Archives For auctions

[TOTM: The following is part of a digital symposium by TOTM guests and authors on the legal and regulatory issues that arose during Ajit Pai’s tenure as chairman of the Federal Communications Commission. The entire series of posts is available here.

Justin “Gus” Hurwitz is associate professor of law, the Menard Director of the Nebraska Governance and Technology Center, and co-director of the Space, Cyber, and Telecom Law Program at the University of Nebraska College of Law. He is also director of law & economics programs at the International Center for Law & Economics.]

I was having a conversation recently with a fellow denizen of rural America, discussing how to create opportunities for academics studying the digital divide to get on-the-ground experience with the realities of rural telecommunications. He recounted a story from a telecom policy event in Washington, D.C., from not long ago. The story featured a couple of well-known participants in federal telecom policy as they were talking about how to close the rural digital divide. The punchline of the story was loud speculation from someone in attendance that neither of these bloviating telecom experts had likely ever set foot in a rural town.

And thus it is with most of those who debate and make telecom policy. The technical and business challenges of connecting rural America are different. Rural America needs different things out of its infrastructure than urban America. And the attitudes of both users and those providing service are different here than they are in urban America.

Federal Communications Commission Chairman Aji Pai—as I get to refer to him in writing for perhaps the last time—gets this. As is well-known, he is a native Kansan. He likely spent more time during his time as chairman driving rural roads than this predecessor spent hobnobbing at political fundraisers. I had the opportunity on one of these trips to visit a Nebraska farm with him. He was constantly running a bit behind schedule on this trip. I can attest that this is because he would wander off with a farmer to look at a combine or talk about how they were using drones to survey their fields. And for those cynics out there—I know there are some who don’t believe in the chairman’s interest in rural America—I can tell you that it meant a lot to those on the ground who had the chance to share their experiences.

Rural Digital Divide Policy on the Ground

Closing the rural digital divide is a defining public-policy challenge of telecommunications. It’s right there in the first sentence of the Communications Act, which established the FCC:

For the purpose of regulating interstate and foreign commerce in communication by wire and radio so as to make available, so far as possible, to all the people of the United States…a rapid, efficient, Nation-wide, and world-wide wire and radio communication service[.]

Depending on how one defines broadband internet, somewhere between 18 and 35 million Americans lack broadband internet access. No matter how you define it, however, most of those lacking access are in rural America.

It’s unsurprising why this is the case. Looking at North Dakota, South Dakota, and Nebraska—three of the five most expensive states to connect each household in both the 2015 and 2018 Connect America Fund models—the cost to connect a household to the internet in these states was twice that of connecting a household in the rest of the United States. Given the low density of households in these areas, often less than one household per square mile, there are relatively fewer economies of scale that allow carriers to amortize these costs across multiple households. We can add that much of rural America is both less wealthy than more urban areas and often doesn’t value the benefits of high-speed internet as highly. Taken together, the cost of providing service in these areas is much higher, and the demand for them much less, than in more urban areas.

On the flip side are the carriers and communities working to provide access. The reality in these states is that connecting those who live here is an all-hands-on-deck exercise. I came to Nebraska with the understanding that cable companies offer internet service via cable and telephone companies offer internet service via DSL or fiber. You can imagine my surprise the first time I spoke to a carrier who was using a mix of cable, DSL, fiber, microwave, and Wi-Fi to offer service to a few hundred customers. And you can also imagine my surprise when he started offering advice to another carrier—ostensibly a competitor—about how to get more performance out of some older equipment. Just last week, I was talking to a mid-size carrier about how they are using fixed wireless to offer service to customers outside of their service area as a stopgap until fiber gets out to the customer’s house.

Pai’s Progress Closing the Rural Digital Divide

This brings us to Chairman Pai’s work to close the rural digital divide. Literally on his first day on the job, he announced that his top priority was closing the digital divide. And he backed this up both with the commission’s agenda and his own time and attention.

On Chairman Pai’s watch, the commission completed the Connect America Fund Phase II Auction. More importantly, it initiated the Rural Digital Opportunity Fund (RDOF) and the 5G Fund for Rural America, both expressly targeting rural connectivity. The recently completed RDOF auction promises to connect 10 million rural Americans to the internet; the 5G Fund will ensure that all but the most difficult-to-connect areas of the country will be covered by 5G mobile wireless. These are top-line items on Commissioner Pai’s resume as chairman. But it is important to recognize how much of a break they were from the commission’s previous approach to universal service and the digital divide. These funding mechanisms are best characterized by their technology-neutral, reverse-auction based approach to supporting service deployment.

