Chairman Julius Genachowski
Commissioner Robert McDowell
Commissioner Mignon Clyburn
Commissioner Jessica Rosenworcel
Commissioner Ajit Pai
Federal Communications Commission
445 Twelfth Street, SW
Washington, DC 20054
Re: Expanding the Economic and Innovation Opportunities of Spectrum Through Incentive Auctions, Docket No. 12-268
Dear Chairman Genachowski and Commissioners:
On behalf of the undersigned members of The Leadership Conference on Civil and Human Rights, we write to offer our views in this proceeding. The Leadership Conference is a coalition charged by its diverse membership of more than 200 national organizations to promote and protect the rights of all persons in the United States. The Leadership Conference's Media/Telecommunications Task Force is committed to ensuring that access to advanced communications for underserved communities and a wider diversity of owners and voices are front and center in the policy debates over how our nation should govern communications.
Our comments below emphasize the importance of competition, fairness in economic opportunity, and policies that increase jobs and entrepreneurship opportunities for all Americans despite pressure to pursue revenue maximization and economic efficiency above all other goals. We remind the Commission of the important role that over-the-air television plays for many underserved communities. We urge the Commission to take steps to ensure that people of color and women who hold full power television and LPTV licenses are not driven off the air, and to collect data that tracks ownership diversity in mobile wireless and broadcasting now and after the auction. We encourage the Commission to adopt rules that will promote participation in the spectrum marketplace by small businesses and businesses owned by women and people of color, such as bidding credits for designated entities and the retention of unlicensed spectrum. Because mobile wireless services could well become one of the main means of distributing content in the future, ownership diversity for wireless spectrum will soon be just as important as it is for broadcast spectrum today.
Maximizing Competition and Economic Mobility Will Benefit Underserved Communities.
Spectrum is a finite resource, like oil. Like oil, it is an input into economic activity across various sectors of the economy. The recent rapid growth in smartphone adoption has led to an explosion in the use of mobile broadband, and with it, the demand for spectrum. This means the importance of spectrum to the general economy is greater than ever before, as demonstrated by the snapshot below for Q3, 2011:
45 percent increase in smartphone use to access the internet since 2010,1
62 percent of smartphone users have downloaded apps and games is the top category of app downloaded,2
54 percent of smartphone users use their smartphone for shopping.3
Given the finite nature of spectrum and its rapidly increasing importance as an input into economic activity, we believe that spectrum needs to be allocated and used in a manner that balances certain objectives, including the following:
To maximize revenues for the state, as the owner of spectrum, on behalf of the citizens licensing spectrum;
To maximize economic efficiency, allocating and using spectrum to maximize output and minimize inputs;
To maximize upward economic mobility among minorities, women, and small business owners;
To maximize competition, using spectrum allocation to facilitate a multitude of service providers in mobile and other sectors.
In allocating spectrum, the FCC is required by law to consider all these and other objectives; the law makes it clear that revenue maximization and economic efficiency must not be the only objectives.4In 2006, it was estimated that revenue from spectrum auctions would be about $45 billion and that another $6-$10 billion could be raised through 2015.5 In a time of record budget deficits and national indebtedness, the pressure to pursue these objectives can only increase. We urge you to maintain the objectives of maximizing upward economic mobility and maximizing competition despite this pressure.
Although we are not aware of any quantitative measures of the additional economic activity that can occur from the allocation of spectrum to facilitate upward economic mobility among minorities, women, and small businesses, limited access to inputs like spectrum is a major impediment to optimum economic activity by those groups. For example, of the 22,649 spectrum licenses and permits awarded by auction as at May 2006, only 1,435--a mere 6.34 percent of all licenses--were acquired by firms meeting the small business criteria of the FCC.6 This shows that minorities, women and small businesses are not accessing this key input into the production process at parity, which means they are not achieving optimum economic activity.
The importance of minority access to spectrum is particularly important because minorities are disproportionately higher users of wireless broadband. For example, in 2011 49 percent of Latinos and 47 percent of African Americans owned a smartphone compared to 42 percent of non-Hispanic whites.7 We believe that the communities that are the most likely to use wireless broadband should also be afforded the opportunity to economically benefit from its production, and that given the disproportionate use of mobile broadband by consumers of color, any failure to bridge the divide in access to spectrum by minorities means that minorities are being relegated to the role of consumers and not producers.
