Spectrum Welfare For Microsoft?

On July 10, 2017 Microsoft scored a public relations coup in The New York Times.  The headline read, “To Close Digital Divide, Microsoft to Harness Unused Television Channels”.  How perfect!  Microsoft would be the selfless servant of the noble goal of providing residents and businesses in rural communities with the same high-speed Internet access enjoyed by those in big cities.  

There was only one problem.  The Microsoft plan was, in the words of highly respected Harvard Law Professor Susan Crawford, a cynical “hustle”.  Wired, 7/26/17.  Microsoft’s real goal is to get for free the scarce electromagnetic spectrum it wants to be a major player in the coming Internet Of Things – a world where all the devices in our lives and in industry will be connected to each other.  Providing and managing those connections will be a huge business and Microsoft wants in.  Its rural “White Spaces” Proposal is a pretext to get free spectrum in the TV Band nationwide. Microsoft already has access to “White Spaces” channels in rural America. If Microsoft’s real objective was to serve these rural areas, why is it asking the FCC to create “White Space” channels in downtown New York, Los Angeles, Chicago and other urban areas?

Microsoft is a great American company whose current management is highly respected.  That management is trying to recover from the disastrous missteps of its predecessors in famously missing the mobile revolution.  While Apple, the wireless carriers and others were investing heavily in the future, former CEO Steve Ballmer kept Microsoft on the sidelines.  He stated, “There’s no chance that the iPhone is going to get any significant market share. No chance.”  TGAAP 7/11/14.  Current Microsoft CEO Satya Nadella has acknowledged, “We clearly missed the mobile phone, there’s no question.  Our goal now is to make sure we grow new categories.” V3.co.uk, 10/25/16. 

Among those new categories is the Internet Of Things.  But having missed the mobile revolution, Microsoft seems to not understand one of the central building blocks of a mobile business – investing in spectrum.  The recovery Microsoft seeks will not be found by trying to get for free the mobile spectrum resources for which other competitors pay dearly.  One can be sympathetic about Microsoft’s past missteps, and root for them to do better in the future, without believing that they deserve Spectrum Welfare.

There are at least four ways that Microsoft can acquire the spectrum it wants to be a player in the Internet Of Things without seeking a public hand out.  First, it can contract for capacity with one or more of the nation’s wireless carriers who paid for their spectrum in FCC auctions. Second, Microsoft could participate in upcoming FCC spectrum auctions.  Reminiscent of its mistakes in mobile, Microsoft sat on its hands and failed to participate in the most recent FCC auction where it could have bought the exact same 600 MHz spectrum it now wants for free.  Third, Microsoft could buy spectrum in a secondary market transaction – the kind of transaction routinely used by other companies seeking spectrum.  In fact, there are several investors who, with an eye toward future resale, did buy 600 MHz Spectrum in the auction (again, the exact same spectrum Microsoft wants) who would be only too happy to sell to Microsoft.  Finally, Microsoft could simply buy a business that already owns spectrum.

In the 600 MHz auction, I led a Coalition of TV Station owners who were interested in selling their channels.  The auction was a success. But because Microsoft sat on the sidelines, demand was below expectations.  As a result, many Stations that wanted to sell were not purchased and all of the 600 MHz Spectrum that was available was not reallocated.   Now those Stations, and the Stations that never wanted to sell, are being subjected to an involuntary “repacking” process in which they must move to new channels and erect new antennas and other transmitting equipment.  

The repack is a Herculean task for which there is not enough time or money. Worse yet, there are not enough channels for all the TV stations including translator stations that bring network programs and local news to rural areas and low power stations that provide important local programming.  The Microsoft “White Spaces” plan – its land grab for free nationwide 600 MHz Spectrum – would seriously exacerbate these difficulties. Granting Microsoft’s request would mean that more consumers would lose more of the TV programming that they rely on today.

Microsoft’s bet seems to be that it’s cheaper to hire slick PR muscle and to try to hoodwink regulators into handing out free spectrum than to buy spectrum like everyone else.  As someone whose 600 MHz auction battle scars are still healing, I sure hope they are wrong.

 

Preston Padden is the former President of the ABC Television Network and a senior executive at Fox and Disney.  Presently he is a consultant to broadcasters, to broadcast associations and to spectrum investors.