Every Federal Communications Commission Chairman has one or two legacy-defining moments in his tenure. For Clinton FCC Chair Reed Hundt, it was pushing through the Children's television programming rules and starting the transition to digital TV. For the first George W. Bush Chair, Michael Powell, it was the media ownership battles and the adoption of the "four freedoms" that set out the commission's expectation of consumer's Internet rights.
Current FCC Chairman Kevin Martin will face one of those moments this summer. His agency is about to set the terms of the most valuable auction of spectrum (the public airwaves over which broadcasters and cell phone companies operate) we have yet seen, and likely the last significant auction in our lifetimes. This auction involves a large portion of spectrum that broadcasters are to return as part of the nation's transition to digital TV. The location and characteristics of this spectrum make it ideal for the development of a third, nationwide broadband Internet provider that could compete with the powerful incumbent telephone and cable companies which control 96 percent of broadband lines in this country. But unless the FCC takes a very different course than it has in past auctions, this valuable resource will most likely end up in the hands of those very companies. Why is that a bad thing? Because the incumbents have no incentive to develop new wireless broadband services that compete with their current wireline services. Should the telephone and cable companies win most of the spectrum, we can expect to see more of the same high prices and low speeds for broadband, with a sprinkling of new add-on services (like music and video) for which consumers will have to pay extra.
A coalition of public interest organizations, including Free Press, the New America Foundation, Media Access Project and Public Knowledge are urging the FCC to adopt rules for the auction that will ensure that a third broadband competitor develops. This "Public Interest Spectrum Coalition" is asking the Commission for specific "auction rules" (which determine who can bid and how they bid) and "service rules" (which determine the terms by which the winning bidders will operate). The most important of these include:
* Anonymous bidding. Anonymous bidding ensures that incumbents cannot game the auction by signaling other bidders and blocking competing bids. Two reports show how some of the biggest media companies were able to leverage the auction rules to block competition.
* Limits on incumbent participation. These would ensure that competitors have an opportunity to win at auction.
* "Open Access." This rule would require winning bidders for half of the spectrum to make access to that spectrum available to third parties at wholesale prices. This is the model that led to the explosion of competitive Internet Service Providers in the 1990's. This is not some far-left proposal - a similar proposal has been made by Frontline, a company that has Hundt, Former Netscape CEO James Barksdale and Venture Capitalist John Doerr as investors.
* Non-Discrimination/Network Neutrality. The coalition is asking that all licensees operate their networks in a manner that "protects the consumer's right to use any equipment, content, application or service on a non-discriminatory basis without interference from the network provider." This protects against the licensee giving favorable speeds or quality of service to content, applications and services in which it has a financial interest. This is part of a larger debate as to whether all broadband providers, whether wireline or wireless, should be subject to a non-discrimination requirement.
Needless to say, the incumbents don't like these ideas. They say that imposing rules of this sort will scare away possible bidders, which in turn would make the spectrum less valuable, resulting in lower revenues for the government. But it could be just as persuasively argued that rules that provide real opportunities for competitors to win would encourage more participants, making the spectrum even more valuable.
The timetable for a final decision is very short. Congress has mandated that the auction for the spectrum begin by the end of January 2008. To ensure that potential bidders have time to make plans to participate, the FCC would like to adopt rules no later than this July. Needless to say, the pressure on the FCC from all sides will be enormous over the next month.
Chairman Martin will bear the brunt of this pressure. I have been extremely impressed with his intelligence and thoughtfulness on this matter. But will he withstand entreaties from the most powerful media and communications companies in the world to let the "free market" rule the auction? If he does, and shapes the auction to promote new broadband competition, Kevin Martin will have forged a lasting positive legacy.