WASHINGTON-Congress is slowly backtracking on spectrum auctions as a source of revenue in the bipartisan balanced budget plan, a retreat spurred by recent falling wireless license prices and financial troubles among companies that many believe spent too much for access to the airwaves early on.
A balanced budget amendment called “Truth in Budgeting and Spectrum Auctions,” sponsored by Sens. John McCain (R-Ariz.) and Ernest Hollings (D-S.C.), puts lawmakers on notice that spectrum estimates are unreliable and that Congress should be prepared to find other revenue or reduce government spending further if auctions fail to meet projections.
One idea along those lines was to impose a one-time spectrum fee on TV licenses, but the powerful broadcast lobby appears to have snuffed it out.
“I am committed to enacting legislation to mandate these auctions over the next five years, but I am very concerned that this budget assumes much greater revenues from spectrum sales than can reasonably be anticipated,” said McCain, chairman of the Senate Commerce Committee and an auction hawk.
The budget agreement embraced by GOP congressional leaders and President Clinton relies on $26.3 billion from expanded auctions over the next five years and an overall total of $32.2 billion from licenses sales by 2007.
Clinton’s budget proposal in February relied on $36 billion from spectrum auctions through 2002. The Congressional Budget Office later lowered the estimate to $24 billion.
Now, a number of forces are conspiring to make the $26.3 billion budget auction figure fictitious.
A big chunk of the $26.3 billion is expected from the sale of analog TV channels returned by broadcasters after their transition to digital technology. But there is strong suspicion that spectrum will not be freed up as fast as policymakers think.
Moreover, the government won’t receive any money from a block of TV spectrum that is going to public-safety users.
Second, a less lucrative proposal to sell toll-free vanity telephone numbers could get nixed as it did last year because of opposition from the paging industry and retail businesses that use the numbers.
Third, a new bill by Sen. John Breaux (D-La.) would ban the sale of private wireless spectrum. Under 1993 legislation, spectrum auctions are limited to commercial, subscription-based services, like paging, cellular and dispatch radio.
Policymakers initially wanted to make private wireless spectrum subject to auctions, but if the Breaux bill is passed the government will receive less money in the short term from annual spectrum lease fees.
Fourth, prospective federal government frequencies being eye-balled for sale by budgeteers will likely be tied up in a fierce fight with the Pentagon, which claims spectrum is needed all the more in the post-Cold War military environment.
Mobile satellite companies, for their part, are resisting efforts to require them to reimburse government agencies for spectrum federal agencies surrender.
Lastly, the economics of spectrum auction licensing do not bode well for the U.S. Treasury. The supply and demand equation has been turned upside since the FCC added 120 megahertz to the marketplace over the past three years. Spectrum scarcity has turned into spectrum glut, prompting downward pressure on license values.
In fact, the U.S Treasury may not get the full $23 billion pledged to date by auction winners. Start-up firms of the C-block PCS auction are struggling to meet financial obligations to the government, investors, vendors and others. Some have filed for bankruptcy, and others cannot get public offerings off the ground. NextWave Telecom Inc., which spent nearly $5 billion on C-block licenses, recently closed down two regions and has yet to win Wall Street backing for a stock sale.
