At the outset, we want to again commend the Committee for initiating this process to review and update the current Communications Act. As we said in our initial Response, the review is timely because, as a result of technological advances and dramatic marketplace changes, many of which were described in our first Response, the Communications Act does need updating. And, as part of that process, there is no doubt that spectrum policy needs "modernizing" too.
In preparing this Response, our focus is on offering general principles that should guide Congress's consideration in drafting a modernized approach to spectrum policy and the Federal Communications Commission's approach to implementing such a modernized policy. While the Committee's white paper presents a number of questions on specific topics, we believe, at least at this stage, that the generalized framework presented in these comments offers a more useful approach in responding holistically to the questions than would individual responses to specific questions. Indeed, this approach is consistent with a central theme of our comments: spectrum policy is undergoing its own "convergence" of sorts, and a proper policy framework for spectrum should encourage and anticipate this convergence on a uniform, integrated basis.
To briefly summarize our views: The current administrative fiat approach has its roots in the Radio Act of 1912, which was passed in the wake of the Titanic disaster. It vested authority to issue licenses for wireless communications in the Secretary of Commerce as a means of mitigating interference. After radio broadcast stations began operating in the 1920s - and their broadcasts on the same or nearby frequencies began to interfere with each other - Congress passed the Radio Act of 1927, which created the Federal Radio Commission ("FRC"). The FRC was succeeded, largely without change, by the Federal Communications Commission ("FCC") with the passage of the Communications Act of 1934.
The basic structure of spectrum regulation, which was initially formulated over 100 years ago and has remained largely the same since adoption of the Radio Act of 1927, is based on technological, economic, and legal views that no longer make sense - to the extent they ever did. It is true that in the past two decades there have been some changes, such as the initiation of auctions to award spectrum licenses, which represent positive steps toward a more market-oriented regime. Nevertheless, a key feature of the administrative model that has prevailed in the last century, and which largely continues to prevail today, relies on allocation by the FCC of particular frequency bands for particular pre-specified service uses in accordance with particular pre-specified technical parameters. This process requires the use of extensive, and often pointless and redundant administrative procedures that have long outlived their usefulness. Regrettably, this "command-and-control" administrative regime dramatically fails to promote flexible use of spectrum. As economics scholar Thomas Hazlett, a former FCC Chief Economist and a leading authority on spectrum policy, has explained, "[t]he weakness of the administrative allocation regime is that it regularly resolves potential conflicts among wireless users by suppressing vast amounts of productive activity." Over the past few decades, there have been substantial technological changes, including the advent of digital wireless communications, which have been coupled with the adoption of auctions as the preferred method for the initial assignment of licenses. These developments conclusively show that, whatever the (dubious) rationale for the traditional command-and-control administrative regime in the last century, that rationale no longer has any contemporary relevance.
A modern approach to spectrum policy should abrogate the existing framework and replace it with a system that fosters a robust market in which spectrum rights can be freely traded largely independent of any FCC administrative control. To be sure, any new system of spectrum management will require some transitional periods and mechanisms, but the transitional costs are well worth bearing. Under this market-oriented replacement model, the FCC will still retain a role in spectrum management, albeit a much more limited one, primarily as the operator of a rights-clearinghouse akin to a registrar of deeds. The FCC's role would be reduced to performing a modest "zoning" function where necessitated by clear coordination problems and where necessary, in limited special circumstances, to address special needs such as assuring public safety.
There is a widespread, indeed, almost unanimous, consensus among economists and policy experts that a market system that allows flexible use of spectrum is the best way to achieve the most efficient allocation of most resources. This fundamental proposition holds true for the spectrum resource as well - just as Nobel Laureate Ronald Coase contended in 1959 in his famous article, The Federal Communications Commission. Coase showed that clearly delineated property rights and market forces, not government control, would lead to the most efficient allocation of the spectrum resource. Again, during the past two decades, Congress and the FCC have taken some steps towards implementing a more market-oriented regime. Now, as Congress considers updating the Communications Act, any new policy framework must clearly support and foster a market in spectrum property rights, which relies on unencumbered auctions to make the initial assignments of spectrum rights, which thereafter should be freely tradable in the secondary market.
