the “consensus framework” for one particular band plan – the band plan favored by AT&T, Verizon, the National Association of Broadcasters (NAB) and the largest equipment manufacturers. Pai ignored objections to the AT&/VZ/NAB plan and support from consumer groups (including Public Knowledge), competitors such as Sprint, or tech companies such as Microsoft. Over and over in his statement, Pai cited to the comments of AT&T, Verizon and NAB as proof of a “broad consensus” as if none of these objections existed.

As someone fairly active in this proceeding, who actually participated in the Band Plan Workshop, I am more than a little peeved. Yoo hoo! Commissioner Paaaaiiiiii!!! What am I, chopped liver? I am also more than a little irked at the allegations that the Bureau somehow behaved improperly in issuing the Public Notice. Pai’s accusation that the PN violates the Bureau’s delegated authority by soliciting comment on alternatives to the AT&T/VZ/NAB “consensus plan” appears designed to bully the Bureau into submission.

Setting my personal pique aside, as I keep trying to explain, letting the broadcasters and the largest wireless incumbents write the rules for the auction spells absolute disaster. If Pai genuinely wants to see a successful Incentive Auction, that means looking past industry “consensus” and getting into the very nasty and complicated details to figure out the right set of tradeoffs that will (a) get the broadcasters and wireless guys to the auction, but (b) not let them short the U.S. Treasury out of the cash it expects to collect in the process.

I vent and take one more shot at explaining this below . . . .

 

As if to emphasize just who counts for Pai’s “consensus” and who doesn’t, AT&T, Verizon, and the NAB posted identical blog posts reiterating the core of Pai’s criticism. To paraphrase: “we, the most important and powerful people in the auction, have come up with marching orders for the FCC on how to run the Incentive Auction to our benefit. The Wireless Bureau should stop wasting time worrying about what those stupid consumers and competitors say and get cracking on setting up the band plan we came up with in our spectrum smoke-filled room. How dare those auction experts and engineers in the Wireless Bureau suggest they could design something better than we could, when we are the biggest, most powerful, most important players in the wireless and broadcasting industries? Don’t you know this auction is supposed to be all about us? Now stop wasting time on all this ‘public comment’ and ‘independent judgment based on the evidence’ and start implementing our consensus framework like Commissioner Pai told you!”

 

This is particularly insulting after the Wireless Bureau went out of its way to solicit consumer input by inviting me to participate in the band plan workshop. I do not necessarily agree with everything the Bureau has proposed, but I give them credit for genuinely trying to reach an independent judgment rather than just rubber-stamping the “consensus framework” of the most powerful industry players.

 

Trying to Browbeat the Bureau Into Submission Poisons The Process And Politicizes The Engineering

 

Pai argues that the Wireless Bureau exceeded its “delegated authority” when it suggested possible new band plans. As a legal argument, this is clearly nonsense. A Public Notice seeking comment on possible alternatives — especially when the original Notice of Proposed Rulemaking explicitly sought comment on both the band plan and the possibility of “market variability” — falls so within the bounds of permissible as to be commonplace. For the last several years, starting with the endless series of Public Notices during the National Broadband Plan, the Bureau has used public notices in complex proceedings to develop the record on specific points as agency thinking evolves and the ultimate shape of the final order begins to clarify.

Again, while not saying anything about the substance of the notice (because I really need to think about the whole “market variability” thing), the process of iterative Public Notices focusing on specific issues represents a vast improvement in how the FCC handles such complex proceedings. Generally, the only way to know the state of play for an ongoing proceeding is to keep meeting endlessly with staff and the Commissioners hoping to pick up new information and to watch the filings in the ECFS docket to see what arguments other parties make. When the Bureau goes issues a new Public Notice such as the one issued last week, it lets everyone interested know what issues the Bureau thinks are important at this stage and provides everyone with the same opportunity to address these issues in a coherent and meaningful way.

Pai’s argument that this is somehow “deciding” a novel issue is absurd not merely because the PN bears on issues directly raised n the Notice of Proposed Rulemaking approved by the full Commission back in September. The rule on delegated authority cited by Pai applies to when the Bureau may decide matters, not when it may seek additional comment on matters. Pai and his fellow Commissioners will still have the opportunity to vote on any proposed bandplan — assisted by the additional comment provided in response to the Public Notice.

