David Carney publishes the Tech Law Journal Daily E-Mail Alert and the Tech Law Journal web site, which cover legislative, legal and regulatory developments affecting the Internet, communications and computing. He can be reached at firstname.lastname@example.org.
Spectrum management was once a sleepy backwater of federal policy making. Today, new technologies are causing demands for use of limited spectrum to skyrocket. Since the federal government owns the spectrum, this places the Congress, FCC, NTIA, and courts at the center of some of the hottest policy and legal battles. This article addresses what spectrum is, how it is used, and how the government licenses its use, and regulates its users. This article illustrates the government's role by examining two parties who assert the right to use spectrum (a bandit micro broadcaster, and a corporation planning to use spectrum worth billions to provide broadband Internet access to mobile devices, or simply, 3G). This article also examines two issues involving the allocation of spectrum for new uses (creating LPFM licenses, and reallocating more spectrum for 3G).
- I. Introduction to Spectrum
- Jerry Szoka and Grid Radio
- What Spectrum Is
- Spectrum Uses
- II. Spectrum Regulation
- Nationalization of Spectrum
- Early Years of Spectrum Regulation
- The First Amendment and Regulation of Broadcast Speech
- Changes at the FCC
- Uses, Renewals, and Transfers of Licenses
- Inefficient Use of Spectrum
- III. Some Current Spectrum Issues
- Low Power FM
- 3G Wireless
On July 30 the U.S. Court of Appeals for the Sixth Circuit affirmed a lower court order enjoining Jerry Szoka from operating a small community radio station in Cleveland, Ohio. Szoka, an obstreperous electrician, set up the station on his own, broadcasting at relatively low power, at the frequency of 96.9 Mhz. All of the workers volunteered. He called it Grid Radio 96.9 FM.
He does not have a license from the Federal Communications Commission (FCC). He did not seek a license. He just started broadcasting. And so, the government unleashed its lawyers to shut him down.
The problem for Mr. Szoka is that you just can't start broadcasting. Nor is there any place to go to buy or lease the right to broadcast. There is no system of property rights. The federal government owns all the airwaves. Spectrum, as it is often called, is controlled by a federal bureaucracy which licenses it "in the public interest."
It did not matter to the FCC that the frequency Szoka used was not being used by another broadcaster. Nor did it matter that he used relatively low power (48.8 watts), and low antenna height, or that he asserted that he did not interfere with other radio broadcasters. Nor did it matter that he provided programming different from licensed broadcasters in the area -- dance music and gay and lesbian news.
[Read the opinion: USA v. Jerry Szoka.]
Spectrum is a term that pertains to the range of frequencies of electromagnetic radiation, also called radio waves, that are used for communications purposes. Radio waves, like light waves, which are also electromagnetic radiation, both move through the atmosphere at around 300,000 kilometers per second. Just as lased light can be used to carry information through a fiber optic cable, so radio waves can be used to carry information through the air.
Radio waves have different lengths, and these different lengths endow them with different characteristics. Radio waves are generally identified by their frequency in cycles per second, or Hertz. This has nothing to do with the car rental agency. It is named for one Heinrich Hertz, a German physicist who lived from 1857 to 1894 who was a pioneer in the study of electromagnetic radiation.
Shorter waves have higher frequencies, and longer waves have lower frequencies. Some frequencies are measured kilohert z(1000 cycles per second, or KHz). Others are measured in megahertz (1,000,000 cycles per second, or MHz). Others are measured in gigahertz (1,000,000,000 cycles per second, or GHz).
Jerry Szoka broadcast dance music to Cleveland at 96.9 MHz, or 96,900,000 cycles per second. This was logical. The spectrum band allocated by the FCC for FM radio is 88 to 108 MHz. Meanwhile, 525 to 1705 KHz is allocated for AM radio. Manufacturers put antennas in consumer radios that can receive signals in these spectrum bands.
There is nothing about 96.9 MHz that limits its use to broadcasting music from one central antenna to lots of radios in cars, offices and kitchens. It is just electromagnetic radiation of a particular frequency. It could be used for lots of things. You could use it for conventional television broadcasting. You could design a baby monitor around it.
