Some Thoughts on the FCC’s New Interoperability NPRM…

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Last week, the Federal Communications Commission (“FCC”) issued an interesting Notice of Proposed Rulemaking or “NPRM.”  Basically, the FCC announced that assuming that some technical glitches can be worked out (and the agency was optimistic that they could), the FCC would like to see—either by voluntary agreement or by regulatory fiat—interoperability for mobile devices and equipment in the lower 700 MHz band.

The agency’s rulemaking appears to be motivated by the desire to promote handset availability for the smaller and rural operators that purchased A block licenses in the 2008 auction.  According to these carriers, given their given their small size they cannot obtain the same advanced handsets as can the larger carriers.  However, so their argument goes, if all the handsets can operate across the entire lower 700 MHz band, then handset innovation is socialized across all carriers using that band.  Without this equipment—which following the argument means without interoperability mandates—the smaller carriers claim they cannot afford to build out their networks.  As such, the A block will lay fallow.

Let’s get this straight:  At the time the licenses for the reclaimed lower 700 MHz band were sold in Auction 73 (2008), there was no interoperability requirement on that spectrum.  However, most of the A block was purchased, at a price tag of about $4 billion, by the very same small and rural carriers who now are asking the FCC to impose interoperability requirements on the lower 700 MHz band.  So if I understand this correctly, these carriers are essentially now conceding that they willingly and knowingly entered into the auction without a viable business plan, but yet they would now very much like the FCC to provide them with one post-auction via mandated interoperability.

If this argument smells fishy, it is because it is fishy.  Of course, that never gets in the way of poor public policy from the FCC.  When reading the FCC’s Interoperability NPRM you’ll see the agency contemplating two potential outcomes:  (1) no interoperability and a potentially diminished use of the A block; or (2) interoperability with an enhanced use of the A block countered by a potential for interference (which the FCC has already pooh-pooh’d in the NPRM) and other unintended ills (which the FCC always minimizes).

To these outcomes, I propose a third alternative:  no interoperability, take the spectrum back from those carriers that fail to meet their buildout requirements (which they claim today they cannot meet), and put the valuable spectrum into the hands of wireless firms that want to and can use it to expand coverage and capacity to support more wireless broadband.  Spectrum is too scarce a resource to give it to those that require so much coddling.

Indeed, when viewing the issue in this light, I am reminded of a 2011 report by CITI analysts Jason Bazinet and Michael Rollins entitled Wireless Supply and Demand.  In this report, the authors conclude that, inter alia, the government has allocated “[t]oo much spectrum [to] companies that are not planning on rolling out services or face business and financial challenges,” and that the shortfalls in spectrum (and capacity) could be curtailed by allowing incumbent carriers to “acquire more underutilized spectrum.”  In my opinion, CITI’s conclusion about the allocation of scare spectrum resources is on point:  perhaps we need to move spectrum to those who can best use it, rather than promulgate inefficient and costly regulations simply to prop up otherwise uneconomic business models.