From one end of the spectrum to the other: the case for stronger property rights in FCC spectrum licenses and a response to Musey's "spectrum rationalization challenge".

Author:Schultheis, Alexander D.
Position::J. Armand Musey

    In a society where access to information needs a vehicle through which transmission occurs, the federal government's task of licensing different parts of the nation's broadband spectrum grows in necessity. (1) Multiple theories emerge as to why the federal government provides licenses to own certain parts of the bandwidth to private telecommunications companies, such as the scarcity of bandwidth, its pervasive presence in the marketplace, and the special impact and public interest that telecommunications has on the nation's electronic infrastructure. (2) Because of these theories and constitutional justification, such as limited First Amendment protection for freedom of speech, the Federal Communications Commission (FCC or Commission) has heavily regulated the broadcasting and electronic media industries more than others. (3) In particular, the recent phenomenon of holding auctions to disseminate spectrum licenses to broadcasters has proven a viable strategy for protecting the limited resource that is spectrum bandwidth. (4)

    One of the ways a private company may obtain a spectrum license is by bidding on the price of a specific block of frequency at public auctions held each year by the FCC. (5) The bidding system used at the auction creates efficiency and saves time, while at the same time providing a market value for the band of frequency that is bid on by a particular company. (6) In doing so, the FCC has implicitly recognized private property rights in an otherwise scarce broadband spectrum, and has made a conscious policy choice to issue licenses which allow the owner of a particular frequency to exclude others from using it while it is licensed to them. (7) Some have criticized this approach as creating an inefficient system whereby licenses simply go to the highest bidder, and argue that given the strong public interest present in regulating communications, property rights should not be as strong for those licensees of the FCC who own auctioned frequency bandwidth. (8) However, individuals in this camp, those who point to the rising costs of "spectrum inflexibility" as a reason for reconsidering the way the FCC distributes licenses, should more seriously consider moving towards a more market-based approach that creates dynamism in the market, and allows for a greater transferability of licenses by their owners. (9)

    This note argues that while rapidly advancing technologies necessitate reform to federal communications policy, it should be performed in a manner, which continues to recognize property rights in frequency spectrum. I will begin by providing a history of how the Federal Communications Commission received the administrative authority to regulate the nation's broadband, the subsequent statutory change enacted to create federal jurisdiction for the hearing of final orders appealed from the FCC, and the case law delineating certain attributes of spectrum licensing the FCC is obligated to enforce. I will then turn to the central academic debate on whether the public interest is best served through recognizing property rights in broadband spectrum, recognizing both sides of the debate. Finally, I will present my own analysis on why the continuing recognition of property rights in the spectrum is necessary to advance a market-oriented approach to allocating the nation's bandwidth, and how broadcast licenses might fit into such an approach.


    1. Early Recognition by the Supreme Court of the FCC's Authority

      The Supreme Court first recognized the FCC's authority in issuing regulations pertaining to broadcasting companies in National Broadcasting Co. v. United States, (10) holding that the FCC was charged with discerning the "public interest" in promulgating standards to govern the telecommunications industry. (11) The Court's reasoning essentially endowed the FCC with administrative authority it did not previously have under the Communications Act of 1934 ("CA"), (12) declaring that the Act gave the FCC powers greater than merely "engineering" technical aspects of radio regulation. (13) The Court recognized the FCC's role to be more than just "supervision of traffic," articulating a broader authority for the Commission to recombine and affirmatively compose the substance of that traffic. (14) While the breadth of this ruling certainly opened the door to the FCC to seize a greater role in policy making, it was a more symbolic ruling in foreshadowing the authority the FCC obtained in the following decades.

