August 3, 2011

A Trout in the Milk

For the first time in recent history the Congress of the United States has not sold spectrum to help solve a budget problem. I would have bet everything in my pockets that the recent debt ceiling legislation would have included revenue generated by the sale of broadcast spectrum as a part of the trillion dollars of deficit reduction.

Sure glad I didn't bet!

Going into the recent tumult the Democratic controlled Senate Commerce Committee had sent a bill to the floor to sell the broadcast spectrum. The Republican "Ryan Plan" adopted by the House of Representatives similarly included spectrum as a revenue-raiser. The Obama Administration, likewise, had a voluntary incentive auction of broadcast spectrum in its budget. The President even had an event extolling the virtues of repurposing spectrum from broadcast to wireless use. All the stars were in alignment - but nothing happened.

Henry David Thoreau once observed, "Circumstantial evidence is very strong, as when you find a trout in the milk." The absence of spectrum in the budget deal isn't a trout, it's a whale! How did it get there?

As a former practitioner of the legislative art I look in awe at the National Association of Broadcasters (NAB) and their new president former Republican Senator Gordon Smith. Their hands must have a slight odor of fish - trout to be specific.

Suddenly, when a spectrum sale seemed a fait accompli as a payment on the debt, it vanished. No one is talking about it, but these things don't happen by accident.

Back when I was working to free up spectrum a member of the Senate Budget Committee told me about the special role spectrum plays in budget negotiations. "We sit there looking for more money," he said, "then someone suggests we sell some spectrum. We all laugh and then we vote it through." Except this time that formula fell apart.

The wireless industry once battled the mighty Defense Department over their spectrum and won, principally because of the need to generate more revenue (which, it was agreed, would go to the Defense Department). The NAB has proven themselves more powerful than generals and tanks.

The very first spectrum auction was tied to a debt ceiling increase. The 1993 Omnibus Budget Reconciliation Act not only raised the debt limit, but also authorized the FCC to hold the first spectrum auction and deregulated the wireless industry (thus driving the demand that has created the current spectrum crunch). The budget math has worked that way ever since: sell spectrum to pay for other budget desires.

For almost two decades budget demands have worked to free up spectrum. Suddenly that process fell off the tracks. Precisely when precedent, the President, and votes in both houses of Congress had teed up the sale of spectrum to deliver billions of dollars into reducing the deficit...it was gone.

What this means for telecommunications policy will now play out. One thing is for sure: it’s a whole new ballgame.

Having walked away from taking the easy money, will the Congress remain as committed as they were to selling spectrum?

What will be the light at the end of the tunnel for wireless carriers who see their spectrum capacity being consumed by huge increases in demand?

Will the resulting shortage mean that usage based mobile pricing becomes a demand dampening and profit increasing tool?

Will the AT&T-TMobile merger get new wind at its back because of the spectrum efficiencies it advertises?

Will broadcasters finally get off the dime and begin deploying mobile services in their spectrum?

Will the lack of new spectrum enhance the position of wanna-be wireless players like Clearwire and LightSquared who already have the precious stuff?

The ramifications of the trout in the milk will take a while to sort out. Suffice it to say, all the conventional wisdom about the future of the wireless market went down the drain when the conventional wisdom that Congress would authorize a spectrum auction vaporized.

Many years ago the then-Chairman of the Senate Budget, Bob Packwood of Oregon, complained the NAB "couldn't lobby its way out of a paper bag." It appears as though another former Oregon Republican Senator has answered that complaint once and for all. It was a whale of a coup!

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