Also, around the world, similar technologies are assigned different bands of spectrum. For example, in Europe, 155 to 281 KHz is used for AM radio. Some U.S. Navy bands are also used by Italian taxicab drivers, which can make naval operations in the Mediterranean interesting. And the French -- well -- never mind the French. The point is, there is not complete harmonization around the world in use of spectrum.
However, harmonization would make life easier for people who travel around the world. They would not have to change their communications devices when they cross borders. It would also make things easier for equipment manufacturers who produce standardized designs that work around the globe. Harmonization of spectrum use is becoming increasingly important because of increasing globalization and the ever increasing use of communications devices (cell phones, PDAs, connected computers, and networks) that utilize spectrum.
But, back in Cleveland. Jerry Szoka sent out information -- voice news and dance music -- by the technology known as FM. This is short for frequency modulation. Unlike AM, which is based upon changing the amplitude of the signal, FM uses changes in frequency to convey information.
It is also important to note that different radio frequencies have different properties. Lower end spectrum bands that are used in this country for such technologies as radio and TV tend to penetrate through things, and bounce off of surfaces. Hence, listeners can pick up a radio station, even if they are behind buildings, inside houses, beneath trees, or standing in the rain. Higher frequencies behave more like light. They tend to require a "line of sight" between the transmitting antenna and the receiving antenna. Of course, if the transmitting antenna is on a geostationary satellite, and the receiving antenna is a dish antenna atop a roof, line of sight is not a problem.
One final note about AM and FM radio is that they are ancient analog technologies that make inefficient use of spectrum. But then, AM and FM radio were developed early in the 20th Century when there was plenty of spectrum to waste.
As the discussion above illustrated, spectrum is used by radio broadcasters (both licensed and bandit), television broadcasters, satellite TV, the U.S. Navy, and Italian taxicabs. But, spectrum has far more uses. Moreover, the number of new technologies that employ spectrum is exploding.
Spectrum is used for microwave relay, aeronautical radionavigation (beacons), aeronautical mobile communications, maritime radionavigation, maritime mobile communications, radio astronomy, radionavigation satellite, radiolocation satellite, and a lot of things that most people do not know exist.
One of the fastest growing new demands is mobile, or cell, phones. The number of people using mobile phones is growing rapidly, as is the amount of time the average user spends on this phone. This means more and more bandwidth is being used. Similarly, other portable devices, such as pagers, Blackberries, and connected PDAs, take up more bandwidth.
Bandwidth, in the analog broadcast sense, means simply the space or width of spectrum, measured in Hertz, that is used for some purpose. However, in the digital world, bandwidth means a measurement of the flow of information, usually measured in bits per second (or kilobits, megabits, gigabits, or whateverbits per second). New digital technologies can be used to carry more data over the same spectrum band than old analog technologies. They get more bandwidth out of the same spectrum, and hence, are more efficient.
There are also technologies for wireless computer networking, such as 802.11 and Bluetooth, that use spectrum. The forthcoming Third Generation (3G) wireless services, which promise to provide broadband Internet access to mobile computers and other devices, will use much spectrum.
Spectrum is used to deliver entertainment programming to TV sets via old fashioned over the air broadcast, and via geostationary satellites (through EchoStar and DirectTV). Spectrum is used to delivery educational programming to schools, churches and other facilities via Instructional Television Fixed Service (ITFS).
It is also used for MMDS, which stands for either Multichannel Multipoint Distribution Service, Multichannel Multipoint Distribution Systems, or Microwave Multipoint Distribution System -- nobody knows. Some people call it MDS.
The government is also a major user of spectrum. Law enforcement agencies uses it to communicate. The Department of Defense (DOD) uses an ever expanding amount of bandwidth. It uses it to communicate with aircraft and ships, to guide precision guided munitions, to operate satellites for communications, intelligence, and the global positioning system, and many other purposes.
Military use is growing rapidly. Linton Wells of the DOD said in testimony to the Senate Commerce Committee on July 31 that the "satellite bandwidth used in Operation Allied Force in Kosovo was two and one half times the bandwidth used in Desert Storm nine years earlier, while the Kosovo force was one tenth the size." The military is also extending advanced communications down to the individual soldier.
If you want to know which spectrum bands are allocated for which purposes in the U.S., see the NTIA's spectrum chart. The NTIA, short for National Telecommunications and Information Administration, allocates spectrum in the U.S. for government entities. The FCC allocates spectrum for the private sector. Incidentally, this bifurcation of spectrum management responsibilities further complicates the process of assigning and reassigning spectrum. More on this later.
