US government prepares to spend $936 million on VHF TV spectrum reclamation

Washington (DC) - A US Commerce Dept. report released this morning estimates that government agencies planning to shift communications frequencies to the VHF spectrum reclaimed during the DTV switchover set for February 2009, could spend a total of $935.9 million.

In a statement from the National Telecommunications and Information Administration - the Commerce Dept. agency that oversees communications - assistant secretary Michael Gallagher characterized his agency’s estimate as a savings over previous industry targets. The statement did not mention which targets those were, though members of the Senate Commerce Committee, a few months ago, had been unofficially discussing figures of around $1.5 billion. Nonetheless, Gallagher did go on to describe the savings as a kind of cost reclamation that could potentially boost the entire economy.

"Today’s spectrum announcement is great news for American consumers and the U.S. economy," Gallagher stated. "President Bush’s committed focus on wireless as a catalyst for technology growth is paying dividends." Those dividends come in the form of commercial opportunities made possible by the spectrum changeover, even as large chunks of the current VHF TV spectrum are reclaimed by the public sector. In December 2004, the President signed legislation which allows the government to auction two of the frequency bands currently used by DOD, the Energy Dept., and the Justice Dept., to wireless providers for commercial use. Today’s NTIA report did not estimate how much the government expects to recoup through this auction, though its language is apparently intended to render the message that it intends to do far better than break even.

The DOD will spend the biggest chunk of the change, according to NTIA, with $288.8 million in anticipated expenses. The brunt of those expenses, by far, will be absorbed by the US Navy with $124.7, with the US Army spending only $5.7 million, even though the Army will have the largest number of relocated frequencies. The Justice Dept. comes in a close second, with $262.8 million, $139.6 of which will be spent by the FBI alone. The Dept. of Energy will spend $173.5 million, and the Dept. of Homeland Security $91.3 million. Even the IRS is expected to spend just under $5 million.

The NTIA estimates come in the wake of a Government Accounting Office report released last week, which considers whether the way the Federal Communications Commission currently manages spectrum auctions, earns as much money for the government as it perhaps should. The GAO report is the culmination of over two years’ study by a commission convened to study the FCC’s current system for spectrum management.

With a title like "Strong Support for Extending FCC’s Auction Authority Exists, but Little Agreement on Other Options to Improve Efficient Use of Spectrum," some may conclude it isn’t necessary to actually read the entire report for details. But inside, the report does reveal that Congress was particularly interested in the possibility of loosening the FCC’s authority over how auctioned public spectrum is used, and even who should use it, if the resulting infusion of commercial interests could help raise funds or recoup costs.

The GAO report characterizes the current FCC system for auctioning public spectrum as a "command-and-control" process, whereby the FCC dictates what purposes auctioned spectrum may be used for, thus limiting the classes of bidders that may be interested in this spectrum, and therefore perhaps placing undue limits on bids. The report examined two alternatives to the current system suggested by FCC staff members : One, called the exclusive, flexible rights model would change the nature of spectrum licenses so that commercial entities that acquire licenses would own the spectrum they purchased, complete with title deeds, and thus be able to use the spectrum for whatever purposes the title holders desired. They could conceivably transfer those titles to other companies, or hold their own auctions, in a system similar to the current system of software patents.

Proponents of flexible rights argued that it would create more economic incentives, perhaps through the creation of a market economy centered around spectrum (an idea once proposed by a company called Enron). But opponents, says the report, believe that such a model would encourage larger entities or holding companies to create their own Monopoly game with spectrum deeds, hoarding licenses and accumulating bandwidth, such that competitors who need a minimum bandwidth to stay in the game may have to sell out to stay solvent. (The history of Nextel comes to mind.) Furthermore, the FCC may be called into play to run interference for companies that utilize their spectrum licenses unfairly.

The other alternative is called the open-access model, and its relationship to open source software is far from fleeting. Here, certain frequency bands would simply be opened up for public use, or by simultaneous use by multiple companies, letting the market itself decide what technological standards are necessary for running interference. The FCC would not stand in the way - in effect, reducing government costs by governing less. Advocates of open-access, states the report, believed the open market could provide a more efficient mechanism for managing its own traffic, especially if players in the market were forced to do so in order to make their use of spectrum valuable and efficient to customers. Furthermore, there would be no incentive for private interests to hoard spectrum, because there would be no market value attributed to that spectrum.

But opponents believed open-access could lead to the overuse of spectrum, making it impossible for government agencies to cordon off a block of bandwidth in the event of a national emergency. In the end, stated the GAO report, experts could not come to a consensus with regard to a better spectrum auctioning system than the one currently in place. And since wireless carriers and the communications industry at large are not negatively impacted by the FCC’s current auction system, there is actually very little incentive to change the existing processes if only to improve government and nothing else. The GAO report did not go into detail about the costs incurred by a two-and-a-half year study that concluded that, due to a lack of better solutions, nothing should change whatsoever.