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Pai: Storm Clouds on Incentive Auction Horizon

FCC commissioner Ajit Pai says he sees some "storm clouds"
on the spectrum auction horizon, primarily by limiting participation and not
raising enough for public safety.

According to his prepared testimony for the Senate Commerce
Committee's FCC oversight hearing on Tuesday, those clouds include not raising
enough money through the auctions to fund the FirstNet interoperable broadband
public safety network. That is because the only closing condition on the
auction was that the revenues from the auction of spectrum reclaimed from
broadcasters cover the costs of the incentive auction that clears that
spectrum. He says the goal must then be to maximize the revenues.

Pai's emphasis on FirstNet is understandable given that the
chairman of the Committee, Jay Rockefeller (D-W.Va.), helped motorman the incentive
auction legislation primarily as a way to pay for that network, which was one
of the 911 Commission recommendations.

That leads to the next cloud for Pai: The prospect of limits
on auction participants.

The FCC has proposed modifying its local market spectrum
screen -- which is the amount of spectrum any wireless company can hold in a
market before it triggers further FCC review. That could be a de facto limit on
spectrum bidders in the auction, particularly the largest carriers.

"If the Commission starts picking and choosing who may
participate in the forward auction -- such as by setting a spectrum cap or
narrowing the spectrum screen despite the robust competition in the wireless
market," he says. "It will result in less participation, less revenue,
less spectrum available for mobile broadband, and less funding for public

He is also concerned about the FCC limiting the price
broadcasters can ask for the spectrum. While that might sound like a good idea
in terms of maximizing revenues -- the cheaper the FCC can get the spectrum,
the more it can make reselling it -- Pai doesn't think so according to his
testimony. "[I]f the Commission preemptively tells broadcasters, 'You may
bid this high, but no higher,' many may not show up for the reverse auction."

Pai also pitches AT&T's proposal of all-IP test beds to
help the FCC decide how it should approach oversight of an all-IP delivered
telecom world. Pai says consumer protections must remain in place, like 911.
But he also says the FCC "must not import the broken, burdensome economic
regulations of [traditional phone service] into an all-IP world," which he
says means "no tariffs. No arcane cost studies. And no hidden subsidies
that distort competition to benefit companies, not consumers."

But he also says the FCC must "retain the ability to
combat discrete market failures and protect consumers from anticompetitive

That's a tall order, but Pai suggests the FCC needs to make
it given that the country is ahead of the FCC in migrating to IP. "[M]ake
no mistake: our transition to an all-IP future will happen. But what we do will
have a dramatic impact on the speed and success of that transition," he
tells the committee.

Pai puts in a pitch for getting rid of the
newspaper/broadcast cross-ownership rules, but concedes there is no consensus
yet on how to proceed with the chairman's proposals. For example, Pai is
willing to support loosening rather than lifting the ban, but not the part
about attributing joint sales agreements or shared services agreements under
local ownership caps. He also called for relaxing restrictions on foreign