[Congressional Record Volume 143, Number 53 (Tuesday, April 29, 1997)]
[Senate]
[Pages S3799-S3800]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. KERREY:
  S. 663. A bill to enhance taxpayer value in auctions conducted by the 
Federal Communications Commission; to the Committee on Commerce, 
Science, and Transportation.


                         the reserve price act

  Mr. KERREY. Mr. President, for most Americans a buck doesn't go very 
far. A dollar will not buy a cup of coffee at Starbucks, it will not 
buy a comic book at the 7-11, it will not buy a package of batteries at 
the True Value store, or even a gallon of gas at the Amoco station. 
But, at the FCC, a buck will buy a radio license to serve the city of 
St. Louis.
  On Friday, the FCC completed an auction of radio spectrum which 
should cause every American taxpayer to be concerned. This action 
yielded less than 1 percent of the amount anticipated. Rather than 
raising $1.8 billion as the Congress had expected, the FCC brought in 
only $13.6 million.
  Perhaps worse of all, several licenses were awarded to bidders for 
the incredible sum of $1. That's well below the bargain basement. Mike 
Mills of the Washington Post aptly observed that a sign should be put 
in front of the FCC auction headquarters advertising ``everything for a 
buck.'' One bidder won four licenses at a dollar a piece. Those 
licenses combined would allow services to reach 15 million people. 
Another bidder won the right to serve St. Louis, one of the largest 
cities in America for $1. It is as if we had returned to the days of 
license lotteries. That's one heck of a way to stretch a dollar.
  Radio spectrum is a national asset. It must be prudently managed. The 
taxpayers count on the Federal Communications Commission to allocate 
spectrum among and between various uses to assure that the public 
interest is served and to assure that those uses do not interfere with 
each other.
  In 1993, the Congress enacted legislation which revolutionized the 
way radio frequencies are allocated. After years of debate, the 
Congress took the step to authorized the Federal Communications 
Commission to use auctions to allocate licenses for radio spectrum. It 
was built on the premise that investors would pay for the right to 
offer new wireless communications services.
  Prior to 1993, licenses were awarded by lottery or by a comparative 
application process. In both cases, license winners would often sell 
their licenses soon after acquiring them to others for substantial 
sums.
  To cut out the middle man and give taxpayers a return from the 
valuable rights they were awarding, the Congress ordered the FCC to 
conduct auctions to award radio spectrum licenses.
  In general, this approach has worked very well. It has proven to be 
an efficient means of allocating scarce resources and it has reaped 
billions of dollars of deficit reduction for the American taxpayer.
  Unfortunately, something went wrong in this last auction. One problem 
was that the auction rules did not establish a minimum bid or a reserve 
price. That's how some lucky bidders won valuable licenses for a buck.
  Mr. President, I offer legislation today which will help ensure that 
taxpayers are protected in future FCC auctions. The importance of this 
legislation is heightened by the increasing congressional reliance on 
spectrum auctions in telecommunications and budget policy. The 
President's budget alone relies on $36 billion of revenues from 
spectrum auctions.
  The Reserve Price Act requires the FCC to set a minimum price for 
each unit auctioned. If no one bids the minimum, then what is not sold 
will be re-evaluated and placed in the next scheduled auction. With a 
reserve price system, taxpayers will be guaranteed that national assets 
are not sold for a song.
  The Chairman of the FCC reportedly said that the reason for the 
disappointing return from Friday's auction was the ``the Congress got 
to greedy'' with spectrum revenues. Perhaps, this auction was rushed. 
But with reserve prices, even a rushed auction would not have to be a 
disastrous auction.
  I urge my colleagues to review and support the Reserve Price Act. The 
American taxpayer deserves as much.

[[Page S3800]]

  I also ask unanimous consent that the text of the Reserve Price Act 
and a copy of Mike Mills' Washington Post article entitled ``Latest 
License Action Disappoints FCC'' be inserted in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                 S.663

       Be it enacted by the Senate and the House of 
     Representatives of the United States of America in Congress 
     assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Reserve Price Act''.

     SEC. 2. RESERVE PRICE.

