USF Likely to Dominate FCC Agenda Over First Half of 2012, McDowell Predicts

FCC Commissioner Robert McDowell expects Universal Service Fund reform to dominate the FCC’s agenda in the early part of 2012, starting with a Lifeline cleanup order at the Jan. 31 meeting. McDowell hopes that will be followed by an order addressing USF contribution issues left unsettled by last October’s order (CD Oct 28 p1), he said during an interview last week. McDowell said he remains open minded on a 700 MHz interoperability order and stressed the importance of spectrum efficiency. McDowell also thinks more media ownership deregulation than the FCC proposed in the quadrennial review may be needed.

The Lifeline fund has grown in size from $160 million to $1.7 billion, “a thousand percent increase” since 1997, McDowell said. “That kind of increase has me concerned, especially during an era when government should be more frugal,” he said. “I'll be looking for a cap, or tight budget controls, on Lifeline/Link-Up.” McDowell said it is “premature to say” whether there is FCC consensus that a cap should be imposed, especially since the order won’t circulate until Tuesday. “There’s going to be a lot of action between the 10th and the 31st,” he said. (See separate story in this issue.)

"There’s also the need for contribution reform,” McDowell said. “I'm very hopeful about trying to get that done before the middle of the year.” McDowell hopes the FCC will release a rulemaking early in the year. Consensus seems to be growing that the logical “next step” is going to a numbers-based methodology, which would be “broader and flatter” and also a “fairer” system. “That’s a prediction,” he said. “That’s where I think we'll end up. I think we need to get it out for public comment as soon as we can.”

McDowell said he’s open minded about a 700 MHz interoperability mandate. The FCC’s recent order approving AT&T’s buy of Qualcomm spectrum didn’t impose an interoperability requirement on AT&T as some small carriers sought, but promised the FCC would ask questions through a rulemaking notice in the first quarter. “I think it’s a relevant issue to be discussing,” he said. “I think it was handled well in the context of the Qualcomm deal.” McDowell said the interoperability issue poses “a very interesting set of issues” and the NPRM will update the commission on “the conditions in the market” more generally.

The FCC in effect created the problem by imposing net neutrality and other mandates on the 700 MHz C-block prior to the 700 MHz auction, he said, noting that was the subject of his first dissent as an FCC commissioner. “In part, some industry players are in a pickle because of the encumbrances put on the C-block in the 700 MHz order,” he said. “In that the government tried to encumber parts of the band with some requirements, but not other parts of the band that resulted in a chain reaction of events that has sort of led to where we are today with the interoperability problems.” There’s a lesson to be learned, he said: “When you try to over-engineer spectrum usage, it leads to unintended consequences.”

McDowell said he has suggested to Chairman Julius Genachowski that the FCC convene a workshop “or even a proceeding” on spectrum efficiency. Distributed antenna systems could help carriers fill growing demands for access to spectrum, he suggested. “Some of the antennas are very small,” he said. “They can go on top of telephone poles. … But many municipalities regard them as cell towers, which is different from a pole attachment. So our pole attachment order didn’t really address it.” The FCC needs to ask “what can we do to look at everything in our authority to help streamline any bureaucratic process or remove unnecessary roadblocks to help speed the deployment of new technologies?” he said.

McDowell said he was pleased the Obama administration is focusing attention on finding spectrum for wireless broadband. “A lot more needs to be done,” he said. “I think the FCC is prepared to move quickly to set up an auction” once suitable bands are identified. “In theory, we could get some auctions going this year with spectrum that’s sort of lying around,” he said. “In practice, that’s harder to do.”

McDowell remains hopeful that the TV white spaces will still see widespread use for super Wi-Fi, though he conceded uncertainty about legislation allowing the FCC to conduct a voluntary incentive auction for broadcast spectrum has led to inevitable delays. “I think the FCC is moving forward as best as it can right now given the uncertainty created by the spectrum reallocation legislation,” McDowell said. “The delay on that legislation still prevents chipmakers from designing the chips that would run white spaces devices” and delays “the full fruition of the promise of the white spaces,” McDowell said. But he also said he’s hopeful lingering questions will be answered this year. “There will be white spaces with or without the legislation,” he said. The question is “where they will be on the dial, so to speak.”