The consequences of this less-than-optimal economic activity by minorities, women, and small businesses are far-ranging for the economy as a whole and for these particular communities. For example, although people of color are relying increasingly on mobile wireless for their broadband needs, wireless broadband services are not yet adequate for many uses-particularly for those uses that could most promote economic well-being for at-risk populations, such as online education, job applications, and public benefits. Moreover, a 2010 study by the U.S. Department of Commerce found that had minority-owned firms reached parity, the U.S. economy would have generated an additional $2.5 trillion in economic activity and 16.1 million extra jobs.8 Although spectrum is just one of the inputs that drive this result, these losses do not harm only minority communities, but the American economy as a whole.
Spectrum allocation and management should be a tool by which the FCC encourages greater competition. Yet this below optimum participation by women, minorities, and small businesses in the production process also means that maximum competition in the mobile services and related markets is not achieved. The loss of competition in the media and telecommunications sectors is a troubling trend that is most clearly seen in the media sectors. For example, ownership of commercial TV stations by African Americans declined from 1 percent in 2009 to just 0.7 percent in 2011.9
The Commission Should Ensure that the Incentive Auction Does Not Harm Access to Over-the-Air Television and Be Prepared to Offset Likely Harm to Broadcast Ownership Rates by Women and People of Color.
Over-the air television is a key source of news, community information, and emergency warnings for Leadership Conference communities, including low-income families, people with disabilities, seniors, and those for whom English is not their primary language. That is why The Leadership Conference, in partnership with coalition member organizations, undertook an aggressive public education campaign several years ago to inform affected communities about how to make a successful transition to digital television. Moreover, the civil rights community has long regarded the expansion of minority and female ownership in media as an important goal, and has repeatedly urged the Commission to immediately take action to improve its data collection about, and ownership rates of, women and people of color.
It is a significant possibility that the incentive auction process will greatly alter the broadcast television landscape in markets across the country - particularly if the Commission is able to achieve its goal of "maximizing broadcaster participation in the auction."10 However, while robust participation in the reverse auction will be viewed as a success by the Commission, it could have a devastating impact on broadcast ownership by women and people of color, driving ownership levels even lower than the disastrous state captured in the Commission's most recent report on the issue.11 As a result, many communities could be left without the diverse media voices that they deserve and their critical information needs could go unmet for the foreseeable future. Further, by blindly grandfathering any ownership combinations that run afoul of its rules post-auction, as the Commission proposes, ownership diversity in broadcasting could be irreparably harmed.12
The available evidence indicates that licensees who are women or people of color will face intense pressure to participate in the reverse auction. It has become clear that many of the larger broadcast owners of more profitable stations do not contemplate participating in the auction and giving up their spectrum.13This makes the participation of a large number of smaller stations crucial to the achievement of the Commission's goal of freeing up a significant amount of spectrum for auction to wireless broadband service providers, thereby securing substantial revenues for the Treasury. Diverse owners are often found to own stations that would exist in this participation sweet spot. For instance, although people of color only own 3.2 percent of full power commercial broadcast stations, these owners are much more likely to exist outside of the top stations in each market. Indeed, according to a recent analysis of ownership data, 46 percent of stations owned by people of color are located in the largest 20 Designated Market Areas and are non-top four ranked stations.14 Further, stations owned by people of color are much more likely to experience financial distress, often finding it difficult to compete as single owners in markets rife with consolidation, creating pressure to sell, or in this case, participate in the reverse auction and exit the market.15 With current ownership levels being pitifully low,16 the participation of any of these stations in the reverse auction would have a profound impact in ownership diversity.
Further, a number of low power stations owned by women or people of color could be put in jeopardy during the eventual repacking. For example, despite only owning 3.2 percent of full power commercial broadcast stations, people of color and women are more highly represented in the low power television service.17 The Commission recognizes this valuable entry point in its Notice, stating that "[l]ow power television stations are a source of diverse and local television programming."18 However, the Commission also notes that these low power stations will only receive "secondary interference protection," meaning that any low power station causing interference with a repacked full power or Class A station will have to "relocate" or "discontinue operations altogether."19 The Commission also notes that relocation possibilities will likely be severely limited.20 Thus, it is highly likely that many LPTV stations will disappear, substantially reducing the size of the most-diverse broadcast service. Given the circumstances, the Commission should immediately begin considering how it will measure and respond to the impact of the potential loss of these voices on communities across the United States.
