Reaching the Masses: Frequency Allocation and the FCC’s Simultaneous Ascending Auctions
Introduction and Interpretation
In order to understand exactly what is meant by “frequency allocation,” a basic understanding of the physics of broadcasting is necessary. Electromagnetic waves exist all around us, and are created by a variety of different sources — from the Sun to a microwave to the radio transmitter of your local college radio station. These waves are all essentially the same “thing” (or the same energy, perhaps; a discussion of the wave vs. particle aspect of electromagnetic waves is beyond the scope of this paper and is also beside the main point), but they have different wavelengths, which cause them to behave in very different ways. A wavelength is defined as the distance between two crests (or two troughs) of the same wave, and radio waves have some of the longer wavelengths of the non-visible electromagnetic spectrum (NASA 2010). Because all electromagnetic waves travel at the same speed in a vacuum, changing the wavelength also changes the frequency of the wave (the number of crests/troughs that pass in a given period of time), and these different frequencies can be picked up individual by fine-tuning receivers. “Frequency allocation” refers to the classification and licensing of different frequencies by governments for use in communications and transmitting information to avoid several entities attempting to use the same frequency (FCC 2010).
Countries are in need of frequency allocation systems and processes to ensure that communications and scientific research can continue unimpeded, aiding in commerce and discovery as well as scientific development, entertainment, and simple communications between various individuals/entities. An examination of the United States’ frequency allocation table shows the wide variety of uses that exist for radio waves and the many different allocations that have been made in this country in regards to allocation, detailing the complexity of the situation and thus highlighting the need for an organizing body to allocate and regulate the use of these frequencies (NTIA 2010). Without such systems in place, communications would essentially become impossible as different transmissions would be competing for the same frequency, making the receiving of a clear, single signal all but impossible. A simple way to picture this is just recall a time in which your car radio appeared to be trying to decide between two different channels — in areas where coverage maps overlap slightly, to radio station might be broadcasting at the same (or very similar) frequencies, and the receiver in your car is unable to produce a clear sound from either station — it is picking up both signals. Frequency allocation eliminates this occurrence in most instances (FCC 2010a).
History and Context
In the very early days of radio transmission, there was no real need for frequency allocation as there were few receivers set up and even fewer transmitters, especially of any power; if there is no overlap in the coverage area of two or more given radio signals, then an overlap in frequencies does not matter — geographic distance will eliminate any possible confusion on the receiving end (FCC 2010a; Huurdeman 2003). Radio spread quite quickly, however, and the need for frequency allocation by national governments and eventually international bodies quickly became apparent, leading to the development of agencies for this purpose (Huurdeman 2003).
As uses for radio waves continued to grow, the need for frequency allocation also became more pressing and more complex. Radios are not the only devices that make use of radio waves; radio telescopes are advanced pieces of technological equipment used to study the vast reaches of deep space, and frequency allocation ensures that these devices will not be bombarded with communications signals in their efforts (NTIA 2010). There are also a variety of other more common and familiar devices that are utilized by billions of individuals on a daily basis that require the use of radio waves — televisions, cell phones, wireless Internet connections, and pretty much any device that sends and/or receives information of any sort without the use of direct connections works via the broadcast of radio waves (electromagnetic waves of specific frequencies are also used in hardwired communication devices, but as they are not broadcast through the open air they are not an issue here (FCC 2010a; Withers 1993).
Early on in the 1920s and 30s, when television was just being developed and causing serious competition for radio frequency rights for the first time, the relatively new Federal Communications Commission and Congress allocated frequencies based on current technological capabilities and patent holdings for the few working television transmission devices (Kittross and Sterling 1979). RCA was a major player in these actions as it held a near-monopoly of television broadcasting and receiving technologies through various acquisitions and partnerships (Kittross & Sterling 1979). Neither this monopoly nor this system would hold, however.