Whatever is the use of the spectrum, the incumbent user does not want the government to take its spectrum away. Yet demand for spectrum use is growing rapidly. And, there is a fixed amount of spectrum. Spectrum is not like fiber optic cable. You can lay another cable, but you cannot create more spectrum. Hence, so long as government manages spectrum, the government will have to take spectrum away from some users, and give it to others.
Spectrum management was once a sleepy backwater of federal policy making. But today, with the skyrocketing demand for use of limited spectrum, the Congress, FCC, NTIA, and federal courts are now in the center of some of the hottest policy and legal battles in Washington.
Spectrum was first used a Century ago as a replacement for the wireline telegraph to send wireless messages by Morse code. Voice transmissions soon followed. In 1920 the first broadcast radio station went on the air in Pittsburgh. Many soon followed. They broadcast programming, one way, from a single antenna, to a multitude of receiving antennas (i.e., radios). In these early years, there was no government regulation. There was a nominal licensing system, but it was rather like licensing a ship; the government had little discretion; it gave you the license, and you did what you wanted with it. So essentially, like Jerry Szoka, people just started using spectrum, whether it was point to point use, or point to multi-point broadcasting.
Naturally, problems developed as more people and companies used this new technology. If two commercial broadcasters set up radio stations at the same frequency in the same town, their two signals interfered with each other. However, parties negotiated contracts or filed lawsuits. The courts proceeded to develop rules -- a property rights regimes for spectrum.
Everything changed in 1927, when the Congress enacted, and President Coolidge signed, the Radio Act of 1927. This Act nationalized spectrum, and created the FCC's predecessor, the Federal Radio Commission (FRC). It replaced a free market radio industry with government ownership and licensing of radio spectrum.
The origin of this Act, and the father of telecom regulation, was Herbert Hoover. He is known by many today only as the President who helplessly presided over the onset of the Great Depression. However, during the 1920s, he was known as the golden boy of the Republican party. He was an accomplished engineer in a town full of professional politicians. He was a squeaky clean administrator in an era plagued by corruption. He also had a talent for working with a variety of diverse business interests, and negotiating a government initiative that could be supported, or at least accepted, by all.
In 1927 Hoover was Secretary of Commerce. He was not satisfied with the interference, disputes and litigation in the radio broadcasting industry. In addition, commercial broadcasters and radio equipment manufacturers were not satisfied because there was too much competition. Just anyone could set up a radio station and compete for listeners and advertising revenue. They worked with Hoover, and together they went to Congress and the administration to pass legislation to create a government licensing regime. The main goal, and effect, was to prevent new market entrants from competing with existing commercial broadcasters.
The problem for the broadcasters was not a shortage of spectrum, but rather the need to create an artificial shortage, by limited licensing. Over the years, the FCC and Congress defended this spectrum licensing regime on the bogus rationale that spectrum is scarce, and hence warrants government ownership and management.
During this era, the prevailing economic view was collectivist. Republicans and Democrats alike bought into the argument that competition could be bad, and that governments were better at planning economies than markets and free enterprise. While other limitations on competition, such as the creation of the Bell telephone monopoly, have been abandoned, the nationalization of spectrum remains largely unchanged since to this day.
The FRC fulfilled its purpose. It gave licenses to existing commercial operators, and then kept the total number of licenses at around 1,000 for many years, even though the population and economy grew.
The Congress also passed the Communications Act of 1934, which carried on the radio licensing regime of the 1927 Act, and transferred the responsibilities of the FRC to the FCC. While communications law has been repeatedly amended since 1934, the body of law is still referred to as the Communications Act of 1934. This is altogether appropriate. In many ways, the current legal regime is still stuck in a 1934 time warp.
Unlike other federal government prohibitions of the era, such as the prohibition of alcoholic beverages, the ban on licensing use of spectrum was enforced with ruthless efficiency.
If you broadcast without a license, the FCC shut you down. If you violated the FCC's rules, you could loose your license. In the 1930s, the FCC developed the technology and capacity to locate radio signals by means of triangulation. So, bandit broadcasters like Jerry Szoka, who were never difficult to locate in the first place, could be tracked down in an instant.