While we strongly believe that all eligible broadcast licensees should be allowed to participate in the reverse auction, we hope that the Commission will not be caught flat-footed if it is presented with a scenario in which a large number of diverse broadcasters choose to exit the market. Such a scenario would necessitate swift action from the Commission to determine whether the changing market demands a significant ramp up of Commission efforts to satisfy its statutory mandate to develop rules and programs to "promote" broadcast ownership diversity.21 To this end, the Commission should conduct an analysis of the current distribution of wireless spectrum among firms controlled by women and people of color,22 collect ownership data from auction participants choosing to completely relinquish their spectrum rights, and issue a report containing this data as soon as practicable. Such a report would continue the Commission's revived efforts of releasing up-to-date ownership data. It would also afford the Commission and interested stakeholders an opportunity to analyze the new broadcast television landscape during the Commission's 2014 and 2018 Quadrennial Regulatory Reviews of media ownership rules - processes that would take on added importance and urgency should the broadcast television industry experience the dramatic changes that the Commission seems to expect.
Furthermore, the Commission should perform extensive outreach to small and mid-sized television stations to ensure they do not feel compelled to exit broadcasting because of misinformation or other reasons. A fully transparent process from start to finish will ensure that each licensee can make an informed decision about whether and to what extent they wish to participate in the auction.
The Commission Should Maintain and Expand Bidding Credits for Designated Entities and Retain Significant Unlicensed Spectrum.
We support efforts to increase the diversity of entities that control spectrum, such as the bidding credits proposed in the Notice.23 We believe that diverse owners should control spectrum for mobile uses as well as for broadcast television. As explained above, all people-particularly the people who are relying heavily on mobile wireless broadband-should have an opportunity not just toconsumeproducts and services, but also to benefit economically fromprovidingthese services and products. In addition, since obile wireless services could well become one of the main means of distributing content in the future, the control of wireless spectrum is just as important in the future as the control of broadcast television and radio is now. Moreover, low-income communities and all consumers benefit when a market is competitive and offers a variety of business models and products that will meet a range of needs and price points. All of these goals will be achieved more readily with the use of bidding credits. The FCC is statutorily mandated to ensure communications spectrum licenses are owned by a variety of Americans.24In response to this mandate, the FCC has implemented rules and programs to promote participation in spectrum license auctions by Designated Entities ("DEs").
Over the years, parts of the DE program were abandoned due to legal challenges and reviews. Although the Commission's 2000 Adarand studies found that people of color faced difficulties in entrepreneurship in wireless and broadcasting,25 since 1995, the Commission has not made any special race or gender- based provisions for, instead relying on a variety of small business definitions relying on revenue.26By 2006 the bidding credit system that discounts the bid price a DE would have to pay to obtain a license was among the few remaining elements of the DE program.27 Then, just weeks before a major spectrum auction, the FCC made significant changes to the DE program that adversely affected DE participation.28Many DEs were unable to retain or obtain additional financing, women-owned bidders failed to win any licenses, and minority-owned bidders won less than 1 percent of the available licenses in one of its last major auctions.29 It will be critical for the Commission to not allow history to repeat itself by preventing women- and minority-owned bidders from successfully participating in the forward auctions. Accordingly, we urge the Commission to at least maintain, and consider increasing, the bidding credit for small and very small businesses.
Since the Commission has not pursued race or gender conscious policies in auctions, at this time it is not clear whether bidding credits can directly increase the number of diverse license holders. Bidding credits, however, have been shown to produce companies with more diverse business models. Diverse business models can be of value to low-income people or communities of color because they can offer products that will meet niche needs.30 A CBO study in 2005 found that while in some cases smaller bidders transferred spectrum to larger entities, at least two of the purchasers of licenses using bidding credits are companies that still participate in the market and are known for offering product and services of greater interest to lower-income people.31 Opportunities for companies that are smaller, closer to their communities, and competing in a highly concentrated market are more likely to seek out the underserved consumers who may not be satisfied by offerings of companies with more substantial market shares.
