FCC divides the pie, prepares to count its money

The U.S. Federal Communications Commission will hold an auction in June 1994 to allocate 120 MHz of radio spectrum for wireless Personal Communications Services, or PCS.

The FCC’s plans for the allocation of PCS, while not quite answering all of the questions facing people with an interest in PCS, show that the agency is thinking about many of the complex political and social issues before making its intentions public.

Divide and allocate. Based on Rand McNally data, the commission will divide the country into 47 major and 487 minor economic regions. Auctions will be held for licenses to provide service in each of these areas. Of the 120 MHz, each major region would have two 30-MHz chunks, and the smaller regions would be allocated one 20-MHz block and four 10-MHz blocks of spectrum, giving each region the potential of seven different PCS operators.

Since the wavelength for PCS is on the higher end of the radio spectrum, and therefore less powerful, the radius of coverage around each transmitter would be smaller — approximately one city block. Initially, the technology would enable telephones to act as part of a home or office system, but switch seamlessly to a wireless network when out of the range of the home or office.

NEW OPPORTUNITIES FOR A HUGE BUSINESS

In breaking down the country and the spectrum into small pieces, the FCC is attempting to provide opportunities for smaller companies and companies owned by minorities or women to participate in what is certain to be a huge business. The FCC intends to make certain provisions to the auction that grant incentives to these groups, but those plans have not yet been announced, prompting one commissioner to vote against the plans.

Leave it to the market. By implication, the FCC’s plans leave many PCS issues to sort themselves out in the market. While no single company can own more than a third of the available spectrum, and existing cellular operators are forbidden from owning spectrum in the same region where they provide cellular service (with some exceptions), most other issues are up for grabs.

For example, it will be possible for licensees to combine or resell their licenses in order to create larger blocks of spectrum and/or wider service areas. Under this scenario, a number of different organizations may combine to provide nationwide coverage, giving more people opportunities to have a piece of this pie.

Consortiums ahead. One such consortium is already established, headed by the long-distance telephone carrier MCI. The PCS Consortium now boasts more than 200 participating companies, including local telephone companies (not regional Bells), cable television companies (including Viacom, Jones Intercable and Times Mirror Cable), paging companies, and utilities. The consortium’s goal is to be able to compete effectively against AT&T/McCaw and the RBOCs in the emerging PCS market.

The standards thing. Another issue left unresolved is the data standards to be used over the airwaves. With so many different blocks, there could be incompatibility problems. The FCC, however, felt that rather than dictate these standards, it would let the licensees sort it out. This could prove to be a very messy situation.

In addition to the 120 MHz allocated for licensed services, an additional 40 MHz will be set aside for unlicensed use — small “campus-wide” communications applications that do not require government licensing, but are essentially wireless and private local area networks. (Please see Vol. 2, No. 6 for more on licensed and unlicensed PCS.)

LICENSING FEES MAY BE WINDFALL FOR FEDS

It is clear that one of the primary goals of the auction is to raise money for the federal government coffers. Some estimates put the potential income at more than $10 billion, which the government could apply against the federal deficit.

Greed or good sense? The auction of spectrum appears to be an unabashedly greedy course of action on the part of the federal government. After all, an auction by definition means the license goes to the highest bidder. Previous allocations of spectrum have been handled by lottery, with the government collecting only application fees.

But the lottery method generated rampant speculation once the original license was won, with people immediately reselling their licenses on the market to the highest bidder. While the government is certainly making a buck out of this process, it makes more sense for the FCC to collect the revenue than speculators. There will certainly still be reselling, but this should cut down on the outright gambling that was apparent in the cellular lottery, for example. License grantees are also required to offer services within a certain time period, or risk losing the spectrum.

David Baron