Not only did television manufacturers and broadcasters increase and grow exponentially in the years following World War II, but modern devices and improved broadcast strengths covering wider geographic areas have also hugely increased the need for more precise and more variegated frequency allocations (NTIA 2010; Withers 1993). For this reason, more frequent and more complex as well as more comprehensive methods have been developed to assist the frequency allocation procedure in countries around the globe including the United States (FCC 2010a; Withers 1999). The Federal Communications Commission is still the body responsible for frequency allocation in the United States, and it does so through a variety of processes, including through the direct creation of rules based on information provided through industry lobbyists and government analysts (FCC 2010a). The use of auctions, in which the licenses to utilize specific frequencies and bandwidths, is often used to give specific access rights to various corporate entities, but this occurs only after the radio wave spectrum has been divided into the many different broader categories and purposes for which radio waves are used (Webpaz 2010).
The reasons behind the need for frequency allocation should be fairly clear at this point; the reasons for developing and adjusting specific processes to achieve these allocations is perhaps less so. Essentially, processes must be developed to keep broadcast rights and frequency access fair and effective, ensuring that it isn’t simply the entity with the most money that has the greatest broadcast rights (Withers 1999). Processes are deigned to ensure that necessary technologies and companies have the access to the radio wave spectrum that they need while keeping the allocation as democratic as possible (FCC 2010a).
Determining the cost of “owning” a frequency (which is more accurately described as leasing the license to use a particular frequency, as the broadcast spectrum is actually considered a public commodity and thus cannot be technically owned by any private or for-profit entity, or any entity at all, for that matter) is a complex matter. Certain bandwidths are specifically reserved for public use, such as amateur radio operators and enthusiasts; these frequencies are essentially free but there are significant limitations to broadcast strength and distance that are available in these frequencies (NITA 2010; Withers 1999). When it comes to the cost of stronger bandwidths with a greater latitude of rights in the use of these frequencies, prices are quite high — over ten billion dollars was spent in a bidding process for the ultra-high frequency channels 60 through 69 in a recent auction for newly available frequencies (Cringely 2008). This equates to more than one billion dollars for every useful stretch of bandwidth made available in this auction, presenting a rice tag that is definitely out of reach for the average consumer and even most companies.
In order to even be able to bid for open frequencies, a certain amount of money must be initially deposited at the beginning of the bidding process (Cramton 2004). The amount deposited determines how many “items” (i.e. sections of bandwidth) a given company can bid on, meaning that companies with lower deposits are able to bid on fewer sections of bandwidth (Cramton 2004). While there is no official minimum price to enter a bid, these rules effectively create limits wherein companies without sufficient funds to make a realistic bid are left out of the process.
SAA-Simultaneous Ascending Auction
The current process used by the Federal Communications Commission to allocate bandwidth to various companies for a variety of uses — sometimes at the complete discretion of the purchasing entities, and other times for fairly specific purposes such as television broadcasting or cell phone communications — is the Simultaneous Ascending Auction, first used in 1994 (Cramton 2004). Briefly put, a simultaneous ascending auction is a bidding process in which successive rounds of sealed bidding for multiple items takes place, with the high bids for each items being published at the end of each round, enabling bidders to see what current bids are and adjusting their bids for items in the next round accordingly (Cramton 2004; Milgrom 1999).
This auction system is especially useful for purposes of frequency allocation because there are generally multiple sections of bandwidth/frequencies available when any one section or frequency is available, and companies can utilize one or more of these frequencies fairly interchangeably (Cramton 2004). Simultaneous auctions are held only when they are needed, such as when a new areas of bandwidth are opened up for use by the FCC, yet dozens of such auctions were held in the first decade following their inception alone (Cramton 2004; Webpaz 2010). Using web-based technologies greatly assists in the practical functioning of simultaneous ascending auctions, as it allows bidders form disparate geographical locations to participate in the process quite easily, making the process more fair than it might otherwise be (Millgrom 1999).
