Communications Outlook 2013
In 2013, Congress, the Federal Communications Commission, and the National Telecommunications and Information Administration of the Department of Commerce will continue to focus on the issue of most immediate concern to the information economy: finding additional spectrum for wireless broadband connectivity.
Following congressional action, much of the FCC's work to free up airwaves in 2013 will be focused on writing rules for the first-ever voluntary “incentive auctions” of spectrum. The NTIA, which manages the federal government's use of the spectrum, will continue efforts to find swaths of frequencies that could be shared.
And, in the coming year, the FCC once again will try to carry out its agenda under the glare of intense congressional scrutiny, as House Republicans look to fundamentally change the way the commission conducts business as an independent federal agency.
The focus of the Obama administration, the Congress, and the Federal Communications Commission in 2013 will be to free up more spectrum for faster, more reliable, and more widespread wireless internet access across the country.
For much of the last four years, federal policymakers have worked aggressively to find swaths of frequencies that could be made available to wireless carriers to help meet the ever-increasing consumer demand for smartphones and tablet computers, which require more radio spectrum to carry their data transmissions--significantly more than what is needed to carry cellular telephone calls.
That work will continue this year, starting at the FCC.
The chairman's office is crafting rules for the first-ever “incentive auctions” of spectrum, in which the agency will try to reclaim airwaves now used for broadcast television and auction them off to carriers led by Verizon Wireless and AT&T Inc., with a portion of the proceeds paid to the broadcasters.
While the auctions are not expected until 2014, the auction rules will be finalized in the first half of 2013.
The rulemaking is likely to be contentious, as most broadcasters want to either retain their spectrum or maximize the opportunity to sell their spectrum at the highest possible rate.
Democratic FCC Commissioner Jessica Rosenworcel said the key for the commission is simplicity.
“Incentive auctions are undeniably complicated,” she told BNA. “But at every juncture we need to take steps to simplify the process. A simpler incentive auction system will yield more interest, more spectrum, and more clarity for all participants in the process.”
She also said the FCC must treat broadcasters fairly.
“Balance is essential,” she said. “There are so many parts to the incentive auction process, we must remember that they all interrelate. For instance, choices we make regarding interference will not only impact broadcast service, but also how much spectrum will be available for auction, and in turn how much revenue will be raised to address the priorities Congress set out in the law.”
Lastly, she said the agency must stay mindful of one of the goals of incentive auctions: to support the creation of new public-safety communications capabilities.
Even at this early stage in the process, agency officials anticipate a return of between 60 and 80 megahertz from broadcasters, roughly half of the amount contemplated when the FCC released the National Broadband Plan in 2010.
Such a result undoubtedly would be disheartening to the president and to Democratic and Republican congressional leaders, who are counting on incentive auctions to generate as much as $15 billion in revenue, $7 billion of which would go toward building a new nationwide emergency communications network for public safety officials, the last unfulfilled recommendation of the 9/11 Commission.
Given these realities, Rep. Greg Walden (R-Ore.), chairman of the House Energy and Commerce Communications and Technology Subcommittee, said he will exercise vigorous oversight of the FCC plan for incentive auctions, particularly how much spectrum the agency ultimately will reserve for “unlicensed” uses.
“The mission of this subcommittee is to squeeze as much as possible out of existing spectrum…,” Walden affirmed during a forum hosted by the Villanova School of Business in Washington on Dec. 5, 2012.
Walden's remarks, while brief, offered a preview of what is likely to be a protracted policy battle in 2013.
The FCC is proposing to auction the spectrum given up by the broadcasters in 5-MHz blocks, with 6-MHz “guard” bands to prevent interference between mobile broadband services and broadcast TV services, which would be made available for unlicensed use. The agency also is considering making available an additional 30 MHz of spectrum on an unlicensed basis.
To be sure, Walden wants the FCC to auction--and license--as much spectrum to the wireless carriers as possible. Spectrum is a scarce government resource, he argues, and must be used wisely so as not to favor unlicensed users such as Silicon Valley tech firms over licensed users such as wireless carriers--or vice versa. Auctioning the spectrum also will mean a monetary return to the general treasury, while allotting spectrum for unlicensed uses will not, he notes.
“We will … ensure FCC implementation does not pick winners and losers by allocating large swaths of spectrum to favored constituencies for free, thus shorting the supply of spectrum that is badly needed to meet the rising consumer demand for mobile broadband and leave public safety hanging by depriving it of the funding it needs to build out a public safety network,” Walden added at the Villanova School of Business event.
According to Neil Fried, Walden's chief telecommunications counsel, the FCC proposals could result in a $19 billion loss in auction revenues.
