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NEED TO KNOW: Technology

Spectrum Static

Billions of dollars in revenue are within reach, if only Congress could decide how to use the cash.

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A towering problem: Lawmakers may not be able to agree on spectrum auctions.(Darren McCollester/Getty Images)

The debt-ceiling deal opens the latest (and potentially final) phase in a debate over airwaves policy that has been years in the making. At stake is whether lawmakers can muster enough agreement to pass a spectrum measure that the wireless and tech industries say is crucial to the future of the mobile Internet—and raise some cash at the same time. The tech-policy world may be feeling a bit of déjà vu, because the same conditions that derailed earlier attempts also nearly forced a debt-ceiling default. But at least two possible paths remain to passing a spectrum bill this year.

As with raising the debt ceiling, almost every lawmaker says that passing some kind of spectrum bill is necessary. The goal is for Congress to make more airwaves available for mobile use so that wireless companies can improve their networks and alleviate congestion caused by data-hungry smartphones and tablets. A major study of wireless service released by J.D. Power and Associates this year cited “a halt in overall call-quality improvement,” a stunning finding considering the technological advancements that make networks more efficient.

 

Many say that the solution is to free up airwaves through auctions that would repurpose television signals—an appealing option because it can also raise cash for the Treasury. Supporters of this plan range from economists of every ideological background to the Federal Communications Commission to Internet companies, such as Microsoft, that rely on mobile networks to reach their customers. Even broadcasters have come around to the idea, as long as TV stations are not harmed.

Adding to the momentum, almost all of the spectrum proposals on Capitol Hill are packaged with provisions to improve communications for public-safety agencies, an important political goal ahead of the 10th anniversary of the September 11 terrorist attacks. Auctions are an attractive policy for lawmakers who are under budgetary, wireless-industry, and public-safety pressure, says David Kaut, a telecom analyst at Stifel Nicolaus.

“All of the conventional wisdom about the future of the wireless market went down the drain.” —Tom Wheeler, managing director, Core Capital Partners
 

Yet Congress still hasn’t acted. The dispute boils down to a disagreement over how much money from spectrum sales (which the Congressional Budget Office estimates could be as much as $25 billion) should go toward reducing the deficit. A small group of fiscally oriented House Republicans has taken a strong position favoring aggressive deficit-reduction as the primary use of this revenue. The Senate and the White House, on the other hand, want to devote around $11 billion to creating a nationwide communications network for police and firefighters. The House Republican negotiators—including Energy and Commerce Committee Chairman Fred Upton and Communications and Technology Subcommittee Chairman Greg Walden—say it entails far too big a giveaway.

“What will be the light at the end of the tunnel for wireless carriers who see their spectrum capacity being consumed by huge increases in demand?” Tom Wheeler, a managing director of Core Capital Partners, asked in a note to clients this week. “Suffice it to say, all the conventional wisdom about the future of the wireless market went down the drain when the conventional wisdom that Congress would authorize a spectrum auction vaporized.”

But there are two 11th-hour avenues forward. First, a spectrum package could wend its way through the normal legislative process. The lawmakers behind the bipartisan Senate plan, Democrat Jay Rockefeller of West Virginia and Republican Kay Bailey Hutchison of Texas, are pushing to get their bill passed by the 9/11 anniversary. The measure sailed through the Senate Commerce Committee in a 21-4 vote. But working out a compromise with the House in the next few weeks, especially with the recess in the middle, could be difficult. Jeffrey Silva, a telecom analyst at Medley Global Advisors, said he sees passage by September 11 as “less likely” after lawmakers were unable to agree in time for the debt bill.

Second, the 12-member deficit-reduction super committee “could help keep major spectrum and public-safety initiatives in play for the remainder of 2011,” Silva wrote in a note to clients this week. Senate Commerce aides say they plan to push for their bill to be included in the deficit panel’s recommendations. “It seems like a no-brainer to include spectrum. It’s a way to raise revenue without raising taxes,” one aide said. Whether that language will look more like the austere House proposal or the Senate/White House approach depends in part on who sits on the deficit panel “and where they want to compromise,” says Vince Jesaitis, formerly a longtime House aide who is now director of government affairs at the Information Technology Industry Council, a strong advocate of spectrum auctions.

 

If Congress fails to authorize the auctions, lawmakers will have broadcast a small-scale tragedy: the willingness to forgo billions of dollars in potential deficit reduction, even during a budget crisis, because of partisan acrimony.

This article appears in the August 6, 2011 edition of National Journal Magazine.

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