This is starkly different from prior generations of funding, which focused on subsidizing specific carriers to provide specific levels of service using specific technologies. As I said above, the reality on the ground in rural America is that closing the digital divide is an all-hands-on-deck exercise. It doesn’t matter who is offering service or what technology they are using. Offering 10 mbps service today over a rusty barbed wire fence or a fixed wireless antenna hanging off the branch of a tree is better than offering no service or promising fiber that’s going to take two years to get into the ground. And every dollar saved by connecting one house with a lower-cost technology is a dollar that can be used to connect another house that may otherwise have gone unconnected.

The combination of the reverse-auction and technology-neutral approaches has made it possible for the commission to secure commitments to connect a record number of houses with high-speed internet over an incredibly short period of time.

Then there are the chairman’s accomplishments on the spectrum and wirelessinternet fronts. Here, he faced resistance from both within the government and industry. In some of the more absurd episodes of government in-fighting, he tangled with protectionist interests within the government to free up CBRS and other mid-band spectrum and to authorize new satellite applications. His support of fixed and satellite wireless has the potential to legitimately shake up the telecom industry. I honestly have no idea whether this is going to prove to be a good or bad bet in the long term—whether fixed wireless is going to be able to offer the quality and speed of service its proponents promise or whether it instead will be a short-run misallocation of capital that will require clawbacks and re-awards of funding in another few years—but the embrace of the technology demonstrated decisive leadership and thawed a too limited and ossified understanding of what technologies could be used to offer service. Again, as said above, closing the rural digital divide is an all-hands-on-deck problem; we do ourselves no favors by excluding possible solutions from our attempts to address it.

There is more that the commission did under Chairman Pai’s leadership, beyond the commission’s obvious order and actions, to close the rural digital divide. Over the past two years, I have had opportunities to work with academic colleagues from other disciplines on a range of federal funding opportunities for research and development relating to next generation technologies to support rural telecommunications, such as programs through the National Science Foundation. It has been wonderful to see increased FCC involvement in these programs. And similarly, another of Chairman Pai’s early initiatives was to establish the Broadband Deployment Advisory Committee. It has been rare over the past few years for me to be in a meeting with rural stakeholders that didn’t also include at least one member of a BDAC subcommittee. The BDAC process was a valuable way to communicate information up the chair, to make sure that rural stakeholders’ voices were heard in D.C.

But the BDAC process had another important effect: it made clear that there was someone in D.C. who was listening. Commissioner Pai said on his first day as chairman that closing the digital divide was his top priority. That’s easy to just say. But establishing a committee framework that ensures that stakeholders regularly engage with an appointed representative of the FCC, putting in the time and miles to linger with a farmer to talk about the upcoming harvest season, these things make that priority real.

Rural America certainly hopes that the next chair of the commission will continue to pay us as much attention as Chairman Pai did. But even if they don’t, we can rest with some comfort that he has set in motion efforts—from the next generation of universal service programs to supporting research that will help develop the technologies that will come after—that will serve us will for years to come.

[TOTM: The following is part of a digital symposium by TOTM guests and authors on the legal and regulatory issues that arose during Ajit Pai’s tenure as chairman of the Federal Communications Commission. The entire series of posts is available here.

Brent Skorup is a senior research fellow at the Mercatus Center at George Mason University.]

Ajit Pai came into the Federal Communications Commission chairmanship with a single priority: to improve the coverage, cost, and competitiveness of U.S. broadband for the benefit of consumers. The 5G Fast Plan, the formation of the Broadband Deployment Advisory Committee, the large spectrum auctions, and other broadband infrastructure initiatives over the past four years have resulted in accelerated buildouts and higher-quality services. Millions more Americans have gotten connected because of agency action and industry investment.