The FCC also placed a lot of this equipment along the Atlantic seaboard early in World War II, and triangulated on the location of radio transmissions by German submarines and commerce raiders. This information was forwarded to the British, who used it to sink them. Before the U.S. entered the war, this was a violation of the Neutrality Act. But then, the FCC has never felt bound by any law other than the Communications Act of 1934.
Radio stations, like newspapers, pamphleteers, and speakers, all engage in communications, or speech. Licensing of printing presses ended in the American colonies in the early 18th Century. The First Amendment to the Constitutional has always been understood to prevent licensing of printing presses. This raised the obvious question: if the government can't license and regulate newspapers, how can it license and regulate radio stations?
This did not trouble the FRC or FCC. But then, the FCC has never felt bound by any law other than the Communications Act of 1934. They rationalized the restraint on speech they same way they rationalized nationalizing the airwaves in the first place: it is made necessary by a spectrum shortage.
However, the National Broadcasting Company (NBC) was troubled, and argued all the way to the Supreme Court. In 1943 the Court swallowed the FCC's scarcity argument, hook, line and sinker. The Court reasoned that spectrum is scarce, and therefore must be rationed. Moreover, this rationing must be done by the federal government. And since the government is rationing, it should also regulate other aspects of spectrum use, such as the speech that it carries.
Of course, the spectrum shortage was manufactured. Moreover, most people had access to more radio stations than newspapers. In fact, most communities are served by one, or maybe two, newspapers. Yet, for the FCC and Supreme Court, radio is scarce, and newspapers are abundant.
The Supreme Court again upheld the Communications Act of 1934 in the face of a First Amendment challenge in 1969 in the Red Lion case. The consequence is that there is a de facto categorization of speech for First Amendment purposes. Printed speech receives rigid protection. Broadcast speech does not.
Perhaps Jerry Szoka's problem was that he had a broadcast antenna rather than a printing press. In fact, the very same day he lost his appeal to the Sixth Circuit, another troublemaker a few states over won his appeal to the Eighth Circuit. Adam Steele had a small newspaper in the town of Bemidji, Minnesota. The local authorities tried to obstruct his publication. He lacked a local solicitation permit, an obstruction permit, and did not post a bond.
The consequence is that the FCC has had relatively free reign to regulate indecency, political fairness, diversity, mandatory carriage, or whatever content it has deemed to affect the public interest.
The FCC is required by the Communications Act of 1934 to make spectrum license decisions "in the public interest." However, unlike some other brief legal phrases, such as "due process" and "equal protection", no set of rules or body of case law gives meaning to these words. For all practical purposes, "in the public interest" means whatever three out of five of the politically appointed Commissioners of the FCC want it to mean on any particular day. That is, there is no identifiable standard.
[Read the opinions. National Broadcasting Company v. United States, 319 U.S. 190 (1943); Red Lion v. FCC, 395 U.S. 367 (1969); and Adam Steele v. City of Bemidji, et al., No. 00-3348MN, U.S. Court of Appeals, Eighth Circuit, July 30, 2001.]
Herbert Hoover, as mentioned above, was a professional engineer. For him, government regulation meant technical expertise, apolitical management, and agreements jointed negotiated by regulators and industry. Hoover would likely be shocked to see what has become of his Federal Radio Commission.
First, the engineers have been replaced by lawyers. Moreover, these telecommunications lawyers rarely have backgrounds in science or engineering. Contrast them to patent lawyers, who also deal with technical topics, but tend to have advanced degrees in science or engineering fields. Telecom lawyers at the FCC have no comparable background. Moreover, while the FCC has some engineers with expertise on legacy technologies, it is lost on new technologies.
The FCC's review of the AOL Time Warner merger is a good example. The FCC lawyers focused on AOL's instant messaging services. However, to get information and advice they had to rely on the filings of interested parties, and one visiting professor of computer science from the University of Pennsylvania, David Farber. Since then, Farber has gone back to Penn, and the FCC is once again flying blind on Internet technologies.
Second, the FCC has lost its independence. It is a political agency, managed by five political appointees, and easily pressured by the Congress, interest groups, and the industries that it regulates.
This situation is aggravated by the nature of the telecom bar. These telecom lawyers tend to move back and forth from positions at law firms that represent communications companies, and positions at the FCC. The people who run the FCC, and the people who represent the companies that the FCC regulates, are all part of the same group. This is in sharp contrast to some other institutions, such as the federal judiciary, where judges have life tenure, and rarely leave their posts to go to work for the parties who previously appeared in their courts.
