Assessing the 700 MHz Order Part V: The “Property School” Takes It On The Chin

In this final installment assessing the FCC’s Order on the 700 MHz auction approved at the July 31 Commission meeting, I want to conclude by placing this in the context of the broader spectrum reform debate, notably the Property v.Commons debate.

Short answer, the Property School really took it on the chin here. Not like this was a big victory for the “commons” school either, however, although the C Block conditions helped a smidgen there by reasserted the Commission’s right to regulate and the First Amendment value of open platforms. Actually, I’m talking about the invocation of Section 316 to move a licensee that was making it very difficult for the FCC to resolve the cross-border interference with Canada caused by the new band plan. In keeping with the extremely pragmatic nature of the Martin FCC, the Commission resolved a roadblock by calling upon its statutory powers and telling a licensee: “Sorry dude, you gotta move for the public good.”

This would be wholly unremarkable if some of us didn’t remember back to a distant time a few years ago when the times, they were a changin’, the ideology battles was ragin’, and partisans on both sides confidently predicted the end of “command and control” regulation. But change for anything with as much inertia as spectrum regulation does not happen overnight or even in a matter of years. It happens gradually, with many maddening ebbs and flows. And, as in the case of the stubborn licensee and shift to avoid interference with Canada, we rediscover why “command and control” is never quite so dead as academics, reformers, and others seem to think.

More below . . . .

For those who do not follow the once lively (now rather ossified) debate on “spectrum reform,” the contending schools for the last few years have been “property” v. “commons.” The property school wants to see all spectrum licenses turned into a sort of real property, in which the licensee has absolute control over the geographically defined band. The argument is that this gets the FCC out of regulating (other than to enforce the “property right” of licensee to exclusive use and possibly to resolve interference issues between licensees). The argument here is a fairly straightforward one on the efficiency of private property as a stimulus to economic production. This is occasionally flavored with First Amendment arguments (e.g., that licensees should not be required to carry the speech of others) but primarily relies on economic efficiency and the premise that social utility follows from economic efficiency. Some well known and well written proponents of the property school are Jim Speta, Thomas Hazlett, and Gerald Falhauber.

The commons school wants to see exclusive licensing done away with (either immediately or over time). Instead, the right to use the electromagnetic spectrum should be treated as a right by all users to access a common resource under a defined set of rules that would prevent harmful interference. Commons proponents also rely on economic arguments, but relies more heavily on First Amendment arguments. Champions of the commons school include: Larry Lessig, Yochai Benkler, Mark Cooper, and Eli Noam. This is not an exhaustive list for either school, mind, but merely meant to provide links to some representative thinkers in either camp.

But to resume our narrative. From about 1993 to 2001, the property school was in ascendance in policyland, and the shift to licenses as property appeared practically inevitable. With the success of wifi and other nonexclusive spectrum technologies, the commons school began attracting a great deal of notice. This caused much grumbling by the property school that spectrum property had gotten “derailed” by this infatuation with the spectral equivalent of socialism. During the period of Michael Powell’s tenure as Chairman of the FCC from 2001-05, spectrum reform of both the property and commons type was all the rage. This willingness to push for radical change of both licensed and unlicensed spectrum access earned Powell the eternal respect of most Netheads — despite Powells determination to deregulate the wireline broadband world.

In 2005, Kevin Martin replaced Michael Powell as FCC Chair. Martin did not share Powell’s taste for radical reform of spectrum policy — in either direction. Not that Martin has anything against spectrum reform. But Martin is driven by far more practical and political factors and less by ideological factors. As a result, spectrum reform driven by ideology has faded and incremental changes based on practicality and political judgement have come to the fore — to the eternal condemnation of net heads, academics and reformers but with some hope by those of us in policy that real and meaningful change can still happen.

Recently, the FCC terminated two of my favorite revolutionary proceedings that would have pushed spectrum policy hugely “Commons-ward.” While a blow, I also accepted it as a reality given the unified opposition of incumbents and the utter lack of support from anywhere but the public interest community. (We’re good, but we’re not that good.) So, especially given the general prediliction for property rights one finds among Republicans, did this signal a hard-shift to the Property side of spectrum reform? Or, as an article by Dale Hatfield and Phil Weiser published last year put it: “The conclusion that firms should be allowed to own property-like rights in spectrum is, however, increasingly beyond dispute.”