Given all this, I find it hard to read Pai’s allegation that the Bureau has exceeded its authority as anything other than a naked attempt at political intimidation in an effort to cut off debate on the highly contentious issue of the band plan. Such blatant politicization poisons the process by making it much harder for  the experts in the Bureau to engage in transparent public debate.

But further debate is exactly what is required. At the 600 MHz Band workshop, I personally observed that the contributions by the other witnesses at the workshop (as well as the evidence in the record) raised many hard questions that would require significant further investigation to consider appropriate trade offs. Accordingly, I find it heartening and useful that the Bureau has taken the feedback from everyone, not just the largest incumbents, and issued a Public Notice that tries to address the concerns raised.

Pai may have made up his mind that once the Great Ones in the Industry have spoken, consensus has been reached and the matter resolved. But as one of the “little people” who does not  support the AT&T/VZ/NAB “industry consensus,” I am glad to see  the Bureau still genuinely grappling with the hard questions and tradeoffs raised by the record and at the 600 Mhz workshop. Rather than trying to browbeat the Bureau into submission, Pai should support these efforts to thoroughly explore all the options and objections before he and his fellow Commissioners vote on a final Order.

 

An Auction Designed By Incumbents Will Be A Disaster

 

It is bad enough when a regulator thinks “consensus” means “whatever the biggest incumbents decide.” As I keep trying to explain in rather long and wonky blog posts (see here and here), an auction designed by the incumbents (particularly with the broadcasters and largest wireless carriers in agreement) will be a disaster. Not just because it will allow AT&T and Verizon to capture all the good spectrum, as they did in the last two major auctions.  I grant that Pai seems utterly indifferent to the competition implications of the auction. It will also be an utter disaster on the one thing Pai and other Republicans seem to care about — revenue.

 

Ten years ago, UK auction expert Paul Klemperer wrote a paper called “Using and Abusing Auction Theory.” In it, Klemperer distilled the lessons from successful and failed efforts by governments around the world to auction wireless licenses to the cell phone industry. To translate very loosely, Klemperer’s advice boils down to: ‘Given the chance, industry players will set up rules that favor themselves. Don’t give them that chance. Focus on encouraging new entry and preventing collusion among the powerful incumbents. Everything else follows from that.’

 

A I keep trying to explain, this sound general principle applies with particular force here. I will not repeat the 1000+ words I wrote over here on why the “consensus framework” beloved of the incumbents and Commissioner Pai is “creates the biggest problems for efficient use of spectrum, competition and — in my opinion — auction revenue. So of course this is the plan backed by the majority of carriers (including AT&T and Verizon), the majority of equipment manufacturers, and the broadcasters.” Instead, let me just quote the punch line:

 

“You may ask why so many carriers and equipment manufacturers love Down from 51 if it creates so many problems. The answer is that carriers do not give a crap about raising money for Treasury. Same thing for broadcasters.”

 

From the point of view of the largest wireless incumbents and the NAB, the best plan lets the broadcasters capture as much revenue as possible and shorts the U.S. Treasury as much as possible, because every dollar paid by a wireless carrier to a broadcaster is one dollar less going to the Treasury. For their part, wireless carriers will happily fork over all their money to broadcasters and zilch to the Treasury if that is what gets spectrum on the auction block. It’s a payment – why should they care where the money goes? Left to form a “consensus” plan, the rational broadcaster and the rational giant wireless incumbent will collude together to cut out the middle-man (the U.S. Treasury) and keep the cash to themselves.

 

So designing a successful auction means actually stepping on the toes of NAB and the biggest wireless, not rubber stamping their “consensus framework.” Yes, the FCC needs to hold out enough money to broadcasters to make it worthwhile for them to show up, and the band plan needs to be attractive enough for the wireless incumbents to get them to bid. But that requires an independent judgment based on evidence, and a willingness to push back on the incumbents as needed.

 

Conclusion

 

It is bad enough when a regulator thinks that agreement among the most powerful industry constitutes a “consensus framework.” But for Commissioner Pai to berate the Bureau for refusing to run roughshod over consumer and competitor objections is simply inexcusable. Agreement between NAB, AT&T and Verizon – supported by their largest vendors – is not a “consensus framework.” In the ordinary case, brushing off consumers and competitors to cater to the incumbents would be offensive. For the Incentive Auctions, treating the incumbent wish list as holy writ that the Wireless Bureau dare not question is not merely offensive – it will be a disaster.

Stay tuned . . .