That brings us to Chairman Pai’s most important action: restoring the deregulatory stance of the FCC toward broadband services and repealing the Title II “net neutrality” rules in 2018. Had he not done this, his and future FCCs would have been bogged down in inscrutable, never-ending net neutrality debates, reminiscent of the Fairness Doctrine disputes that consumed the agency 50 years ago. By doing that, he cleared the decks for the pro-deployment policies that followed and redirected the agency away from its roots in mass-media policy toward a future where the agency’s primary responsibilities are encouraging broadband deployment and adoption.

It took tremendous courage from Chairman Pai and Commissioners Michael O’Rielly and Brendan Carr to vote to repeal the 2015 Title II regulations, though they probably weren’t prepared for the public reaction to a seemingly arcane dispute over regulatory classification. The hysteria ginned up by net-neutrality advocates, members of Congress, celebrities, and too-credulous journalists was unlike anything I’ve seen in political advocacy. Advocates, of course, don’t intend to provoke disturbed individuals but the irresponsible predictions of “the end of the internet as we know it” and widespread internet service provider (ISP) content blocking drove one man to call in a bomb threat to the FCC, clearing the building in a desperate attempt to delay or derail the FCC’s Title II repeal. At least two other men pleaded guilty to federal charges after issuing vicious death threats to Chairman Pai, a New York congressman, and their families in the run-up to the regulation’s repeal. No public official should have to face anything resembling that over a policy dispute.

For all the furor, net-neutrality advocates promised a neutral internet that never was and never will be. ”Happy little bunny rabbit dreams” is how David Clark of MIT, an early chief protocol architect of the internet, derided the idea of treating all online traffic the same. Relatedly, the no-blocking rule—the sine na qua of net neutrality—was always a legally dubious requirement. Legal scholars for years had called into doubt the constitutionality of imposing must-carry requirements on ISPs. Unsurprisingly, a federal appellate judge pressed this point in oral arguments defending the net neutrality rules in 2016. The Obama FCC attorney conceded without a fight; even after the net neutrality order, ISPs were “absolutely” free to curate the internet.

Chairman Pai recognized that the fight wasn’t about website blocking and it wasn’t, strictly speaking, about net neutrality. This was the latest front in the long battle over whether the FCC should strictly regulate mass-media distribution. There is a long tradition of progressive distrust of new (unregulated) media. The media access movement that pushed for broadcast TV and radio and cable regulations from the 1960s to 1980s never went away, but the terminology has changed: disinformation, net neutrality, hate speech, gatekeeper.

The decline in power of regulated media—broadcast radio and TV—and the rising power of unregulated internet-based media—social media, Netflix, and podcasts—meant that the FCC and Congress had few ways to shape American news and media consumption. In the words of Tim Wu, the law professor who coined the term “net neutrality,” the internet rules are about giving the agency the continuing ability to shape “media policy, social policy, oversight of the political process, [and] issues of free speech.”

Title II was the only tool available to bring this powerful new media—broadband access—under intense regulatory scrutiny by regulators and the political class. As net-neutrality advocate and Public Knowledge CEO Gene Kimmelman has said, the 2015 Order was about threatening the industry with vague but severe rules: “Legal risk and some ambiguity around what practices will be deemed ‘unreasonably discriminatory’ have been effective tools to instill fear for the last 20 years” for the telecom industry. Internet regulation advocates, he said at the time, “have to have fight after fight over every claim of discrimination, of new service or not.”

Chairman Pai and the Republican commissioners recognized the threat that Title II posed, not only to free speech, but to the FCC’s goals of expanding telecommunications services and competition. Net neutrality would draw the agency into contentious mass-media regulation once again, distracting it from universal service efforts, spectrum access and auctions, and cleaning up the regulatory detritus that had slowly accumulated since the passage of the agency’s guiding statutes: the 1934 Communications Act and the 1996 Telecommunications Act.

There are probably items that Chairman Pai wish he’d finished or had done slightly differently. He’s left a proud legacy, however, and his politically risky decision to repeal the Title II rules redirected agency energies away from no-win net-neutrality battles and toward broadband deployment and infrastructure. Great progress was made and one hopes the Biden FCC chairperson will continue that trajectory that Pai set.

[TOTM: The following is part of a digital symposium by TOTM guests and authors on the legal and regulatory issues that arose during Ajit Pai’s tenure as chairman of the Federal Communications Commission. The entire series of posts is available here.

Harold Feld is senior vice president of Public Knowledge.]