Appearing on a panel at the Telecommunications Policy & Regulation Institute on Dec. 13, 2012, Fried said the FCC plan not only is “bad policy,” but could also violate the Middle Class Tax Relief and Job Creation Act of 2012 (Pub. L. No. 112-96), the legislation that authorized the FCC to hold incentive auctions.
House Democrats have taken a decidedly different stance on the issue.
Reps. Henry Waxman (D-Calif.) and Anna Eshoo (D-Calif.), the respective ranking members of the full House Energy and Commerce Committee and its Communications and Technology Subcommittee, have pushed the FCC to set aside more and more spectrum for unlicensed uses, which they see as critical to encouraging innovation and experimentation in new mobile devices and applications.
By far, the most popular use of unlicensed spectrum is wireless fidelity, or Wi-Fi, with roughly 20,000 different devices now certified by the FCC for use in the Wi-Fi band, three times the number in any other frequency band. Wireless carriers also increasingly rely on unlicensed spectrum to offload traffic from their data networks. AT&T Inc. alone operates nearly 30,000 Wi-Fi “hot spots” in the United States.
“Unlicensed spectrum is a very important platform for economic growth,” Eshoo said during a Broadband Breakfast Club event Jan. 15 in Washington.
“Just walking around downtown Palo Alto [California] and going in and out of startup [businesses], I ask them all the same question,” Eshoo said of visits to her congressional district. “ 'What would cause you to shut off the lights, close the door behind you, lock it, and have to walk away?' And they all said, 'if we lose unlicensed.' ”
As support, Eshoo cited language in the Middle Class Tax Act that said that nothing “shall be construed to prevent the commission from using relinquished or other spectrum to implement band plans with guard bands.”
Some, including Walden, Fried, and FCC Commissioner Robert McDowell, remain unconvinced that 6-MHz guard bands are necessary to mitigate interference, given technological advancements.
In an interview with BNA, McDowell pointed to language in the Middle Class Tax Act that stipulates that “guard bands shall be no larger than is technically reasonable to prevent harmful interference between licensed services outside the guard bands.”
“I think we can have both licensed and unlicensed,” said McDowell, who has been a longtime proponent of making spectrum available for unlicensed uses, notably in TV “white spaces.”
“But let's not have fatter guard bands just to create a lot of leftover spectrum for the purposes of preserving it for unlicensed use,” he said.
“Exclusive-use licenses provide an incentive to use spectrum at its highest and best use and to build out infrastructure that provides tremendous economies of scale, which best serve consumers,” he said. “With unlicensed, there's not that incentive. You're not going to build a powerful cell tower because you don't have priority use of that frequency. You're a secondary user and other licensees can bump you out.”
In addition to the 6-MHz guard bands and a potential nationwide block of 30 MHz for unlicensed use, FCC Chairman Julius Genachowski has promised a major boost for Wi-Fi.
At the Consumer Electronics Show in Las Vegas, Jan. 7-10, the chairman announced that the FCC will vote soon on designating 195 MHz in the 5-gigahertz band for unlicensed uses, a move that was hailed by Eshoo and tech giants such as Google Inc.
The policy battle is not expected to be decided by the end of 2013.
Regardless of how much spectrum the FCC reclaims from broadcasters, the pressure will increase in 2013 on the Commerce Department National Telecommunications and Information Administration to pry loose frequencies from federal government agencies.
Between incentive auctions and NTIA efforts, the Obama administration is hoping to free up roughly 500 MHz of spectrum for mobile broadband uses by 2020.
To date, the NTIA has identified 115 MHz (1695-1710 MHz and 3550-3650 MHz) of federal spectrum for potential mobile broadband uses, in addition to 210 MHz that could be shared between federal agencies and wireless carriers.
In March 2012, the NTIA concluded in a much-anticipated report that, while it is possible to reclaim and re-auction 95 MHz of government-held spectrum in the 1755-1850 MHz band for commercial mobile broadband and similar applications, some federal licensees, such as the Department of Defense, “could remain in the band indefinitely.”
Several months later, the President's Council of Advisers on Science and Technology released a report calling for as much as 1,000 MHz of government-held spectrum to be shared with commercial broadband networks.
Taken together, these reports have changed the narrative in Washington from a focus on taking back spectrum from so-called inefficient users--TV broadcasters and federal government agencies--to a focus on sharing spectrum between federal and non-federal entities (216 TCM, 11/8/12).