Third, the FCC lacks the negotiating and mediating skills of Herbert Hoover. The effort to identify and reallocate spectrum for Third Generation wireless services is a case in point. More on this below.
The FCC exercises considerable power simply by virtue of the fact that it licenses spectrum. However, much of its activity, and power, involves uses, renewals, and transfers of licenses.
The FCC issues licenses to a particular entity for a particular purpose. The licensee cannot use that spectrum for another purpose, without going back to the FCC. For example, if you have a spectrum license for mobile satellite service, and you discover that you could provide better broadband Internet access service to your customers by using some of that spectrum for terrestrial purposes, you have to go back to the FCC to ask for permission. In fact, the FCC commenced a formal and time consuming rule making proceeding last week for this purpose at the request of some companies in just this position.
FCC licenses must also be periodically renewed. These are not fee simple licenses. Typically, the licensee's license is renewed, provided it has complied with FCC rules. Nevertheless, license renewals provide an opportunity for all sorts of persons and entities to try to influence the licensees. Public interest groups make their demands. Competitors make theirs. During the unfolding of the Watergate scandal, supporters of President Nixon challenged the renewals of several broadcast radio licenses owned by the Washington Post in an attempt to pressure that newspaper. Katherine Graham wrote in her biography that these challenges were costly to fight, caused the Post's stock price to plummet, and nearly ruined the Post.
Licensees may seek to transfer their licenses to others, but the FCC must approve these transfers. These license transfer matters can take as long as 18 months, and involve expensive and complicated proceedings, during which the FCC may demand many concessions, some of which may be unrelated to the license being transferred. Parties to these proceedings cannot always predict the outcomes. Indeed, the FCC reaches different results in substantially similar proceedings.
Hence, there is nothing that could be described as a secondary market for spectrum, in the sense that there are markets for most commodities and services. If one wants to buy, sell, or acquire spectrum, one must hire a team of Washington DC lawyers, plead to the FCC, and be prepared to wait.
This system did not prevent the old fashioned TV and radio industries from broadcasting their entertainment on a regular basis. But, in the rapidly growing and evolving areas of cellular communications and mobile Internet access, this approach to spectrum management prevents the efficient use of available spectrum.
Also, when the FCC decides whether or not to approve a license transfer, it sometimes applies very close scrutiny to the underlying transaction, to determine whether it is "in public interest." For example, the underlying transaction may be a major corporate deal, such as the AOL Time Warner. When one company is acquired by another company, its licenses are transferred to the acquiring company. If there is a merger, the licenses are transferred to the merged entity. The FCC must approve these transfers. Sometimes the actual license being transferred has little to do with the real focus of the FCC's review, which be the merger itself.
Some of the licenses being transferred are spectrum licenses. Hence, the FCC leverages its spectrum management authority into broad merger review authority, very similar to the antitrust review authority of the Department of Justice and Federal Trade Commission. For example, the FCC took its time examining AOL's instant messaging services. It ultimately conditioned its approval of the deal on AOL Time Warner's acceptance of certain conditions pertaining to IM services.
There is, of course, no such thing as an IM license. However, Time Warner held many licenses for old communications technologies, such as microwave relay. It was the FCC's implied threat to hold up these licenses indefinitely, and hence, block the deal, that allowed the FCC to dictate IM policy.
Expect more of this in forthcoming mergers.
Many of the conditions discussed above, such as the absence of rights to keep, sell, lease, or change your use of spectrum licenses, have consequences. Perhaps the most significant is that spectrum is used with great inefficiency. This did not matter in Hoover's day. It does today.
The absence of a market for spectrum leads many entities to hold more spectrum than they currently need, in anticipation of possible future uses. Some companies even hold spectrum merely to keep it out of the hands of competitors.
Many users have little incentive to switch to technologies that would increase the information carrying capacity of the spectrum licensed to them. Others have no incentive to sell their spectrum to another entity that could put it to a better use.
Today, almost all usable spectrum has been allocated for some use in the U.S. If one wants to get spectrum for some new use, that spectrum has to be reallocated from some other use by the government. During this process, the incumbent user often has no incentive to allow the reallocation (it cannot just sell the spectrum and keep the proceeds). The incumbent often fights the process of reallocation. And lawyers/regulators, not markets, make the allocation decisions.