Chairman Ajit Pai prioritized making new spectrum available for 5G. To his credit, he succeeded. Over the course of four years, Chairman Pai made available more high-band and mid-band spectrum, for licensed use and unlicensed use, than any other Federal Communications Commission chairman. He did so in the face of unprecedented opposition from other federal agencies, navigating the chaotic currents of the Trump administration with political acumen and courage. The Pai FCC will go down in history as the 5G FCC, and as the chairman who protected the primacy of FCC control over commercial spectrum policy.

At the same time, the Pai FCC will also go down in history as the most conventional FCC on spectrum policy in the modern era. Chairman Pai undertook no sweeping review of spectrum policy in the manner of former Chairman Michael Powell and no introduction of new and radically different spectrum technologies such as the introduction of unlicensed spectrum and spread spectrum in the 1980s, or the introduction of auctions in the 1990s. To the contrary, Chairman Pai actually rolled back the experimental short-term license structure adopted in the 3.5 GHz Citizens Broadband Radio Service (CBRS) band and replaced it with the conventional long-term with renewal expectation license. He missed a once-in-a-lifetime opportunity to dramatically expand the availability of unlicensed use of the TV white spaces (TVWS) via repacking after the television incentive auction. In reworking the rules for the 2.5 GHz band, although Pai laudably embraced the recommendation to create an application window for rural tribal lands, he rejected the proposal to allow nonprofits a chance to use the band for broadband in favor of conventional auction policy.

Ajit Pai’s Spectrum Policy Gave the US a Strong Position for 5G and Wi-Fi 6

To fully appreciate Chairman Pai’s accomplishments, we must first fully appreciate the urgency of opening new spectrum, and the challenges Pai faced from within the Trump administration itself. While providers can (and should) repurpose spectrum from older technologies to newer technologies, successful widespread deployment can only take place when sufficient amounts of new spectrum become available. This “green field” spectrum allows providers to build out new technologies with the most up-to-date equipment without disrupting existing subscriber services. The protocols developed for mobile 5G services work best with “mid-band” spectrum (generally considered to be frequencies between 2 GHz and 6 GHz). At the time Pai became chairman, the FCC did not have any mid-band spectrum identified for auction.

In addition, spectrum available for unlicensed use has become increasingly congested as more and more services depend on Wi-Fi and other unlicensed applications. Indeed, we have become so dependent on Wi-Fi for home broadband and networking that people routinely talk about buying “Wi-Fi” from commercial broadband providers rather than buying “internet access.” The United States further suffered a serious disadvantage moving forward to next generation Wi-Fi, Wi-Fi 6, because the U.S. lacked a contiguous block of spectrum large enough to take advantage of Wi-Fi 6’s gigabit capabilities. Without gigabit Wi-Fi, Americans will increasingly be unable to use the applications that gigabit broadband to the home makes possible.

But virtually all spectrum—particularly mid-band spectrum—have significant incumbents. These incumbents include federal users, particularly the U.S. Department of Defense. Finding new spectrum optimal for 5G required reclaiming spectrum from these incumbents. Unlicensed services do not require relocating incumbent users but creating such “underlay” unlicensed spectrum access requires rules to prevent unlicensed operations from causing harmful interference to licensed services. Needless to say, incumbent services fiercely resist any change in spectrum-allocation rules, claiming that reducing their spectrum allocation or permitting unlicensed services will compromise valuable existing services, while simultaneously causing harmful interference.

The need to reallocate unprecedented amounts of spectrum to ensure successful 5G and Wi-Fi 6 deployment in the United States created an unholy alliance of powerful incumbents, commercial and federal, dedicated to blocking FCC action. Federal agencies—in violation of established federal spectrum policy—publicly challenged the FCC’s spectrum-allocation decisions. Powerful industry incumbents—such as the auto industry, the power industry, and defense contractors—aggressively lobbied Congress to reverse the FCC’s spectrum action by legislation. The National Telecommunications and Information Agency (NTIA), the federal agency tasked with formulating federal spectrum policy, was missing in action as it rotated among different acting agency heads. As the chair and ranking member of the House Commerce Committee noted, this unprecedented and very public opposition by federal agencies to FCC spectrum policy threatened U.S. wireless interests both domestically and internationally.