“We know that the United States competitiveness and global technology leadership depend on the availability of spectrum--the lifeblood of smartphones, tablets, and other wireless communication devices--but we also need to protect mission-critical capabilities,” Anna Gomez, deputy assistant secretary for communications and information at the Commerce Department, wrote in a 2012 recap posted to the NTIA website Dec. 27, 2012. “So NTIA is exploring innovative approaches that would allow federal and non-federal users to share the same swaths of spectrum.”
Though NTIA has signaled that sharing must be embraced as a new reality, the wireless industry is expected to push in 2013 for legislation that would require the Department of Defense and other federal agencies to move off of airwaves in the 1755-1780 MHz spectrum band.
The prized 1755-1780 MHz band is immediately adjacent to a 25 MHz block of spectrum already allocated for mobile broadband uses and ready for auction--what is known as AWS-3, or Advanced Wireless Services-3. If the DOD agrees to give up--or, at the very least, share--spectrum in the band, the FCC would “pair” the two blocks of spectrum together for a future auction.
A working group convened by leaders on the House Energy and Commerce Communications and Technology Subcommittee is studying the issue of federal spectrum use, and according to one House aide, “serious discussions” about the 1755-1780 MHz band will continue in 2013.
“Things will heat up on 1755-1780 this year,” said the aide.
Whatever form legislative action takes, the DOD will remain engaged on the issues. Last year, the Pentagon lobbied Congress successfully to remove from the Middle Class Tax Act a provision requiring the FCC to auction the 1755-1780 MHz band to wireless carriers within three years.
Most of the 3,300 federal assignments within the larger 1755-1850 MHz band are licensed for point-to-point fixed microwave use by the departments of Energy and Homeland Security, and the Federal Aviation Administration. The DOD also makes use of the spectrum for military satellites, precision-guided munitions training, and unmanned aerial vehicles.
“I think we're going to see bipartisan interest in both inventorying and transferring spectrum from federal government use to private-sector use,” Bruce Mehlman, co-chairman of the Internet Innovation Alliance, a coalition of nonprofits and corporations, including telecom carriers and equipment makers, told BNA.
Mehlman, former assistant secretary of commerce for technology policy under George W. Bush, noted that for the last four years, Congress has placed much of its attention on passing legislation to authorize the FCC to hold incentive auctions.
“A lot of focus is now going to turn to federal spectrum holdings that could be repurposed,” he said.
Regulatory reform is another issue that will command the attention of the FCC in 2013.
In November, 2012, AT&T filed a petition with the agency to establish so-called test zones where regulations left over from the Ma Bell era should no longer apply.
According to the company, the rules underpinning the old monopoly telephone network must expire with an industrywide transition to internet protocol, or IP, networks. As such, the company has asked the FCC to declare that the new IP networks are “subject to minimal regulation only at the federal level.”
In addition to the AT&T filing, the National Telecommunications Cooperative Association (NTCA), a group that represents rural providers, also has filed a petition calling for a rulemaking to “examine means of promoting and sustaining the ongoing evolution of the public switched telephone network … to an IP-based infrastructure through targeted regulatory relief and the establishment of tailored near-term economic incentives.”
Such incentives would include allowing phone companies to recover the costs of carrying IP traffic on their networks and providing “sufficient and predictable” universal service support for providing “standalone” broadband internet access service to rural America.
Michael Romano, NTCA senior vice president of policy, said the FCC should avoid taking a “sledgehammer” approach, which he contended that AT&T has advocated.
“To say that, once this magical 'IP' pixie dust is sprinkled, that regulations become irrelevant is a sweeping over-generalization,” Romano told BNA in an interview. “If the FCC finds that [regulations] are not applicable due to IP or changes in the market, then withdraw or modify. Don't just throw the entire thing out and hope you can recreate it later.”
To address the issues raised in the two petitions, the chairman's office created a Technology Transitions Task Force, which will be led by FCC General Counsel Sean Lev on an interim basis and will include Julie Knapp, chief of the FCC Office of Engineering and Technology and Marius Schwartz, the FCC chief economist, as members.
Zachary Katz, the FCC chairman's chief of staff, said last month at the Telecommunications Policy & Regulation Institute that the goal of the task force will be to “develop holistic views for the commission” rather than to “look at things piecemeal.”
“I think you'll start to see in 2013 some tangible outputs,” Katz said.
The debate over whether rules of the copper-line era should apply to today's fiber-optic and internet-based networks centers on the changes in an industry whose service for decades was guaranteed by government rules, rather than driven by competition.
