ussell H. Fox, Esq.
My intent, in writing an article in RCR, was to analyze the Federal Communications Commission’s decision in the Docket No. 93-252 proceeding, which addresses the new rules governing commercial mobile radio service providers.
The new rules, designed to achieve “regulatory parity” impose significant changes on the regulations governing specialized mobile radio and other traditional private radio systems.
The FCC has foiled my plans, as it has the plans of hundreds of businesses across the country, by failing to release the text of its decision within the 30-day period after the decision is announced.
By the time you read this, the FCC hopefully will have released its decision.
However, the delay the FCC has imposed, and the reasons for imposing that delay are symptomatic of an agency (at least at the upper levels) that is regulating without regard for the existing business landscape or the customers those businesses serve. This commission apparently possesses several square policy pegs and many round marketplace holes. Its struggle to make those pegs fit where they clearly will not is causing great turmoil in the land mobile radio industry.
As part of the news release describing the action taken in the regulatory parity proceeding, the FCC said it was freezing the processing of 800 MHz SMR applications. Opposition to the freeze was intense and instant. Allegedly, the freeze was instituted at the direction of Chairman Hundt’s office without the direction of the Private Radio Bureau, the part of the FCC with the most expertise about 800 MHz SMR systems.
Nevertheless, as of this writing, the FCC neither lifted the freeze in whole or in part. It is rumored (which may turn out to be true or false by the time you read this) that the freeze is a direct result of Hundt’s desire to auction any remaining spectrum at 800 MHz. Even without a desire to auction the spectrum, the imposition of a freeze, by creating massive uncertainty, represents a callous disregard for the SMR businesses and their customers who rely upon the FCC to continue processing applications as it has in the past.
The freeze aside, this fascination with auctions, while understandable, is inappropriate in the 800 MHz case in particular, and is a poor guideline for public policy decisions in general. It is no surprise that the chairman wishes to auction as much spectrum as he can. He already raised hundreds of millions of dollars through the auction of interactive video and data service and narrowband personal communications services licenses. The FCC is expected to raise hundreds of millions more through the auction of broadband PCS licenses, making Hundt a hero in the administration.
However, the case of 800 MHz spectrum is different. Unlike IVDS and PCS, the 800 MHz landscape is already quite crowded. The crowded nature of the spectrum makes it an unattractive and unfair target for auctions for several reasons.
First, it means there is simply not that much spectrum left to auction. Because conducting an auction is expensive, it is questionable whether the cost of the auctions will be worth the benefit of licensing the spectrum in this fashion. If Hundt has been told that there is a great deal of spectrum to auction at 800 MHz, anyone in the industry can tell him he received bad advice.
Second, the auction would impose costs on 800 MHz SMR licensees that they did not anticipate. PCS and IVDS licensees know they will be required to pay for the spectrum they use. These costs can be factored into their business plans. 800 MHz SMR licensees never anticipated they would be required to pay for spectrum. These costs would be imposed not only in the limited instances where new systems could be licensed, or new channels licensed to existing systems, but also in instances where licensees wish to modify their station facilities.
Today, the FCC has frozen applications for modification. Under common carrier rules, competitive applications may be filed against applications for major modification. Therefore, an existing licensee, who never anticipated auctions, might be required to bid against a new entrant just to keep its system.
The chairman’s desire to institute auctions where they clearly do not belong is not limited to 800 MHz systems. It is rumored that an auction process may be used for existing 220 MHz licenses as well. During August, the FCC issued a press release, stating that it would soon begin to accept applications for modification for existing 220 MHz licenses.
According to the news release, accepting those applications would be triggered by publication of the news release in the Federal Register, a ministerial act, which generally takes seven to 10 days from the time a document is released by the FCC. As of this writing, more than one month after the news release was issued, the document has yet to be published in the Federal Register, allegedly on directions from the FCC that there will possibly be a change in the decision to accept the applications.
If there is a reversal in the decision to accept 220 MHz modification applications, it is likely because of the perceived possibility that this spectrum also may be a target for auctions. For many of the same reasons that auctions would not be fundamentally fair at 800 MHz, they would also represent a miscarriage of due process at 220 MHz if applied to applications for modification.
Chairman Hundt’s desire to use auctions in these instances is bad public policy. It is public policy based solely on a desire to raise revenue, which is not the FCC’s mandate. Using auctions in these instances is directly contrary to the commission’s mission to make the spectrum available to the public.
By continuing to process applications for modification and even applications for new facilities in existing services, the FCC would permit existing operators to serve new and current customers, a result plainly in the public interest. Limiting existing licensees’ ability to modify their authorizations, or to secure additional spectrum, in favor of licensees selected through the auction process can only delay service to the public. The FCC has chosen to ignore its statutorily imposed mandate, in favor of being a profit center for the government.
The FCC’s tendency to ignore marketplace realities, as it has in attempting to use auctions, even where it is not appropriate, is evident in other contexts as well. As part of the Omnibus Budget Reconciliation Act passed last summer, all SMR licensees were categorized as CMRS providers. That action itself ignored the very real distinctions between cellular, PCS, enhanced SMR and “local” SMR systems.
Because Congress has a long history of legislation that is not based on marketplace realities, the result was disappointing but not unexpected.
The FCC has only compounded the problem. When it could have adopted a regulatory scheme that recognizes the obvious differences between ESMR and local SMR systems, it chose to declare that all two-way interconnected radio services offered for profit are substantially similar.
The same ironclad logic leads to the conclusion that a Yugo and the space shuttle are substantially similar, because they are both methods of transportation. The FCC should recognize the obvious marketplace reality that not all CMRS providers are substantially similar and regulate accordingly.
The commission’s failure to recognize the distinctions in the various types of CMRS services will produce many negative results. One will be the demise of low-cost, dispatch-oriented services. A regulatory scheme that allows all providers to offer all services may produce short-term benefits for consumers, but threatens the long-term viability of low-end, niche services.
For example, the FCC proposes to eliminate the prohibition on cellular systems offering dispatch services. In the short term, cellular systems may offer dispatch services at the same price, and probably at lower costs, than today’s providers. T
he infrastructure costs for cellular systems, which must be recovered through service rates, are many times more than the infrastructure costs of today’s SMR systems.
In the long run, therefore, cellular operators will be impelled to either convert the spectrum, used in the short run for dispatch, back to telephone use, or charge telephone-like rates for dispatch calls. Dispatch customers will look to flee the system at that point.
However, the cellular system already will have already driven traditional dispatch service providers out of business. As a result, the consumer will be faced with the choice of paying more to the cellular provider or discontinuing its use of radio altogether. Neither of these choices represents the commission serving the public interest.
The people who have been recently appointed or hired to regulate the telecommunications industry are talented and capable. They have approached regulation seriously and with great energy.
They have also approached the regulatory process with a dogma that has been applied inflexibly.
For the sake of the land mobile industry, those regulators would be better served to listen not only to their hearts, but also to the voices of the people whose lives they are so dramatically affecting.
Russell Fox is an attorney with the law firm of Gardner, Carlton & Douglas in Washington, D.C., and is the former president of what is now the American Mobile Telecommunications Association.
