Despite the success of modern spectrum policy, some advocates are calling for the Federal Communications Commission to re-impose rigidity on flexible-use spectrum licenses. Accepting this argument would set a dangerous precedent and lead to the inefficient use of scarce spectrum resources going-forward.
For nearly 30 years, the United States has assigned spectrum rights by auctioning spectrum to the highest bidder. Building on the groundbreaking work of economist Ronald Coase, the theory supporting market assignment of spectrum rights is simple, elegant and familiar: those that value a scarce resource the most will put it to its best and most efficient use.
By auctioning off flexible-use licenses that allow licensees to supply consumers with the products and services they demand, this policy has changed the way we communicate for the better.
Curiously, despite the success of modern spectrum policy, some advocates are now calling for the government to re-impose rigidity on flexible-use spectrum licenses. Take, for example, the current spat between Dish and T-Mobile.
Over the last decade, Dish has been an active participant in spectrum transactions, spending more than $20 billion both at auction and in the secondary market to acquire or invest in flexible-use licenses. Over two years ago, Dish announced that it intended to put its spectrum holdings to use by constructing a “greenfield” stand-alone network in two phases.
First, Dish will build a narrowband network to serve the burgeoning “Internet of Things” (IoT) market; a network that satisfies the buildout requirements of its licenses and is a “bridge” to 5G. (Under the terms of its AWS-4 licenses, Dish simply has to provide “terrestrial signal coverage and offer terrestrial service … to at least seventy percent of the population in each of its license areas” by March 7, 2020.) Second, Dish plans to then upgrade and expand its network to full 5G capability.
T-Mobile, however, argues that Dish’s plan violates the terms of its flexible-use licenses, asserting that the commission intended Dish’s spectrum to “be used to support mobile broadband service….” (Emphasis in original.) Thus, argues T-Mobile, because Dish plans to use its flexible-use licenses initially for IoT service, Dish should “not only lose its licenses, but also [should] be unable to re-acquire those licenses later.”
Advocates Call on Government
Americans for Tax Reform (ATR), an apparent ally of T-Mobile, makes a similar argument to the Federal Communications Commission. According to ATR, the government should replace Dish’s business plans with its own because “when Dish purchased this spectrum, it agreed to a contract with American taxpayers.” This spectrum, argues ATR, was “intended for 5G networks” that “would bring 5G to Americans faster through more market competition.”
As an initial matter, Dish has already announced plans to use its spectrum for 5G as those technologies become available in the coming years. But the fundamental problem with T-Mobile and ATR’s argument is that the FCC rules do not and should not require any such thing: Dish holds flexible-use licenses to be used as Dish sees fit.
The FCC has been clear on this standard: in its 2012 AWS-4 Report and Order, the commission stated that it wanted the spectrum “available for terrestrial flexible-use, including for mobile broadband … without imposing undue restrictions on the use of the spectrum.” And in its 2013 Order establishing the service rules for the H Block, the commission wrote that the spectrum at issue was to be used “for flexible use, including mobile broadband service.”
Note that in both orders, the commission never said that the spectrum had to be used for mobile broadband; instead, the FCC’s operative word was always “including.” Moreover, ATR’s argument that Dish’s spectrum was “intended for 5G networks” is uninformed, as Dish acquired its AWS-4 spectrum long-before the notion of “5G” even entered the picture. As such, there could be no “contract” with the American taxpayer for Dish to breach.
Commission’s Rationale Is Correct
The FCC’s decades-long rationale for granting flexible-use licenses was correct then and remains so today: flexible-use licenses permit the most efficient use of spectrum, whatever that use may be. Chairman Ajit Pai was absolutely right when he said the commission “basically make[s] spectrum available and then [we] do our best to stay out of the way of technological development and the details of implementation.”
When you assign property rights for billions of dollars in consideration, assuming the licensee abides by the band’s service rules and there are no interference externalities, then the Federal government should not dictate the business plans of private firms. Instead, firms should be free to experiment in the market to supply products and services consumers demand. The government did not mandate anyone to build 4G—the marketplace drove the licensees’ behaviors.
Auctions of flexible-use licenses have transformed the wireless industry in countless ways. Having the government restrict a firm’s business flexibility as T‑Mobile and ATR propose undoes all that progress, establishing a dangerous precedent through which an interventionist regulator could dismantle the nation’s effective, market-driven spectrum policy to suit political ends.
Indeed, if the current commission takes a narrow view of Dish’s ability to use its flexible-use licenses, then there is nothing stopping either the current or a future commission from doing the same to T-Mobile (or AT&T, Verizon or Sprint for that matter).
By way of example, AT&T just announced that they are launching a new “Narrowband Internet of Things” network which will both “help unlock the next wave of IoT connections” as well as be “a big step toward massive IoT and 5G.” As the company states, “there’s no need for businesses to wait for 5G to move forward with an IoT solution.” Under T-Mobile and ATR’s logic, however, AT&T’s failure to immediately deploy 5G warrants the immediate revocation of their flexible-use licenses as well.
Auctioning flexible-use licenses aims at efficient spectrum use—not the use desired by any particular person or party. Plainly, T-Mobile is undoubtedly not pleased by Dish’s opposition to the T-Mobile/Sprint tie-up and may well covet Dish’s spectrum holdings. Rather than make an offer to buy the licenses it fancies, T-Mobile prefers the option of using government coercion to obtain them. It is, unfortunately, not an unfamiliar tactic in the regulatory arena, but one that should be seen for what it is and summarily dismissed.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Lawrence J. Spiwak is the president of the Phoenix Center for Advanced Legal & Economic Public Policy Studies, a non-profit 501(c)(3) research organization that studies broad public-policy issues related to governance, social and economic conditions, with a particular emphasis on the law and economics of the digital age.