Currently, the FCC regulates telecommunications providers under Title II of the act, wireless carriers under Title III, and cable operators under Title VI, even though the distinctions between these companies have blurred as telecom providers now offer video service, cable operators now offer voice service, and wireless carriers offer both voice and data service. Of the three provider “types,” the telecom providers--successors to the Bell monopoly that was broken up by court order in the 1980s, including today's AT&T and the local-phone units of Verizon Communications Inc.--are required under state law to offer service to every residence. They must meet standards for providing a quick dial tone, a sure connection, and resiliency during storms and power outages. Newer competitors offering phone service over fiber-optic or internet connections, including Comcast Corp., do not have to abide by the same rules.
In addition, AT&T and Verizon still must maintain their copper phone lines, whether they upgraded to fiber optics or not, which the two companies say skews the playing field.
As part of the AT&T filings with the FCC, the company made a point to request a deadline by which all phone companies may “sunset” the old public switched telephone network.
Bob Quinn, an AT&T senior vice president and the firm's chief privacy officer, said this is “focused in large part on the realization that if you want to move to a broadband plan, you have to allow the carriers to retire the older technology.”
Speaking during a panel discussion at the Phoenix Center's Annual U.S. Telecoms Symposium Jan. 3, 2013, Quinn said the goal is to “get into an economic framework where you have as much private capital as possible going into broadband infrastructure.”
The company will be lobbying just as assertively for deregulation.
The United States Telecom Association, an industry trade group that counts AT&T as a member, also filed a petition to reclassify all incumbent local exchange carriers in the country as “non-dominant,” which the group says will put them on more equal footing with wireless and cable competitors. If the FCC approves the petition, “dominant” carriers, including AT&T, Verizon, CenturyLink, and Windstream would be relieved of all currently applicable regulations for pricing and market entry and exit, as well as the obligation imposed upon them to file tariffs.
“The question the FCC should be asking is, 'What are the legacy regulations from the copper-wire era, which obviously presumed a monopoly power, that should be imported into the IP world?' ” FCC Commissioner Ajit Pai, a Republican, told BNA in an interview.
Pai said the FCC could begin by eliminating tariffs and cost-study requirements and harmonizing regulations that apply to a broad range of communications service providers, but noted that the obligation to provide 911 emergency calling services should be preserved.
“We need to be thinking creatively about how to establish a framework for 911 services in an all-IP world,” Pai said.
Broadly speaking, Rosenworcel sees the IP transition not just as a “set of arcane legal issues before the agency,” but rather, the “essential infrastructure of communications in the digital age.”
“So we need to ask how we can inspire investment in IP infrastructure,” she said. “And we need to ask how we can ensure that consumers across the country can access the expanding range of digital opportunities and services this infrastructure supports.”
While the FCC is expected to take a serious look at these issues, no final action is expected in 2013. The agency will accept public comment on the petitions in January and February of 2013, and may propose rules addressing the industry's requests by the end of the year, at the earliest.
Further complicating the agency's agenda in 2013 is the potential departure of FCC Chairman Genachowski.
Genachowski has not announced plans to resign but, according to several people with knowledge of his thinking, he could step down before the second quarter of 2013, if not earlier.
If Genachowski goes, Karen Kornbluh, U.S. ambassador to the Organization for Economic Cooperation and Development, could become the next chair, sources told BNA. Larry Strickling, the head of the NTIA, and Blair Levin, the architect of the Federal Communications Commission National Broadband Plan, also are being considered for the top FCC job in President Obama's second term, sources said.
With or without a new chair at the helm, the biggest challenge facing the FCC in years may come to the fore in 2013 as the U.S. Court of Appeals for the District of Columbia Circuit considers the Verizon Communications Inc. challenges of the agency's Open Internet order, which bars internet service providers from slowing or blocking web traffic, a concept commonly known as net neutrality.
Verizon contends the order infringes free speech and property rights and is an overreach of FCC statutory authority.
A Verizon victory would leave FCC jurisdiction over all things broadband in question, and could set in motion congressional action--or action by the FCC itself.
Following such a result, public interest groups and congressional Democrats are likely to push the FCC to use Title II of the Communications Act to re-establish jurisdiction over broadband service. With a majority vote by the FCC, broadband easily could be reclassified as a “telecommunications service,” which advocates say would put broadband more squarely within FCC statutory jurisdiction.
In 2013, the FCC will review two wireless mergers.
Japan's Softbank Corp. is seeking agency approval to buy about 70 percent of Sprint Nextel Corp., the third-largest wireless carrier (by subscribers) in the United States, while Deutsche Telekom AG's T-Mobile USA Inc., the fourth-largest carrier, wants to buy control of MetroPCS Communications Inc.
Analysts have said they expect approval of the deals, since both would leave the combined companies with fewer customers than either Verizon Wireless or AT&T, the No. 1 and No. 2 carriers, respectively.
In the nearer term, one issue that will need to be addressed by the FCC is media ownership.