We also acknowledge the difficult reality for minority and new entrants to succeed in the wireless market and the many barriers they face. Access to capital, especially in the capital-intensive wireless market, is a large barrier for minorities to enter the market. While bidding credits help address this access to capital barriers, we also urge the Commission to consider allowing these entrants to have the flexibility to pursue a diverse set of business models to remain in business. Many entrants' models include leasing out a portion of their spectrum in order to establish and maintain cash flow for their companies. We urge the Commission to consider how its regulation of designated entity eligibility can help entrants succeed in the wireless marketplace.
While bidding credits will hopefully help some entrepreneurs enter the market, unlicensed spectrum is at least as important an opportunity for entrepreneurs who have a hard time accessing capital, like many communities of color and women. The Leadership Conference has been a supporter of innovative uses of spectrum for many years, and in particular, has supported the FCC's efforts to open up television white spaces for unlicensed use. Unlicensed wireless broadband is successful precisely because of low barriers to entry. The greater number of entrepreneurs who are able to use this important resource, the more innovative and successful those entrepreneurs will be. Because unlicensed spectrum does not require the added need for capital to obtain licenses, this spectrum is likely to lead to more broadband access for constituencies The Leadership Conference represents. The Commission should take steps to maximize the amount of unlicensed spectrum available after the auction, consistent with the law.
In conclusion, we urge you to support the principle that that maximizing competition and economic mobility will benefit underserved communities, despite pressure to value other goals more highly. The Commission should ensure that the incentive auction does not harm access to over-the-air television, which is an important source of news and information for many Americans. Because the incentive auction will be likely to negatively impact ownership of full power and low power television stations, the Commission should undertake analysis of current wireless spectrum holdings and take steps to minimize the negative impact of the auction on diverse broadcast license ownership rates. To increase diversity of ownership in mobile wireless and new technologies, the Commission should continue to utilize bidding credits for designated entities and should maintain as much unlicensed spectrum as possible.
Thank you for the opportunity to share our views with you. Please do not hesitate to contact Leadership Conference Media/Telecommunications Task Force Co-Chairs Cheryl Leanza, UCC Office of Communication, Inc., at 202-841-6033, or Gabriel Rottman, ACLU, at 202-675-2325, or Corrine Yu, Leadership Conference Managing Policy Director at 202-466-5670, if you would like to discuss the above issues or any other issues of importance to The Leadership Conference.
American Civil Liberties Union
Asian American Justice Center, member of Asian American Center for Advancing Justice
The Leadership Conference on Civil and Human Rights
National Hispanic Media Coalition
National Organization for Women Foundation
National Urban League
United Church of Christ, Office of Communication, Inc.
1 Nielsen,The Mobile Media Report Q3, 2011at 2.
4 U.S. Government, Congressional Budget Office,The Budget and Economic Outlook: Fiscal Years 2001-2010at Appendix B (Washington, D.C., 2000).
5 Gregory Rose and Mark Lloyd,The Failure of FCC Spectrum Auctions, Center for American Progress at 2 (May 2006).
6Id. at 19.
7 Lee Rainie,Two-thirds of young adults and those with higher income are smartphone owners, Pew Research Center at 2 (September 2012) available athttp://pewinternet.org/Reports/2012/Smartphone-Update-Sept-2012.aspx.
8 Minority Business Development Agency, Disparities in Capital Access between Minority and Non-Minority Owned Businesses, U.S. Department of Commerce at 2 (January 2010).
9 Joe Flint, FCC Media Ownership Survey Reveals Lack of Diversity,Los Angeles Times, (November 14, 2012), available athttp://articles.latimes.com/2012/nov/14/entertainment/la-et-ct-fcc-diversity-20121114.
10 Statement of Julius Genachowski, Chairman, Federal Communications Commission (September 27, 2012) available athttp://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-12-118A3.pdf(stating that two of the goals of the auction are "maximizing the amount of spectrum freed up" and "maximizing broadcaster participation in the auction" while describing full relinquishment of spectrum rights as a "once in a lifetime financial opportunity" for broadcasters.)