The FCC recently instituted a program for licensing non-commercial low power FM broadcasters -- over the strenuous objections of commercial broadcasters, National Public Radio, and the National Broadcasters Association. The goal of the FCC was to make it easy for community groups, churches, and minorities to gain access to spectrum.
For the supporters of low power FM (LPFM) licensing at the FCC, such as former Chairman Bill Kennard, and in the Congress, such as Sen. John McCain (R-AZ), this is a cultural issues. LPFM brings diversity and democracy to the airwaves. To the opponents, this is a money issue. LPFM signals in the FM band would interfere with, or degrade, the sound quality of commercial stations, thus decreasing the size of their audience, thus decreasing their ad revenues. It would also increase the competition for listeners.
Nevertheless, despite the objection of broadcasters, the FCC adopted an Order on January 20, 2000 which created two new classes of noncommercial LPFM licenses. It authorizes stations with power from 50-100 watts and a service radius of about 3.5 miles, and with power from 1-10 watts and a service radius of about 1 to 2 miles.
However, this program does not extend to individuals, businesses, or those who have violated FCC licensing rules in the past. Hence, Jerry Szoka is not eligible for one of these licenses.
Szoka's case also illuminates the FCC's approach to serving "the public interest." The Communications Act 1934 provides that radio licensing decisions are to be made in the "in the public interest". Jerry Szoka argued that for the government to obtain an injunction against him, it had to satisfy not only the Communications Act of 1934, but also the equitable standards for issuance of an injunction. This includes a showing of likelihood of success on the merits, irreparable injury, absence of substantial harm to others, and public interest in issuance of the injunction.
The government argued, as always, that it should only have to comply with the Communications Act of 1934. This means that to obtain an injunction it merely has to show that it had not issued a license. If Szoka's argument had prevailed, then the court would have had to determine, among other things, whether granting an injunction would be in the public interest. Hence, the FCC argued that in managing spectrum in the public interest, the FCC could not actually be held to a public interest standard by the courts. The Court of Appeals agreed.
There is another point to be made about LPFM licensing. The FCC is licensing spectrum in, and devoting its time and energy to, an ancient and inefficient technology. There may be better ways of fulfilling the goals LPFM.
Jerry Szoka, or any licensed LPFM operator, can only reach people within a few miles. LPFM can only serve communities that are concentrated geographically. If Szoka or other micro broadcasters were instead to stream their content over the Internet, they could reach audiences around the world.
Moreover, if people had portable broadband Internet access devices, and there were a wireless technology that allowed people to access the Internet, at broadband rates, from these devices, then, they could listen to Jerry Szoka's dance music in high quality audio from anywhere that this service is available.
But then, this is a description of one of the possible uses of Third Generation wireless services.
The First Generation (1G) of wireless service was the original analog cell phone service. It was revolutionary when first deployed. Wireless phone service is like telephone service in that it provides person to person, or point to point, communication. However, while the underlying technology of wireline phone service is wires and cables, cell phones also uses spectrum to transfer information. 1G service involved analog signals at fixed frequencies. It enabled mobility, but the quality was not good, security was poor (eavesdropping was easy). It was also an inefficient use of spectrum.
The Second Generation (2G) of wireless service, now in use today, involves digital signals and technologies that enable putting more users on the same amount of spectrum. Several technologies enable this, including TDMA (Time Division Multiple Access) and CDMA (Code Division Multiple Access).
Third Generation (3G), which is still being developed, will be a digital, packet switched, Internet protocol system. It will carry voice, music and data. It will also further increase the efficiency of use of spectrum, and enable each 3G capable device to have broadband data transfer rates.
Currently a 2G cell phone used for Internet access will likely transfer data at 9.6 Kbps or 14.4 Kbps. A typical desktop computer with Internet access via a standard phone modem transfers data at just under 56 Kbps. Projections for 3G devices vary, but some state that they will obtain data transfer rates of several hundred Kbps for mobile devices, and 2 Mbps for stationary devices.
This all sounds great. But to provide 3G services, the providers of the service will need spectrum allocated for its use. They cannot go out and buy it. The government has to reallocate spectrum currently used for other purposes, and then re-auction it to 3G service providers.