    2. Public Input on Licenses

      Before the FCC had the power to auction for licenses, it allowed the public to comment on whether or not a particular license that it issued should be renewed, and in Office of Communication of United Church of Christ v. FCC, (15) it received this power from the D.C. Circuit Court of Appeals. (16) The D.C. Circuit Court of Appeals noted that "On a renewal application the 'campaign pledges' of applicants must be open to comparison with the 'performance in office' aided by a limited number of responsible representatives of the listening public when such representatives seek participation." (17) Thus, a consequence of this ruling is that citizen lobbying groups began to sprout up in order to challenge any interest they might have in a particular frequency of spectrum, particularly if it meant eliminating a competitor. (18)

    3. Jurisdictional Authority Close To Home

      Approximately a decade later, Congress passed the Hobbs Act, deciding to make the D.C. Circuit Court of Appeals a "specialized" court where appeals from the FCC are heard. (19) The complementary language to the Act is found under Title 47 of the United States Code, and is fairly broad, allowing for a petitioner's appeal under a number of instances, including denial of an application or renewal for a spectrum license. (20) This Act was not just intended for the FCC, but for all administrative agencies to have their orders appealed to the D.C. Circuit Court of Appeals. (21) Thus, judicial review of administrative agency orders found a court close to home, but even this change was not the end of the FCC's expansion of airwave regulation.

    4. The Authority To Auction

      The "public interest" factor resurfaced once again in FCC v. National Citizens Committee For Broadcasting, with the Supreme Court upholding the Commission's regulations pertaining to divestiture of "common ownership," by one company, of a radio or television broadcast and a daily newspaper located in the same community. The reasons for divestiture are simple: diversity of programmatic and service viewpoints, and prevention of undue concentration within the industry. (24) The divestiture rationale was a principal guiding force for the next decade, leading to Congress amending the National Telecommunications and Information Administration Organization Act (NTIAO) as part of an effort to grant the FCC more authority in regulating the broadband spectrum. (25) This amendment directed the Department of Commerce to identify unused bandwidth spectrum the federal government owned, and to transfer it to the FCC for reallocation in a non-federal, commercial setting. (26) The momentum from these prior grants of statutory authority to the FCC culminated in Congress passing the Omnibus Budget Reconciliation Act of 1993 ("OBRA"). (27) OBRA amended the CA by granting the FCC the authority to issue spectrum licenses through a competitive bidding auction process. (28) The uses for which a license may be issued are plentiful: cell phones, subscription television, radio controlled cars, garage door openers, and even entire businesses, to name a few. (29)

      In 1996, the FCC began its implementation of OBRA by partitioning the broadband spectrum into six different auction blocks, AF, for allocation and dissemination of licenses. (30) The FCC was mandated to promulgate rules ensuring that small businesses, rural telephone companies, and businesses owned by minority groups and women all received a fair shot at obtaining a license under OBRA's amendment to the CA. (31) A particular case, Omnipoint Corp. v. FCC, (32) rejected an attempt to block the implementation of these rules as it pertained to the issuing of Broadband PCS licenses, a wireless service for mobile cellular phones. (33) The petitioners, a group of small business owners, argued that the implementation provisions pertaining to women and minorities undercut the Commission's obligation to aid small businesses. (34) The Court's reasoning pointed to the fact that the 49% equity option, which allowed certain minority-owned and women-owned companies to have a non-voting investor acquire up to 49.9% of the company's equity and still bid on a license, applied to all bidding firms, not just minority-owned and women-owned firms. (35)

      After having its implementation strategy initially upheld for minority and women-owned enterprises, a major win for bidding firms to obtain greater property rights in their licenses was evidenced in Fresno Mobile Radio, Inc. v. FCC, (36) where the Court revised some of the Commission's decisions with regards to owners of Specialized Mobile Radio Service (SMR). (37) The Commission originally adopted a system whereby the upper 200 channels of the SMR bandwidth were auctioned off for each of the newly-designated "Economic Are as (EA)," areas which were in need of coverage for SMR service. (38) Fresno Mobile was a provider of SMR, and challenged the FCC's "interim coverage requirement," which mandated SMR providers to have their facilities completed within two years of obtaining a license, while EA licensees were given potentially five years to complete their facilities. (39) The D.C. Circuit sided with Fresno Mobile, holding that full-service SMR providers who must serve an entire area with multiple facilities should have at least as much implementation time to construct such facilities as do EA licensees, who were not even required to fully service the unprofitable precincts for which they were licensed....

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