11 FCC Report on Ownership of Commercial Broadcast Stations, DA 12-1667 (rel. Nov. 14, 2012).
12 Expanding the Economic and Innovation Opportunities of Spectrum Through Incentive Auctions, Docket No. 12268, Notice of Proposed Rulemaking, � 356 (rel. Oct. 2, 2012) ("NPRM").
13SeeJohn Eggerton,CBS Plans to Keep Its Spectrum, Broadcasting & Cable (April 29, 2011), available athttp://www.broadcastingcable.com/article/467494-CBS_Plans_To_Keep_Its_Spectrum.php.
14 Free Press Data Comments, MB Docket Nos. 09-182, 07-294 (filed December 21, 2012).
15Id. at 17-23;see alsoNABOB Data Comments at 11, Docket No. 09-182,07-294 (filed Dec. 26, 2012); UCC et al. Data Comments at 19-20, Docket No 09-182, 07-294 (filed Dec. 26, 2012).
16SeeLeadership Conference on Civil and Human Rights Data Comments, MB Docket 09-182, 07-294 (filed December 26, 2012).
17 As of October 2011, women owned 14.8 percent of LPTV stations, Latinos 9.6 percent, African-Americans 1.3 percent, Native Americans 0.3 percent, and Asians 2.2 percent. FCC Report on Ownership of Commercial Broadcast Stations at 9 and Table C(1a) and C(1b). We note that the Commission has been downgrading some Class A TV stations to LPTV stations in recent times. Peter Tannenwald, First Steps Toward Band Clearing Start, CommLawBlog (Feb. 28, 2012) available at http://www.commlawblog.com/2012/02/articles/broadcast/first-stepstoward-tv-band-clearing-start/.
18 NPRM, � 358.
2147 U.S.C. � 309(j) (2012); 47 U.S.C. �151 (2012).
22 The Commission has been criticized for failing to track the participation of diverse and small businesses and new entrants. See,supra, Rose & Lloyd at 21.
23 NPRM, � 295.
2447 U.S.C. �309(j)(3)(B).
25 Federal Communications Commission,Historical Study of Market Entry Barriers, Discrimination and Changes in Broadcast and Wireless Licensing: 1950 to Present(December 2000) available athttp://www.fcc.gov/opportunity/meb_study/historical_study.txt.
26SeeCongressional Budget Office, Small Bidders in License Auctions for Wireless Personal Communications Services at 9 (October 2005); see also NPRM, � 294.
27Implementation of Section 309(j) of the Communications Act - Competitive Bidding, Fifth Report and Order, 9
F.C.C.R. 5532, 5537, �10 (1994) ("Fifth R&O") (Emphasis added). The Commission also recognized that it must "take the steps that arenecessary to ensure that designated entities have a realistic opportunityto obtain [spectrum] licenses."Id.at �9 (emphasis added). Very small business have annual gross revenues of less than $15 million and would receive a 25 percent credit, while small business have annual gross revenues of less than $40 million and would receive a 15 percent bidding credit. NPRM, � 295.
28 A number of civil rights and public interest groups, including some of the signatories to these comments, participated in an amicus curiae brief inCouncil Tree Commc'ns. v. FCC, urging the court to overturn the FCC's actions and invalidate the auction results. 619 F.3d 235 (3d Cir. 2010),cert. denied sub nom., Council Tree Investors, Inc. v. FCC, 131 S.Ct. 1784 (2011). The Third Circuit ruled the FCC should have provided the small businesses affected an opportunity to have notice and comment on some of the DE rule changes before the FCC made the changes.Id.at 258. A number of groups have also filed an amicus brief inIn reCouncil Tree Investors, No. 12-9543 (10th Cir. filed Mar. 29, 2012), a related case regarding the changes to the DE bidding credits program.
29 SeeCommissioner Jonathan S. Adelstein Comments on Lack of Diversity Among Winners of the 700 MHz Auction, FCC News Release (Mar. 20, 2008) (decrying that minority- and women-owned bidderstogetherwon less than one percent of Auction 73 licenses).
30See, e.g.,data cited by The Leadership Conference in the Lifeline proceeding, highlighting the different usage patterns in mobile phone use by various ethnicities, physical abilities and gender. Leadership Conference Lifeline Further Notice Comments at 4, Docket No. 11-42 (filed Sept. 1, 2011).
31 CBO Report,supra, at Tables 6, 7, 8.