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Monday, March 15, 2010

Will the FCC's National Broadband Plan Really Be Costless?
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After working my way through the Executive Summary of the Federal Communications Commission's (FCC) National Broadband Plan, there are a number of things I find troubling that I will get to in a subsequent post. But here's the thing about "The Plan" that I found most surprising -- even audacious -- in its arrogance: The FCC wants us to believe the whole scheme is costless. The agency basis this astonishing claim on the following assumptions:

Given the plan's goal of freeing 500 megahertz of spectrum, future wireless auctions mean the overall plan will be revenue neutral, if not revenue positive. The vast majority of recommendations do not require new government funding; rather, they seek to drive improvements in the government efficiency, streamline processes and encourage private activity to promote consumer welfare and national priorities. The funding requests relate to public safety, deployment to unserved areas and adoption efforts. If the spectrum auction recommendations are implemented, the plan is likely to offset the potential costs.

Let me translate: "Pay no attention to all the bills we are racking up, because spectrum revenues shall set us free!"

Perhaps that logic works in the reality-free zone we call the Beltway, but back in the real world this simply doesn't add up. Regardless of how well-intentioned any of these goals and proposals may be, it should be equally clear that there is no free lunch, even will spectrum auction proceeds fueling the high-tech gravy train. The proposals and programs the FCC sets forth will impose serious economic costs that shouldn't be so casually dismissed, especially using the weak reasoning that "improvements in the government efficiency" will magically manifest themselves thanks to massive new government intervention in the field. (If you think you've heard this one before, you have. See: The current health care debate.)

Moreover, if everything really does hang on the promise of spectrum auction revenues covering the broadband spending binge, well, bad news: The agency is never going to bring in enough to cover what they've proposed here. The reason is simple: Most of the spectrum they want to grab is currently occupied by someone else!

In fact, a huge chunk of that 500 megahertz would come from licensed television broadcasters, who aren't exactly excited about getting and an eviction notice from the government. Even if one agrees with the FCC that the broadcast band is currently under-utilized, that doesn't mean that the broadcasters should be forced to vacate it. Moreover, any attempt to force them off would result in an epic legal battle that would take years to resolve and ultimately would not likely be resolved in the government's favor.

Of course, the folks at the FCC aren't completely oblivious to these political realities. They know that they need to get the broadcasters to come to the bargaining table voluntarily to hammer out a deal. But, as Barbara Esbin and I noted in our paper on this issue, there is one thing that will incentivze broadcasters to come to that table and talk turkey: Cold hard cash--and lots of it. The FCC even admits as much when they note in the plan, "Mechanisms [for encouraging spectrum reallocation] include incentive auctions, which allow auction proceeds to be shared in an equitable manner with current licensees."

But therein lies the folly of the FCC's "broadband free lunch" scheme. They're never going to be able to make both their masters happy. Both Congress and the broadcasters will want the spectrum auction revenue split to be something like 70-30 or 80-20, but both will demand the bigger slice of the pie. Thus, to get the broadcasters to the bargaining table, the FCC must make them a deal they can't refuse. And that means that the spectrum auction revenues the agency predicts will cover all the costs of the National Broadband Plan will get eaten up by buyout checks for broadcasters. Finally, whatever proceeds are left after buying out the broadcasters will likely get thrown at a million other unfunded spending initiatives that Congress prefers over broadband.

So, something's gotta give. There really is no free lunch. Just like health care "reform," this FCC broadband plan will be anything but costless.

posted by Adam Thierer @ 2:06 PM | Broadband

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