Navigating this hostile terrain required Pai to exercise both political acumen and political will. Pai accomplished his goal of reallocating 600 MHz of spectrum for auction, opening over 1200 MHz of contiguous spectrum for unlicensed use, and authorized the new entrant Ligado Networks over the objections of the DOD. He did so by a combination of persuading President Donald Trump of the importance of maintaining U.S. leadership in 5G, and insisting on impeccable analysis by the FCC’s engineers to provide support for the reallocation and underlay decisions. On the most significant votes, Pai secured support (or partial support) from the Democrats. Perhaps most importantly, Pai successfully defended the institutional role of the FCC as the ultimate decisionmaker on commercial spectrum use, not subject to a “heckler’s veto” by other federal agencies.

Missed Innovation, ‘Command and Control Lite

While acknowledging Pai’s accomplishments, a fair consideration of Pai’s legacy must also consider his shortcomings. As chairman, Pai proved the most conservative FCC chair on spectrum policy since the 1980s. The Reagan FCC produced unlicensed and spread spectrum rules. The Clinton FCC created the spectrum auction regime. The Bush FCC included a spectrum task force and produced the concept of database management for unlicensed services, creating the TVWS and laying the groundwork for CBRS in the 3.5 GHz band. The Obama FCC recommended and created the world’s first incentive auction.

The Trump FCC does more than lack comparable accomplishments; it actively rolled back previous innovations. Within the first year of his chairmanship, Pai began a rulemaking designed to roll back the innovative priority access licensing (PALs). Under the rules adopted under the previous chairman, PALs provided exclusive use on a census block basis for three years with no expectation of renewal. Pai delayed the rollout of CBRS for two years to replace this approach with a standard license structure of 10 years with an expectation of renewal, explicitly to facilitate traditional carrier investment in traditional networks. Pai followed the same path when restructuring the 2.5 GHz band. While laudably creating a window for Native Americans to apply for 2.5 GHz licenses on rural tribal lands, Pai rejected proposals from nonprofits to adopt a window for non-commercial providers to offer broadband. Instead, he simply eliminated the educational requirement and adopted a standard auction for distribution of remaining licenses.

Similarly, in the unlicensed space, Pai consistently declined to promote innovation. In the repacking following the broadcast incentive auction, Pai rejected the proposal of structuring the repacking to ensure usable TVWS in every market. Instead, under Pai, the FCC managed the repacking so as to minimize the burden on incumbent primary and secondary licensees. As a result, major markets such as Los Angeles have zero channels available for unlicensed TVWS operation. This effectively relegates the service to a niche rural service, augmenting existing rural wireless ISPs.

The result is a modified form of “command and control,” the now-discredited system where the FCC would allocate licenses to provide specific services such as “FM radio” or “mobile pager service.” While preserving license flexibility in name, the licensing rules are explicitly structured to promote certain types of investment and business cases. The result is to encourage the same types of licensees to offer improved and more powerful versions of the same types of services, while discouraging more radical innovations.

Conclusion

Chairman Pai can rightly take pride in his overall 5G legacy. He preserved the institutional role of the FCC as the agency responsible for expanding our nation’s access to wireless services against sustained attack by federal agencies determined to protect their own spectrum interests. He provided enough green field spectrum for both licensed services and unlicensed services to permit the successful deployment of 5G and Wi-Fi 6. At the same time, however, he failed to encourage more radical spectrum policies that have made the United States the birthplace of such technologies as mobile broadband and Wi-Fi. We have won the “race” to next generation wireless, but the players and services are likely to stay the same.

[TOTM: The following is part of a blog series by TOTM guests and authors on the law, economics, and policy of the ongoing COVID-19 pandemic. The entire series of posts is available here.

This post is authored by Brent Skorup, (Senior Research Fellow, Mercatus Center, George Mason University).]

One of the most visible economic effects of the COVID-19 spread is the decrease in airline customers. Alec Stapp alerted me to the recent outrage over “ghost flights,” where airlines fly nearly empty planes to maintain their “slots.” 

The airline industry is unfortunately in economic freefall as governments prohibit and travelers pull back on air travel. When the health and industry crises pass, lawmakers will have an opportunity to evaluate the mistakes of the past when it comes to airport congestion and airspace design.