       In any auction conducted or supervised by the Federal 
     Communications Commission (hereinafter the Commission) for 
     any license, permit or right which has value, a reasonable 
     reserve price shall be set by the Commission for each unit in 
     the auction. The reserve price shall establish a minimum bid 
     for the unit to be auctioned. If no bid is received above the 
     reserve price for a unit, the unit shall be retained. The 
     Commission shall re-assess the reserve price for that unit 
     and place the unit in the next scheduled or next appropriate 
     auction.
                                                                    ____


               [From the Washington Post, Apr. 26, 1997]

                 Latest License Auction Disappoints FCC


    total comes up short of expectations in bargain-basement bidding

                            (By Mike Mills)

       They might as well have changed the sign at the FCC Auction 
     headquarters to ``Everything for a Buck.''
       Congress had expected the Federal Communications Commission 
     to pull in about $1.8 billion in its latest auction of a 
     slice of the airwaves, this one for companies that want to 
     offer wireless voice and data services. But when the bidding 
     stopped yesterday, the FCC found it had raised less than 1 
     percent of that amount, only $13.6 million.
       It was by far the most disappointing yield to date in the 
     auction program. In other bidding since the program began in 
     July 1994, winners have pledged about $23 billion to the 
     Treasury Department, far higher than initial projections.
       The FCC blamed yesterday's poor showing on Congress, saying 
     it didn't give the agency or the industry enough time to 
     prepare for the latest auction. But the low bids also might 
     be a sign that the market for airwave licenses is becoming 
     glutted, some analysts said.
       Either way, bargain-basement prices awaited the handful of 
     communications companies that cared to participate. McLeod 
     Inc. of Cedar Rapids, Iowa, actually bid $1 each for four 
     licenses in the Midwest covering areas with a 15 million 
     population--and won. Nobody countered its bid in 29 rounds.
       ``It was a fortunate opportunity,'' said Bryce Nemitz, 
     McLeod's vice president of corporate relations. ``There 
     wasn't any way for us to gauge the true value of those 
     licenses, so we bid the minimum.'' The company plans to use 
     the licenses for wireless utility meter reading, he said.
       According to FCC Chairman Reed E. Hundt, Congress got too 
     greedy last summer when it passed a law ordering the FCC to 
     quickly auction this chunk of frequencies by April 15, and to 
     make sure the money got to the Treasury by Sept. 30.
       The deadline gave the industry little time to prepare, 
     Hundt said. Equipment makers had no idea what the frequencies 
     could be used for. Potential bidders had difficulty raising 
     bidding money in capital markets.
       ``We were right when we told the industries and Congress 
     there wasn't enough lead time for this auction,'' Hundt said.
       But there were other problems. In February the FCC 
     announced restrictions that limited users of those 
     frequencies from offering certain mobile services because 
     they might interfere with a new satellite-based radio 
     service. And earlier this week, the FCC also said the new 
     license owners would have to accept other restrictions to 
     avoid interference with other services.
       Those limitations might have curbed interest in bidding, 
     but they didn't seem to bother the winners. BellSouth Corp. 
     was the top bidder, spending $6 million for 22 licenses. It 
     plans to offer wireless television service using the 
     licenses.
       Other firms aren't sure how they'll use the licenses. ``It 
     just got rushed to the market so soon that people just didn't 
     have time to get themselves together,'' said Thomas Sullivan 
     of TeleCorp, which won a St. Louis license for $1 and two 
     others for $60,000.
       For Congress, the $1.786 billion shortfall won't directly 
     affect any spending programs. But it will be a factor when 
     bean-counters next tally up the budget deficit, sources at 
     the Congressional Budget Office said.
       Some analysts suggest the auctions are a sign that the 
     auction process may be running out of steam. Some bidders who 
     paid surprisingly huge sums for wireless telephone licenses 
     earlier last year are now having big troubles raising the 
     money to pay for them. That spooked investors in a subsequent 
     auction last year for similar licenses, in which bidding fell 
     below expectations.
       The broadcasting lobby, which has so far successfully 
     avoided auctions of TV and radio licenses, and the results 
     make their case for killing the auction program.
       ``These sub-par receipts confirm what we have been saying 
     for months,'' said Dennis Wharton, spokesman for the National 
     Association of Broadcasters. ``Spectrum auctions have clearly 
     reached a point of diminishing returns.''
                                 ______