By Maury Mechanick

Juxtaposition of the words “spectrum” and “war” is nothing new. Battles over who gets what spectrum have been waged since the time of Marconi. What is different today is that the Federal Communications Commission (FCC) is actively considering a fundamental change in how spectrum usage rights are determined in the United States.

The opening salvo came with the formation of the FCC’s Spectrum Task Force last year, which held hearings and issued a comprehensive report in November. That report has become the touchstone for a series of proceedings, some of which have already been initiated, that will radically redefine the way in which spectrum is allocated.

Nor will the impact be contained solely within North America. As the U.S. government is wont to do in other areas, it will most certainly seek to export this new philosophy to Europe and the rest of the world. For European telecommunications companies currently doing business in the U.S., the impact on their U.S. business operations could be more immediate.

The starting point for this new approach is the traditional concern about spectrum scarcity. But watch closely, because the FCC is about to turn this paradigm on its head. Rather than viewing regulation as a “necessary means” to overcome scarcity, the FCC posits that the current regulatory regime is the main cause of the problem. In other words, the FCC now views scarcity as largely a manufactured phenomenon – the real problem being spectrum access. Current allocation mechanisms and procedures inhibit optimum spectrum access, resulting in significant amounts of allocated spectrum lying fallow.

This premise was confirmed by a preliminary “spectrum audit” conducted in July 2002 by the FCC’s Enforcement Bureau, which surveyed actual spectrum usage in bands below 1 GHz in five major urban/suburban areas. Not surprisingly, this audit uncovered significant gaps or “white spaces” of both a temporal and geographic nature in actual spectrum utilization.

The culprit, as identified by the FCC, is the “command-and-control” model of spectrum allocation, which allocates and assigns frequencies to limited categories of spectrum users for specific governmentally-defined uses, implemented through regulatory judgments. In the future, the FCC would like to limit use of this model to instances of denominated “public service” bands or other special circumstances, including broadcast or satellite transmissions. For most available spectrum, the FCC would prefer to rely on two alternative approaches, known as the “commons” and the “exclusive rights” models, to fill the void.

The commons model is predicated on the concept of spectrum sharing by multiple users on a non-interference and non-licensed basis, with usage rights governed by technical standards or etiquettes but without other protection from interference. To jumpstart the process, the FCC has already initiated a notice of inquiry proceeding to explore the possibility of allowing unlicensed devices to operate in additional frequency bands. Emerging technologies that could be the beneficiaries of this method of assigning spectrum usage rights include “Wi-Fi” and software defined radio.

The exclusive rights model affords selected licensee(s) exclusive and transferable flexible rights (resembling but perhaps not fully equivalent to formal property rights) to specified spectrum in a defined geographic areas. Licensee selection would be on the basis of an economically based allocation mechanism (e.g., competitive bidding or auctions) producing a market based “negotiation” of access rights. Moreover, licensees would have the ability to transfer such rights to others for compensation, a critical defining element that differentiates this from the current auction regime.

The FCC views these two approaches as complementary, with a variety of criteria determining which would be more suitable for particular spectrum segments. In general, the exclusive rights approach would be nominally targeted to circumstances in which scarcity is relatively high and transaction costs associated with market-based negotiation of access rights are relatively low (especially prevalent for spectrum below 5 GHz), whereas the commons approach would be used where scarcity is low and transaction costs associated with market mechanisms are high (especially prevalent for spectrum above 50 GHz).

The key challenge facing the commons approach is the successful management of interference avoidance, as multiple users share the same spectrum. In practice, this will not only require greater technical proficiencies in respect of transmissions (where the FCC has traditionally exercised its regulatory authority), but also the development of new metrics on the receiver side (i.e., “interference temperature”) that would specify the worst case interference environment experienced by a typical receiver.

Indeed, one of the ironies of this purportedly deregulatory approach is that its success may depend on the imposition of regulatory controls on the receiver side, and it remains to be seen whether this would be acceptable in the consumer marketplace. Defense and national security related concerns also will have to be addressed, including the potential for interference with military radars and other communications links and increased opportunities to circumvent or avoid law enforcement “surveillance” of unlicensed communications links.

The exclusive rights approach represents a more frontal assault on the prior orthodoxy that spectrum belongs to the public at large and no private individual or entity should be able to claim a property interest in it. Incumbent spectrum users that fear displacement from their current licensed usage are likely to challenge this approach as being at odds with the “public interest” standard that permeates the Communications Act of 1934.

To the extent they are ultimately successful, these new policies may open up some interesting business opportunities as well, especially for non-U.S. companies, which can be disadvantaged under normal U.S. licensing regimes. For example, differentiation between U.S. and non-U.S. entities is impossible in an unlicensed environment. Even in the exclusive rights realm, this new-found flexibility to transfer spectrum may further undermine enforcement of the more restrictive provisions of Section 310 of the Communications Act dealing with foreign ownership.

With regard to the satellite industry, the most significant implication deals with the spectrum auction issue. While acknowledging the importance of global harmonization of spectrum management policies for satellites and similar services, the Spectrum Task Force recommended repeal of the legislative prohibition contained in the ORBIT Act on spectrum auctions in the international satellite arena. The Task Force was careful to word its recommendation such that the FCC would be permitted, but not required, to utilize competitive bidding to resolve mutually exclusive applications for international satellite services. Nonetheless, it would appear that the possibility of some form of global satellite spectrum auction is definitely contemplated by this recommendation.

The timeframe in which this will all unfold is uncertain. The FCC’s administrative processes necessary for implementing such changes do not lend themselves to rapid action. With numerous entrenched interests and incumbents likely to oppose both approaches, the ensuing battle will be contentious, furious and potentially long-running. Moreover, the FCC itself acknowledges the need for transition periods. And ancillary issues – including incumbent grandfathering or displacement in particular bands – must also be addressed.

There is nonetheless a clear sense of urgency at the FCC to begin the process now and to move as expeditiously as possible in a new direction. It is this sense of urgency that, more than anything else, will make this current spectrum war so compelling to watch.

Maury Mechanick is an attorney in the Washington, D.C., office of White & Case LLP, and a member of the firm’s Telecommunications Practice Group. He can be contacted by e- mail: at [email protected] and by phone at 202-626-3635.