In an Odd Twist, Senate Bill Updates Spectrum Law to Reflect Reality

The Senate Commerce Committee is scheduled to vote on a measure Wednesday that would alter how the government deposits money from its auctions of TV and radio airwaves to wireless companies.

Or, to be more specific, the bill would change the law to match what is happening already.

The legislation, S. 2319, would mandate that the money from successful wireless bidders in spectrum auctions go directly to the U.S. Treasury. That is exactly what happens now, but that isn’t the way the Telecommunications Act was written. Hence the need for an amendment to it.

When the Telecommunications Act was first introduced in 1996, it required that companies participating in a spectrum auction put down deposits for their bids. Those deposits had to be put into an interest account.

According to the law, no later than 45 days after the auction ends, that money is supposed to be divvied up. Losing bidders receive their deposits back. The winning bidders’ goes to the Treasury. The interest accrued in the bank account in that time period is supposed to be used to fuel the “Telecommunications Development Fund.”

The Telecommunications Development Fund would no longer receive money under Thune’s bill. But that doesn’t matter because the program hasn’t been functioning for years. Congress ended the program, according to a committee aide, and once that happened, they started putting spectrum revenues directly into Treasury.

The bill would take this phantom interim interest account out of U.S. code. The winning bidders’ money would remain the Treasury, and deposits would be returned to the losing bidders.

The idea of a special interest-bearing account made more sense in 1996 when interest rates were a lot higher. But now, with interest rates at near nothing, the committee aide said the accounts often pay well under 1 percent.

The Telecom Development Fund was created to promote small business, catalyze development of new technology and support telecommunication deployment to urban and rural areas lacking connection. “It was a marquee innovation to create the Telecom Development Fund with the interest from the auctions,” Michael Calabrese, director of the Wireless Future Project at the New America Foundation said in an interview.

But some lawmakers and advocates questioned the effectiveness the program and how money was used. “The original purpose of the Telecommunications Development Fund was to promote access to capital for small businesses in the telecommunications industry,” said Will Rinehart, Director of Technology and Innovation Policy at the American Action Forum, in an email. “The TDF has long been in a legal gray area. But more importantly, it is not clear that this fund is effective.”

The committee aide said the bill came about after lawmakers were alerted that the interest rates coming out of the interim accounts were relatively small. The administrative resources weren’t worth it, analysts said. They also learned it would be more cost effective to have them paid directly to the Treasury.

The Telecommunications Act of 1996 was the first major update to the Communications Act in 60 years, and it incorporated the revolutionary idea of spectrum auctions into law.  In these auctions, the government sells federally owned airwaves to wireless carriers to raise money for the government and to help mobile companies to bolster their data networks.

The FCC is set to hold a major spectrum auction in spring 2016 where it will first buy airwaves owned by TV broadcasters and then sell those airwaves to wireless providers in the second half of the auction.

FCC Chairman Tom Wheeler has hailed the “first of its kind auction” and its potential. Broadcasters and wireless companies worry about how successful the auction will be for them with the FCC tasked to handle so many moving parts.