In order to provide some degree of harmonization in 3G use around the world, various nations and companies, through the International Telecommunications Union (ITU), identified several spectrum bands for possible 3G use. The FCC (which manages spectrum assigned for commercial use) and the NTIA (which manages spectrum assigned for use by the government) have focused on two spectrum bands. These are the 1755-1850 Mhz and 2500-2690 Mhz bands.
The incumbent users of this spectrum have adamantly opposed reallocation of spectrum that they use, and lobbied against reallocation. The Department of Defense (DOD) uses the 1755-1850 Mhz band, and claims that national security would suffer greatly if it had to give up or share this spectrum.
The 2500-2690 Mhz band is used by ITFS users, such as schools and churches, and MMDS users, such as Sprint, WorldCom, and Nucentrix. They plead the importance of providing children with an education, and providing communications services to underserved rural areas.
It has been a year since the NTIA and FCC began working in earnest on reallocation of spectrum for 3G. They have held meetings, issued reports, and received comments, but made little progress towards making spectrum available for 3G uses. The matter is complicated by the fact that spectrum management on this matter is split between two agencies. No one is in charge of government policy. There is also some tendency for each agency, and its incumbent users, to point to the other agency's incumbents as the best source for 3G spectrum.
Now, the Congress has stepped in. Committees held hearings in July. However, it is hard for Representatives and Senators to take any action that might be perceived as detrimental to either national security or education.
Sen. Ted Stevens (R-AK), generally considered a military hawk, has spoken at two hearings about a possible quasi market solution. He has suggested gradually reallocating DOD spectrum from 1755-1850 Mhz, and auctioning it to 3G service providers, with the proceeds of the auctions going to the DOD. European nations, which have already been auctioning spectrum for 3G, have received about $100 Billion in winning bids. With this kind of money, the DOD could find that it in its self interest to move its systems in the 1755-1850 Mhz band to other locations. But then, there are many in Congress who want any auction proceeds to be available for other purposes.
3G spectrum auctions and payments are also at the center of another major spectrum issue -- the NextWave case.
NextWave Communications states that it is building out a 3G wireless network optimized for bringing broadband Internet access to mobile computing devices. It says it will start to go on the air early next year. However, the FCC wants to stop it.
NextWave obtained spectrum licenses at FCC auctions in 1996. The FCC permitted NextWave to obtain the licenses then, and later make payment under an installment plan, thus creating a debtor creditor relationship between NextWave and the FCC. NextWave did not make payments required by the plan, and filed a Chapter 11 bankruptcy petition. The FCC, which has never felt bound by any law other than the Communications Act of 1934, cancelled the licenses.
The FCC was blocked by the bankruptcy court, citing § 525 of the Bankruptcy Code. The U.S. District Court (SNDY) affirmed. The U.S. Court of Appeals (2ndCir) issued its order reversing and remanding the case on Nov. 24, 1999; it issued its opinion explaining its reversal in May 2000. The FCC then re-auctioned this spectrum to Verizon Wireless, VoiceStream and other successful bidders, which intend to use it for 3G wireless, and other, services.
But, NextWave petitioned the FCC to reconsider its cancellation of its licenses. The FCC refused, and NextWave petitioned for review by the Court of Appeals in the District of Columbia. The DC Circuit ruled on June 22 that the 2nd Circuit had not already addressed NextWave's bankruptcy claims. It also wrote in its opinion that the FCC is prevented from canceling the spectrum licenses by § 525 of the Bankruptcy Code. It wrote that the FCC "violated the provision of the Bankruptcy Code that prohibits governmental entities from revoking debtors' licenses solely for failure to pay debts dischargeable in bankruptcy. The Commission, having chosen to create standard debt obligations as part of its licensing scheme, is bound by the usual rules governing the treatment of such obligations in bankruptcy."
For several years the FCC has been proceeding with this matter as though NextWave is in no better a position than Jerry Szoka -- an unlicensed party with no right to use the government's airwaves. In sharp contrast, NextWave keeps talking like it will come out of bankruptcy and provide the first and best 3G service. For now, NextWave has a legal advantage. However, the FCC has indicated that it may file a Petition for Writ of Certiorari with the Supreme Court.
The market value of the NextWave licenses -- if there were a market -- would probably be somewhere over $15 Billion today.