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Why the House spectrum bill should be ditched: Q&A with Reed Hundt

Former Federal Communications Commission chairman Reed Hundt made waves this week when he called the House spectrum auction legislation "the single worst telecom bill" he's seen.

The legislation, which would severely restrict the FCC's ability to place conditions on spectrum auctions, is seen as a non-starter in the Senate where a bipartisan group of senators including John Kerry (D - Mass.) and Jerry Moran (R - Kan.) have signaled strong opposition to the House approach to authorizing spectrum auctions. In this interview, we ask Hundt to outline his major objections to the House bill and describe what he would do differently to make more spectrum available.

LTE spectrum: How much do carriers have?

Outline your primary objections to the spectrum bill as it's currently written in the House.

The first one has to do with the bidding eligibility rules. The reigning auction theorists such as Paul Milgrom, along with many others, have learned over the last 20 years by studying spectrum auctions and many other auctions that the most important thing in any successful auction is to define carefully who is eligible to bid. The auctioneer needs to focus primarily on that, and it could mean setting conditions such as whether you have enough money in the bank to pay for the spectrum, whether you promise services to poor people or people living in rural America, or it could mean that are you are willing to have a competitor.

The House bill says that the FCC cannot do that. It's a repudiation of the smartest auction theorists in the world. The House bill, intentionally or not, repudiates all our expertise, wisdom and world-leading success in auctions by saying that the FCC can't define bidding eligibility.

The second issue has to do with another aspect of bidding eligibility. Many years ago when I was a spectrum auctioneer, we decided to auction spectrum for satellite radio. Sirius and XM were the winners. We decided that there would be two licenses in the auction and that the same firm could not buy both. So if you bid and won on one you weren't eligible to buy the second. The House bill would say that that's impermissible and that you couldn't stop one firm from buying both. The House bill will say that there can never be a rule that says one bidder can never buy anything. The American people should go like, "What? There's a rule against having competition, a rule against having innovators compete against each other?"

And the third thing is that when you have multiple firms building new networks, you're also going to have more investment than if you have just one firm. So by having rules against competition in the House bill, it reduces overall investment and it reduces jobs.

I've also read that the House bill bars the FCC from paying for spectrum and then opening it up for unlicensed use. Can you comment on that?

I was the guy who created the idea of unlicensed spectrum. Several technologists and economists came to me and said that we need spectrum for short hops between computers and cable connections. That technology became known as Wi-Fi and it completely transformed the Internet experience, as everybody who has a computer knows.

Intel and other computer companies then didn't have to go to the cellular carriers and ask for and pay for permission to use their spectrum for Wi-Fi in airports and homes and everywhere else. When you log onto an airport you aren't paying to use any spectrum that somebody owns. And now everyone wants to move on to new versions of Wi-Fi that are faster, such as the networks being built on white spaces spectrum, and so that provision barring the FCC from assigning more unlicensed spectrum is anti-consumer, it's anti-computer companies and anti-software companies. There's no good policy argument for it.

What are your thoughts on the spectrum bill currently proposed in the Senate?

The general outline is good; it does not have the unfortunate restrictions that I've described to you. My big worry is that the Senate will be forced to make impossibly difficult choices, like if the House won't extend the current payroll tax rate unless the spectrum bill is passed, or the House won't allow for a national public safety network unless the rules are tilted toward monopoly. You could say it would never happen, but it happened last year when it came to raising the debt ceiling.

Given that spectrum is a finite good and that consumer demand for mobile bandwidth has been increasing astronomically, do you think the wireless data industry is just naturally oligopolistic?

Well, no. Actually it's the opposite. First, as long as the Justice Department doesn't allow mergers that allow too much consolidation in most markets, you will see four, five or six companies in the same market all make money. As a bonus, we also see innovation, very low prices and innovative new biz mods. You can't find a bankruptcy among established wireless carriers going back the last 10 years. And then if you move to talking about the area of unlicensed spectrum, we see not just five or 10, but hundreds of devices that use unlicensed spectrum and compete with one another.

It would be better for all carriers and all society if unused broadcast spectrum was made available for not just a couple of big companies but for all companies. There are some broadcasters who would be happy to sell spectrum. What we're having now is a classic Washington fight where we get no outcome at all because they're fighting over one small slice of the pie and therefore they don't want the pie to be baked at all.

AT&T CEO Randall Stephenson has complained that the FCC's rules are too fluid and arbitrary. Is there something to this and if so how would you fix it?

I'm very sympathetic to AT&T on the following topic: Congress should allow the FCC to auction the scarcely used broadcast spectrum and all companies, including AT&T, should get some. If he's frustrated that he can't get into that situation, I don't blame him. Now, it is not the FCC's fault. It is the U.S. Congress, for the last three years, that hasn't been able to get anything done.

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