Hindsight is best. Had I been able to anticipate what I call the Greed Factor-the behavior of a growing number of microwave incumbents in the 1.8 to 2.2 GHz band who seek to profit unreasonably from their relocation-at the time I participated in crafting the relocation rules for the PCS band, I would have made different recommendations to the Federal Communications Commission.
One such recommendation would have been to adopt spectrum relocation rules that strike a balance between incumbents and the new PCS licensees. As written, the relocation rules overwhelmingly favor the incumbent. The commission did not foresee the magnitude of the premiums incumbents are demanding for relocation.
Knowing what I know now, I believe the microwave relocation rules adopted by Canada are the more appropriate approach. Simply stated, while the Canadian approach follows the same two-year plus one-year schedule adopted by the FCC, the Canadian rules provide that if the parties cannot reach an agreement through good faith negotiations during a specified time frame (two years), then the incumbent must relocate during the third year and must pay its own relocation costs.
The approach respects the interests of both parties and creates a balancing of incentives in the negotiation process. Currently U.S. PCS licensees have no leverage to bring negotiations to an early conclusion. Again, in hind sight, the commission’s rules should have provided a stronger incentive to encourage the early relocation of microwave incumbents.
When the FCC acted to make PCS a reality, it recognized its obligation to the incumbent licensees whose point-to-point microwave links occupied the spectrum designated for the new PCS licenses. Throughout the long and complex series of proceedings, the commission consistently sought to serve the public interest by striking the proper balance between incumbent licensees and the PCS entrants. Not only did the commission seek to treat these incumbent microwave licensees fairly, the incumbents were given a win-win situation. I know, I helped write the rules.
Rather than expelling incumbent licensees from the PCS band by a certain date, an approach used by the commission in past reallocation proceedings, the commission provided incumbent licensees with the opportunity to relocate to new spectrum and get brand new replacement telecommunications systems for free. You read it correctly, for FREE!
To further benefit microwave incumbents, the commission established a two-year voluntary negotiation period, followed by a one-year involuntary negotiation period when PCS licensees and incumbents must enter into good faith negotiations. The commission also found room in other bands where the incumbents could move. Even after all this, the PCS licensees must pay for the incumbents’ new systems.
Despite the commission’s painstaking efforts to balance all of the respective equities and to deliver the benefits of PCS and new wireless services to the consumer, the community and microwave incumbents, a major stumbling block to the rapid deployment of PCS-unforeseen by the FCC-has come out of the blue to threaten the success of PCS. Simply stated, it is greed.
While many incumbent licensees are entering into good faith negotiations with PCS licensees, resulting in the hoped-for win-win result of smooth relocations and rapid deployment of PCS services, a few (and I fear growing number of) incumbents are either failing to negotiate at all, or are attempting to extract unreasonable profits from PCS licensees. Make no mistake. This impediment to the success of PCS comes from those who stand to profit by deliberately interjecting dilatory tactics into ongoing negotiations or by forestalling the opening of negotiations.
The consequences of the Greed Factor are many. The incumbent licensees who are not seeking the comparable service they are entitled to but rather are out to convert their FCC radio license into gold, are stifling competition. Consumers are harmed, competition is stunted, new services are delayed and new employment opportunities and tax revenues for communities are lost forever.
All Americans are affected by the Greed Factor. It diminishes the value of spectrum in future FCC auctions. In the A and B block PCS auctions, the bidders factored into their calculations the estimated costs to relocate incumbent microwave licensees based on the actual costs associated with the new technology. Nobody anticipated that some incumbents would demand payments that represent many times the actual costs of relocation as their entitlement in exchange for the rapid introduction of PCS. The Greed Factor increases the estimated costs of relocation to four, five and even higher multiples than originally anticipated, which directly reduces the economic value of the spectrum.
The incumbent licensees
who are not seeking the comparable service they are entitled to but rather are out to convert their FCC radio license into gold, are
stifling competition.
The Greed Factor realistically could add billions of dollars of unanticipated costs to the deployment of PCS. Who pays this price tag? Ultimately, consumers and all of society will pay in the form of service delays and higher PCS costs. The added costs have the real potential of thwarting competition and the delivery of these new services to consumers. The Greed Factor benefits the few at the expense of the many. It is simply wrong.
So, given the emergence of the Greed Factor, where do we go from here? First, let’s remember that the rules were crafted to benefit all parties, and, most importantly, the consumer. The Greed Factor perverts the rules and undermines the commission’s intent. The best remedy to the problem is for the incumbents to overcome their Greed Factor and negotiate the win-win solutions the commission envisioned. Absent the easy solution, other options are available.
To address the Greed Factor, the commission could change its rules to mirror the Canadian process, mentioned earlier. Another approach would be to immediately trigger the mandatory one-year negotiation period upon verification by an arbitrator that an incumbent has failed to enter into good-faith negotiations. Still another approach would be to impose license forfeitures on incumbents who fail to enter into negotiations at all during the two-year voluntary period. Also, if an incumbent fails to negotiate in good faith, the commission could downgrade the incumbent’s co-primary license to a secondary status, thus diminishing the incumbent’s standing in the PCS spectrum band.
An easy fix would be to simply eliminate the word voluntary from the current language of two-year voluntary negotiation period. There are other potential remedies as well, all of which share the goal of restoring the commission’s goal of balancing interests by creating the incentives the parties require to reach win-win solutions.
None of these proposed remedies is as flexible as the commission’s original rule, but the emergence of the unforeseen Greed Factor forces the issue. Too much is at stake to let a few harm so many. Unless the incumbents voluntarily adhere to the spirit of the existing rules, the commission will be forced to recognize that its spectrum relocation policies (which originally were intended to shield incumbents from potential harm) in reality, and in a perverse way, are being used by the intended beneficiaries as a sword to harm the very PCS service the FCC had hoped to speed. The commission cannot allow its rules to be manipulated by incumbents caught up with the Greed Factor.
Finally, while I was at the commission I took seriously the representations made by the incumbents affected by the commission’s PCS allocation decision. I worked with my fellow FCC colleagues to ensure that rules were crafted to guarantee fair treatment to all parties. Frankly, the denigration of these efforts by a few risks the credibility of all incumbents in this and future reallocation proceedings. Bottom line: greed still is
one of the seven deadly sins.
Dr. Brian F. Fontes is the senior vice president for policy and administration at the Cellular Telecommunications Industry Association. Before joining CTIA, Fontes served as the chief of staff and a long-time employee of the Federal Communications Commission.