McDowell is optimistic Congress will pass spectrum legislation this year. The resulting spectrum auctions would mean billions of dollars for the U.S. Treasury, he said. “The financial aspect is the fuel that will propel it,” he said. Asked if it will be tough for Congress to reach a compromise in an election year, McDowell said the Telecom Act of 1996 was passed in the same year as a presidential election.

McDowell criticized the commission for failing for several years to release on time its annual reports on video competition. (See separate story in this issue.) Both the video competition report and the quadrennial reviews are ordered by Congress, with the ownership review having been past due since Dec. 31, 2010.

The waiver process proposed by the FCC is a “bit timid” for a daily newspaper and a radio or TV station to have shared ownership within a market, McDowell said. The 3rd U.S. Court of Appeals in Philadelphia over the summer remanded the newspaper/broadcast cross-ownership rule to the commission on procedural grounds. The ruling in Prometheus Radio Project v. FCC did give the agency “a solid legal footing to go forward with a more aggressive modernization of that rule,” McDowell said. Prometheus didn’t address the policy grounds of cross ownership. “I want to keep an open mind, but as I implied in my statement” on the December rulemaking notice (CD Dec 23 p1), the proposal may not go far enough, McDowell said. He partially concurred with the rulemaking.

The FCC also ought to look at easing restrictions on common ownership of two TV stations in the same market, McDowell said of the duopoly rule. In terms of limits on deregulation of that rule and the cross-ownership bar, the commission ought to ensure there’s “a sufficient number of independent voices in the market,” he said. Cross-ownership restrictions have “actually accelerated the demise” of such voices, he said.

Relaxation of cross ownership and duopoly rules may help news outlets serve their markets, McDowell said: That’s especially so as new media unregulated by the FCC have in recent years come to compete with traditional media, “which is heavily regulated.” The “law should be updated accordingly -- in fact, it’s our statutory obligation under Section 202(h)” of the Telecom Act, McDowell said. “We need to examine that rule, the duopoly rule, to see what we can do to help stem the bleeding of support for newsgathering and local programming,” he said of TV. “There is a case to be made, I think a strong case to be made, that the relaxation of these rules will actually preserve [and] strengthen independent voices in these markets."

McDowell declined to comment on Dish Network’s request that the FCC waive integrated service rules in its buy of S-band mobile satellite service/ancillary terrestrial component licensees TerreStar and DBSD, because that is pending before the commission. “I will say that flexible use policies adopted early on avoid a lot of problems down the road,” he said. “Whenever the FCC thinks it’s smarter than the marketplace, problems do come up."

The recent Satellite Competition Report (CD Dec 15 p9) in which the commission declined to find that any of the industries’ sectors are competitive, raises the same concerns as the FCC’s similar stance in the last two wireless competition reports, McDowell said. “When we make a departure from earlier conclusions, I want there to be overwhelming evidence to support that departure,” he said.

McDowell, who recently became the commission’s senior member with the departure of Michael Copps, is currently the FCC’s only Republican. He noted that he is in his 13th month as the sole Republican, given the time it took to replace former Commissioner Deborah Tate and now Meredith Baker, who left June 3. He predicted that pending changes at the FCC, including the eventual addition of two new commissioners, won’t slow the commission’s work.

Nominees Ajit Pai and Jessica Rosenworcel have extensive experience on the issues before the FCC and won’t need “much time to come up to speed.” McDowell said the last commission with three-members, during the first half of 2009, shows that a three-member commission can still get a lot done. The FCC handled the DTV transition during that period, he noted. “There were a lot of votes,” he said. “I'm confident that we won’t have to slow down.”