This issue of ghost flights pops up occasionally and offers a lesson in the problems with government rationing of public resources. In this case, the public resource are airport slots: designated times, say, 15 or 30 minutes, a plane may takeoff or land at an airport. (Last week US and EU regulators temporarily waived the use-it-or-lose it rule for slots to mitigate the embarrassing cost and environmental damage caused by forcing airlines to fly empty planes.)

The slots at major hubs at peak times of day are extremely scarce–there’s only so many hours in a day. Today, slot assignment are administratively rationed in a way that favors large, incumbent airlines. As the Wall Street Journal summarized last year,

For decades, airlines have largely divided runway access between themselves at twice-yearly meetings run by the IATA (an airline trade group).

Airport slots are property. They’re valuable. They can be defined, partitioned, leased, put up as collateral, and, in the US, they can be sold and transferred within or between airports.

You just can’t call slots property. Many lawmakers, regulators, and airline representatives refuse to acknowledge the obvious. Stating that slots are valuable public property would make clear the anticompetitive waste that the 40-year slot assignment experiment generates. 

Like many government programs, the slot rationing began in the US as a temporary program decades ago as a response to congestion at New York airports. Slots are currently used to ration access at LGA, JFK, and DCA. And while they don’t use formal slot rationing, the FAA also rations access at four other busy airports: ORD, Newark, LAX, and SFO.

Fortunately, cracks are starting to form. In 2008, at the tailend of the Bush administration, the FAA proposed to auction some slots in New York City’s three airports. The plan was delayed by litigation from incumbent airlines and an adverse finding from the GAO. With a change in administration, the Obama FAA rescinded the plan in 2009.

Before the Obama FAA recission, the mask slipped a bit in the GAO’s criticism of the slot auction plan: 

FAA’s argument that slots are property proves too much—it suggests that the agency has been improperly giving away potentially millions of dollars of federal property, for no compensation, since it created the slot system in 1968.

Gulp.

Though the GAO helped scuttle the plan, the damage has been done. The idea has now entered public policy discourse: giving away valuable public property is precisely what’s going on. 

The implicit was made explicit in 2011 when, despite spiking the Bush FAA plan, the Obama FAA auctioned two dozen high-value slots. (The reversal and lack of controversy is puzzling to me.) Delta and US Airways wanted to swap some 160 slots at New York and DC airports. As a condition of the mega-swap, the Obama FAA required they divest 24 slots at those popular airports, which the agency auctioned to new entrants. Seven low-fare airlines bid in the auction and Jetblue and WestJet won the divested slots, paying about $90 million combined

The older fictions are rapidly eroding. There is an active secondary market in slots in some nations and when prices are released it becomes clear that the legacy rationing amounts to public property setasides to insiders. In 2016 it leaked, for instance, that an airline paid £58 million for a pair of take-off and landing slots at Heathrow. Other slot sales are in the tens of millions of dollars.

The 2011 FAA auctions and the loosening of rules globally around slot sales signal that the competition benefits from slot markets are too obvious to ignore. Competition from new entry drives down airfare and increases the number of flights.

For instance, a few months ago researchers used a booking app to scour 50 trillion flight itineraries to see new entrants’ effect on airline ticket prices between 2017 and 2019. As the Wall Street Journal reported, the entry of a low-fare carrier reduced ticket prices by 17% on average. The bigger effect was on output–new entry led to a 30% YoY increase in flights.

It’s becoming harder to justify the legacy view, which allow incumbent airlines to dominate the slot allocations via international conferences and national regulations that require “grandfather” slot usage. In a separate article last year, the Wall Street Journal reported that airlines are reluctantly ceding more power to airports in the assignment of slots. This is another signal in the long-running tug-of-war between airports and airlines. Airports generally want to open slots for new competitors–incumbent airlines do not.

The reason for the change of heart? The Journal says,

Airlines and airports reached the deal in part because of concerns governments should start to sell slots.

Gulp. Ghost flights are a government failure but a rational response to governments withholding the benefits of property from airlines. The slot rationing system encourages flying uneconomical flights, smaller planes, and excess carbon emissions. The COVID-19 crisis allowed the public a glimpse at the dysfunctional system. It won’t be easy, but aviation regulators worldwide need to assess slots policy and airspace access before the administrative rationing system spreads to the emerging urban air mobility and drone delivery markets.