Turns out no. The FCC proved quite willing to invoke its regulatory powers and run roughshod over the “property rights” of a licensee when necessary and as required under the Communications Act. I have already discussed in my discussion of the “C Block” conditions how the FCC’s decision to require device open access despite a finding that the wireless market is competitive reaffirms the fundamental basis of public interest regulation. i.e. We do this because it will benefit the public, not because of market failure. The FCC also (albeit grudingly) allowed as opening communication platforms serves the interest of the First Amendment. Again, that fits squarely in the Commons School ideology and rebuffs the Property School argument (advanced by Verizon Wireless) that a licensee has a First Amendment right to exclude others from using it’s spectrum.

But the real kicker is the invocation of Section 316 of the Communications Act. Whenever people start yacking about licensee rights, I point out that Section 316 (along with Sections 304 and 309(h)) give the FCc authority to do whatever the heck they want to a licensee, as long as the FCC observes procuderual due process and determines that the change is in the public interest. So not only is a licensee limited to the rights provided in the license (Section 309(h)), but — like the proverbial EULA — the FCC can modify these terms at any time. And just as software licensees do not really “own” software, despite buying the DVD in a store and acting as if they own it, the holder of a license from the Federal Communications Commission does not actually own the license either.

Which is what a licensee called PTMPS II Communications Inc. rudely discovered as part of the 700 MHz Order. PTMPS II held three “guard band” licenses. If you will flip back to my original Imposibly Long Field Guide, you will discover that the FCC had auctioned the public safety guardbands in 2000 and 2001, primarily to two companies. Those companies (and all the other guard band licensees but PTMPS II), wanted the FCC to restructure the licenses so that the Frontline/“E” Block and the public safety block would lie adjacent to the gaurd bands. This would make it easier for the E Block (now the D Block) licensee to to work with public safety, increase the efficiency of the spectrum overall, and — oh yeah — transform these dinky guardblock licenses from utterly useless spectrum party favors into something useful for leasing to the winner of the D Block. This scheme was called the “Band Optimization Plan” (BOP) and although initially uncontroversial, got rejected by the FCC in the April 25 Order and Further Notice.

Undaunted, the guard band licensees went back and crafted “Son of BOP,” which had the virtue of resolving some potential interference problems between Canada and the U.S. that resulted from adopting Martin’s choice of band plan. Everyone loved Son of BOP and all the guard band licensees signed up for a voluntary waiver of rights if the FCC adopted Son of BOP. Everyone except PTMPS II, that is. They stubbornly refused to budge and refused to waive their rights.

So, in Par. 113-125, the FCC told PTMPS II “tough noogies, you’re moving.” It determined that it would serve the public interest to modify the Guard Band licenses to fit the proposed Son of BOP plan, including the licensee that didn’t want to budge. PTMPS II does not lose any capacity, mind, but they get repacked and shoved in with everyone else, whether they will or no. And, unlike a private property holder, they get zero compensation. The FCC decided that it would serve the public interest to have the winner of the D Block license pay any expenses associated with migrating the guard band licensees so that public safety licensees would not need to bear the cost, it is not compensation for any value. There is no assesment of the value of PTMPS II’s license or the value of where it’s going. They get to submit a bill to pay for new equipment (if any) and other associated expenses. Period.

Property School advocates will no doubt wail and gnash their teeth over the FCC reasserting a right they long thought had atrophied away. Actually, I expect they will mostly ignore it as an abberration and go back to repeating that the march to property rights is inevitable and unstoppable and we have only to await the imminent withering away of the state for property rights to emerge triumphant. Commons school advocates, no more enchanted with FCC command-and-control regulation, will probably also quietly pass over this as at best irrelevant and at worst a dangerous reminder that the FCC can modify its unlicensed rules as easily as it can modify licenses.

But those of us who labor in the public interest fields, and who must deal with the practicalities of day-to-day administration, should be pleased that the FCC has rememebered its regulatory powers and shown a willingness to use them where necessary. It strikes me as a phenomenally bad idea to allow a single licensee to have a veto power over deployment of critical national infrastructure, especially when the licensee agreed in writing when it got its license that it understood that the FCC could exercise these regulatory powers at any time.

Sometimes, a little practicality to leaven the ideology is a damn good thing after all.

Stay Tuned . . . .

Part I: Putting Things In Context
Part II: C Block Conditions Matter
Part III: Anonymous Bidding
Part IV: Lingering Doubts and Uncertainties

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