Obama administration policies exacerbate spectrum exhaust

According to just-released survey evidence, the demand for mobile data continues to rise unabated. Closely matching forecasts, mobile data traffic rose 26 percent between 2013 and 2014. Yet, as Americans consume more mobile data, the amount of radio spectrum to handle this increased demand has not been able to keep up. As a result of this looming spectrum exhaust, carriers are looking to upgrade technological capability to manage their networks more efficiently without resorting to raising prices. Given the significant benefits of licensed spectrum to the U.S. economy, however, why is the Obama administration making things worse by actively promoting policies that exacerbate spectrum exhaust?

Let’s just take three examples:

First, after the voluntary incentive auction for broadcast spectrum required by the budget deal of the Middle Class Tax Relief and Jobs Creation Act of 2012 concludes sometime next year, there is nothing in the auction pipeline for commercial spectrum that can be used for mobile broadband. That’s right: Nada. Bupkis. Zilch. Given the lack of an inventory of unassigned spectrum, adding spectrum for commercial sector requires taking it from federal agencies. The problem is that the President’s Council of Advisors on Science and Technology wants to abandon future auctions — because “the clearing and reallocation of federal spectrum is not a sustainable basis due to the high cost, lengthy time to implement, and disruption to the [f]ederal mission” — in favor of a “sharing” model. This surprising turn of spectrum policy was based on the assumption that clearing and auctioning federal spectrum “will not result in significant net revenue to the government.” Plainly, the $41 billion raised in the recent AWS-3 (Advanced Wireless Service) auction belies this assumption and, as such, should force a rethinking of the administration’s policies.

{mosads}Second, in 2012, the Librarian of Congress found that due to the large amount of mobile handset competition, a customer’s unlocking of a mobile handset without the consent of the wireless carrier no longer warranted an exception to the Digital Millennium Copyright Act. However, rather than accept the librarian’s findings (which were subject to a full opportunity for notice and comment from the public), the White House instead chose to criticize the librarian’s handling of the case and publicly promised to find ways to undermine the librarian’s decision. As you can’t fight City Hall forever, the wireless industry eventually capitulated and instituted a “voluntary” program to promote handset unlocking. Unfortunately, the White House’s strong-arm tactics did not bode well for American consumers: As we at the Phoenix Center predicted in a published paper in 2007, by breaking the “complementarity” between the handset and the service, wireless carriers have all but abandoned the longstanding practice of providing consumers with subsidized handsets, resulting in slower diffusion of new technology, diminished innovation in mobile handsets and, most egregiously, higher handset prices. Thus, as consumers try to squeeze the last bit of use from antiquated technology before they upgrade their phones, the administration’s policies are effectively delaying the introduction of newer and more efficient network technologies, thus again exacerbating spectrum exhaust.

Finally, but perhaps most egregiously, we have the Federal Communications Commission’s (FCC) new 2015 net neutrality rules. By way of background, while mobile voice services were always subject to a light form of common carrier regulation under Title II of the Communications Act, for nearly two decades the FCC had a bipartisan approach to apply a “light touch” regulatory approach for mobile broadband under Title I of the Communications Act. This Title I authority, coupled with its plenary authority over mobile licenses under Title III of the act and the commission’s backstop authority under Section 706, provided ample legal authority for the commission to oversee the industry.

Equally as important, noting that “existing mobile networks present operational constraints that fixed broadband networks do not typically encounter,” the FCC had always recognized that it needed to treat wireless differently terms of net neutrality obligations. Former FCC Chairman Julius Genachowski understood the implications, so when the FCC issued its first set of net neutrality rules in 2010, the commission specifically declined to apply the same network rules to wireless broadband as the commission applied to the wireline side (although the commission applied the transparency requirement equally to both the mobile and wireline broadband industry).

With the FCC’s recent second bite at the neutrality apple, we now find ourselves in a very different situation. Not only do the new FCC Open Internet rules subject wireless broadband providers to the same requirements as wireline providers, but the Obama administration went the extra step by reclassifying mobile broadband as a Title II common carrier service, thus subjecting the competitive mobile industry to a law designed for the old Ma Bell monopoly.

And guess what happened?

Almost immediately after the FCC’s rules were published in the Federal Register and went into effect last month, Sprint announced — no doubt motivated by the FCC’s concurrently announced plan to fine AT&T a staggering $100 million for allegedly failing to give adequate notice that it was going to throttle those who abuse “unlimited” mobile data plans — that it was going to stop congestion management techniques and, in turn, raise prices to curb demand.

For those who care about good spectrum policy, these recent developments represent a cynical (and perhaps intended) consequence of an increasingly politically driven policy process. Like it or not, the federal government’s failure to reallocate more spectrum to commercial providers and its alleged protection of consumers with poorly conceived net neutrality regulations forces providers to respond to demand with price changes. And when mobile broadband prices do rise, will the administration claim success? It won’t, but it is to blame anyway; higher prices are the inevitable consequence of the administration’s actions. Fortunately, the carriers will try to offset prices increases (their customers don’t like them), but they must do so with their hands tied behind their backs.

Fantasy abounds is Washington. Unfortunately, the laws of economics are immutable. To quote a colleague, economics is an inoculation against wishful thinking. The Obama administration’s spectrum policies, at present, point only to higher prices for mobile broadband services.

Consider yourself warned.

Spiwak is the president of the Phoenix Center for Advanced Legal & Economic Public Policy Studies, a nonprofit 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.