In order to participate in a simultaneous ascending auction, companies must make these initial deposits according to the rules set out by the Federal Communications Commission at each auction, which can vary somewhat depending on the sections of bandwidth being auctioned and the number of different “items” being offered for sale (Milgrom 1999; Cramton 2004; FCC 2010a). Technically, any entity is allowed to participate in the simultaneous ascending auction process to bid on and purchase frequencies as long as they can prove that they have the capabilities to put these frequencies to efficient and effective use. In reality, however, the final cost of purchasing the licenses to radio spectrum frequencies is prohibitive to most companies and unofficially limits the pool of potential bidders and overall participation in the bidding process.
In order to participate in the bidding process, stakeholders must go through an application process that culminates in their depositing of at least a minimum amount of funds to be used in the bidding process, which goes directly to the government (in the United States, to the U.S. Treasury via the Federal Communications Commission) to cover the final purchase price of the given frequency/bandwidth (Millgrom 1999). During the bidding process itself, stakeholders learn about pricing during the early stages of the process and continually return bids for desired items through successive rounds, always aware of current high bids and bidders for each “item” put up for sale (Cramton 2004; Millgrom 1999).
Again, though technically anyone with broadcasting/communications capabilities that can sufficiently utilize the frequencies and/or bandwidth being purchased is able to participate in auctions for these frequencies, the ultimate price of sections of the radio spectrum are prohibitive to most entities from entering the bidding process. There might be nominal fees associated with participating in the bidding process, but in general simultaneous ascending auctions generate such huge revenues that they far more than offset the cost of conducting the auctions themselves (Cramton 2004; Millgrom 1999). The real limitation in participation comes from the high cost of the spectrum frequencies in the final bid, as well as providing evidence of the ability to fully utilize the frequencies once purchased, both of which preclude all but the largest of corporation from taking part in the process.
Electromagnetic waves are a natural phenomenon and run the gamut from very-low frequency waves traveling through space to extremely high frequency cosmic rays, with the radio spectrum, the visible light spectrum, microwaves, x-rays, and a multitude of other waves in between. The most useful sections of the spectrum are highly sought commodities in the modern era of advanced communications via satellites, radio and television broadcasting, wireless Internet, and cell phones. As demand increases, the complexity and the costs of frequency allocation have also increased, these trends seem likely to continue into the future.
Cramton, P. (2004). “Simultaneous ascending auctions.” Accessed 18 October 2010. http://www.cramton.umd.edu/papers2000-2004/cramton-simultaneous-ascending-auction.pdf
Cringely, R. (2008). “Everything You Always Wanted to Know About the 700-MHz Auction but Were Afraid to Ask.” Accessed 18 October 2010. http://www.popularmechanics.com/technology/gadgets/news/4246037
FCC. (2010). “Online table of frequency allocations.” Accessed 18 October 2010. http://www.fcc.gov/oet/spectrum/table/fcctable.pdf
FCC. (2010a). “Spectrum allocation, assignment, and enforcement.” Accessed 18 October 2010. http://www.fcc.gov/connectglobe/sec7.html
Huurdeman, A. (2003). The worldwide history of telecommunications. Hoboken, NJ: Wiley.
Kittross, J. & Sterling, C. (1979). Television frequency allocation policy in the United States. New York: Arno.
Milgrom, P. (1999). “Putting auction theory to work.” Accessed 18 October 2010. http://www.market-design.com/files/milgrom-putting-auction-theory-to-work.pdf
NASA. (2010). “Radio waves.” Accessed 18 October 2010. http://science.hq.nasa.gov/kids/imagers/ems/radio.html
NTIA. (2010). “Frequency allocation table.” National telecommunications and information association. Accessed 18 October 2010. http://www.ntia.doc.gov/osmhome/allochrt.pdf
Webpaz. (2010). “FCC vote on rules governing frequency allocation.” Accessed 18 October 2010. http://www.webpaz.com/fcc-commission-vote-on-rules-governing-frequency-allocation-process-white-space-broadband-wireless-innovation-alliance/
Withers, D. (1999). Radio spectrum management. London: Institution of electrical engineers.
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