Genachowski has proposed relaxing a longstanding rule that limits the ability of companies to own both a newspaper and a television or radio station in the same local market. The proposal, which has been challenged in court, is expected to be the most controversial piece of the agency's quadrennial update of the nation's media ownership rules.
One area on which the Senate Commerce Committee and the House Energy and Commerce Committee will focus is the reauthorization of the 2010 Satellite Television Extension and Localism Act, or STELA, which expires in 2014.
According to Senate and House aides, STELA could provide an opportunity for Congress to update other communications laws, such as the 1992 Cable Television Consumer Protection and Competition Act and the 1996 Telecommunications Act.
STELA, which authorizes satellite providers to retransmit broadcast TV signals, is the only “must-pass” legislation before the committees in 2013. Those seeking reforms already have begun to push for smaller “add-ons” to STELA to ensure their quick passage, Senate aides told BNA.
One of the add-ons expected to be proposed is a repeal of a provision in the Cable Act that sets forth what is known as “retransmission consent” negotiations, the aides said.
With advertising revenues declining and the price of sports rights soaring, TV broadcasters have been fighting distributors for higher and higher fees to retransmit their network programming, money that is eventually passed through to consumers in the form of higher monthly rates.
Cable operators and satellite TV providers claim the current rules favor the broadcasters and programmers, which can simply shut off their signal when negotiations reach an impasse.
Section 325(b)(1)(A) of the Cable Act states that a television station's signal may not be retransmitted by a multichannel video programming distributor, or MVPD, without the “express authority of the originating station.”
Under FCC rules implementing the 1992 Cable Act, however, a station may be found to have violated “good faith” bargaining rules “based on the totality of the circumstances of a particular retransmission consent negotiation.” But, in the past 20 years, there have been only two instances in which the FCC concluded that a company negotiated in “bad faith.”
In 2011, the FCC launched a rulemaking proceeding to explore whether the agency should, or could, do more to prevent blackouts of television programming when negotiations to renew retransmission consent agreements stall. The agency, however, has yet to take any substantive action.
Genachowski and top agency officials have admitted publicly that, absent congressional action, there is little the FCC can do under the current statute.
“We don't see things getting any better,” Matt Polka, president and CEO of the American Cable Association, which represents small cable operators, told BNA in an interview. “In fact, things are getting worse.”
Polka said that rising costs of sports rights, among other factors, have been contributing to the recent high-profile standoffs between broadcasters and pay-TV providers.
“The truth is, from a true marketplace perspective, neither the sports leagues could demand, nor the networks could agree, to pay the rights fees that they are paying today if they didn't know that they could turn around and immediately send all that cost down to every consumer of cable TV service or satellite TV service, whether they watch one inning, one quarter, or one period,” Polka said. “If they had to sell it based on the merits of who watches it, the leagues could never get what they're getting today, and the networks couldn't pay it.”
League executives argue, however, that the vast majority of viewers not only watch sports, but are willing to pay to watch their favorite team.
Despite the growing concern, most agree that Congress is not expected to pass legislation to deal with the issue of sports rights, but rather, is more likely to hold hearings and launch inquiries.
Along these lines, aides to Senate Commerce Committee Chairman John D. Rockefeller IV (D-W.Va.) say the committee in 2013 will examine the rates for cable TV service, as well as the nascent online video market, which is providing competition to the traditional cable-channel model.
With the departure of Sen. Jim DeMint (R-S.C.), who was expected to be ranking member of the committee, there are lingering questions about whether another Republican will reintroduce the Next Generation Television Marketplace Act. As Congress neared adjournment in 2011, DeMint and Rep. Steve Scalise (R-La.) introduced companion legislation (S. 2008, H.R. 3675) to repeal many of the provisions of the 1992 Cable Act, which itself amended the Communications Act of 1934. Their legislation would completely eliminate rules for retransmission consent negotiations, compulsory licensing, and channel “must carry.”
“It changes efforts,” James Assey, executive vice president of the National Cable and Telecommunications Association, the cable industry's main trade association in Washington, told BNA. The association supported the bill.
“DeMint was a very important member of the committee,” Assey said. “You have lost a champion, but you also have a number of new members of the committee.”
One Senate aide told BNA that the committee will soon begin discussions about a rewrite of the Communications Act--how, and to what extent, an overhaul might be possible.
Progress will be slow, however.
The last time Congress updated the act was in 1996, when the internet was barely in its infancy. It took more than five years to produce that statute, the 1996 Telecommunications Act, which focused mainly on deregulating the telephone industry and was itself the first major overhaul of telecommunications law since the Communications Act of 1934.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).