[House Report 104-88]
[From the U.S. Government Publishing Office]



104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                     104-88
_______________________________________________________________________


 
          COMPETITIVE BIDDING IN GRANTING LICENSES AND PERMITS

                                _______


 March 23, 1995.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

_______________________________________________________________________


  Mr. Bliley, from the Committee on Commerce, submitted the following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 1218]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Commerce, to whom was referred the bill 
(H.R. 1218) to extend the authority of the Federal 
Communications Commission to use competitive bidding in 
granting licenses and permits, having considered the same, 
report favorably thereon without amendment and recommend that 
the bill do pass.

                                CONTENTS

                                                                   Page
Text of the legislation..........................................     1
Purpose and summary..............................................     2
Background and need..............................................     2
Committee consideration..........................................     3
Rollcall votes...................................................     3
Committee oversight findings.....................................     4
Committee on Government Reform and Oversight.....................     4
Committee cost estimates.........................................     5
Congressional Budget Office estimates............................     5
Inflationary impact statement....................................     7
Changes in existing law made by the bill, as reported............     7
Minority views...................................................     8

                          Purpose and Summary

    The purpose of the legislation is to extend the Federal 
Communication Commission's (FCC) competitive bidding authority 
which was originally granted in 1993 only through FY 1998. H.R. 
1218 extends this authority for an additional two years, 
through the end of FY 2000. The bill does not expand the scope 
of the authority beyond current authorization.

                  Background and Need for Legislation

    Spectrum auctioning was authorized to solve two major 
problems plaguing the previous spectrum allocation systems: 
extreme inefficiencies in assigning licenses and the failure to 
secure compensation for the public for the use of a highly 
desirable and scarce public resource. Previously, the FCC 
allocated spectrum by means of comparative hearings or by 
conducting a lottery. These processes often proved seriously 
flawed and produced a significant number and range of 
complaints.
    Comparative hearings were the order of the day for many 
years and continue to be used to award broadcast licenses. They 
have not been free from problems. These hearings have often 
been subject to protracted litigation over who was the most 
deserving licensee. Comparative hearings consequently often 
resulted in extended delays in awarding the license, which in 
turn delayed the commencement of service to the public.
    The lottery system has likewise been criticized for failing 
to meet the FCC's public interest standard and for encouraging 
speculation for spectrum licenses. When used to provide 
cellular licenses, the lottery process ultimately revealed the 
intentions of many lottery participants as being disinterested 
in providing a new and useful technology for the consumer, but 
instead being interested merely in obtaining the license for 
subsequent resale. In fact, many lottery applicants were 
unqualified to build and/or operate a cellular system. Instead, 
these applicants only sought to win the license to determine 
its value in a quickly developing private market. Consequently, 
the actual construction of cellular facilities was 
unnecessarily delayed until the license was ultimately bought 
by a qualified licensee. The rampant speculation and subsequent 
trafficking in license authority amounted to a private auction, 
with proceeds going into the pockets of the speculators.
    The success of the recently concluded auctions validate the 
congressional goals in enacting them in 1993. The Committee 
believes that extending this authority for two more years will 
continue to serve the purpose of compensating the public by 
making spectrum available for commercial use through a 
competitive bidding system. The competitive bidding process has 
also resulted in the timely awarding of licenses. For example, 
the recently concluded broadband spectrum auction for personal 
communications services (PCS) was concluded in a little more 
than three months.
    When Congress authorized the use of spectrum auctions, it 
gave the Commission specific guidelines to follow when 
developing the rules for each specific auction. The 
Commission's use of the auction is limited to situations when 
there are mutually exclusive applications for an initial 
license, and the service to be offered is, or is likely to be, 
a subscription service. Thus, licenses for free, over-the-air 
broadcast remain exempt. The bidding process is intended to 
promote the rapid development of new technologies, products and 
services to be made available to the public.
    The bidding methodologies developed by the Commission are 
intended to avoid the concentration of licenses and include 
performance requirements, subject to deadlines and penalties, 
to ensure prompt delivery of services and to prevent 
stockpiling or warehousing of spectrum by licensees. These 
rules provide minimum standards and requirements to ensure 
winning bidders can actually produce the services offered. In 
addition, various payment schedules were permitted under the 
statute to allow the FCC to provide opportunities to small 
entrepreneurial companies as well as larger, better financed 
industry participants.
    Since 1993, the FCC has conducted four spectrum auctions: 
two for narrowband PCS licenses; one for Interactive Video and 
Data Service (IVDS) licenses; and one for the recently 
completed broadband spectrum auction for PCS licenses. The four 
auctions have produced a total of almost $9 billion for the 
general fund of the U.S. Treasury. For example, the nationwide 
narrowband auction that was completed in July, 1994, generated 
over $600 million for the Treasury. A subsequent regional 
narrowband auction raised nearly $500 million. The IVDA auction 
raised over $200 million. The FCC's recently completed 
broadband auction of spectrum for PCS yielded commitments for 
receipts totaling over $7.1 billion in high bids. This auction 
provided 99 licensees in 51 markets to 18 companies. The 
revenue raised by this auction makes it the most successful 
auction of government assets to date. In addition, the 
Commission expects to conduct further auctions for spectrum 
licenses later this year.
    The Committee finds that the success of the past spectrum 
auction plans warrant their extension for an additional two 
years. The revenue generated by the extension will provide a 
badly needed source of income for the federal government and 
will continue the process of efficient licensing of spectrum 
use. Additionally, extending the competitive bidding process 
will continue to advance the goal of increasing the rapid 
deployment of new technologies and services for consumers.

                        Committee Consideration

    On March 15, 1995, the Committee met in open markup session 
and ordered the bill, H.R. 1218, be reported by a voice vote, a 
quorum being present.

                            Roll Call Votes

    Pursuant to clause 2(l)(2)(B) of rule XI of the Rules of 
the House of Representatives, following are listed the recorded 
votes related to the consideration of H.R. 1218, including the 
names of those members voting for and against.

      committee on commerce--104th congress roll call vote No. 37

    Bill: H.R. 1218, A bill to extend the authority of the 
Federal Communications Commission to use competitive bidding in 
granting licenses and permits.
    Amendment: Amendment by Mr. Markey re: direct the proceeds 
from competitive bidding process be used for deficit reduction.
    Disposition: Not agreed to, by a roll call vote of 18 ayes 
to 22 nays.

----------------------------------------------------------------------------------------------------------------
     Representative          Aye       Nay     Present        Representative          Aye       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley..............  ........        X   .........  Mr. Dingell.............        X   ........  .........
Mr. Moorhead............  ........        X   .........  Mr. Waxman..............  ........  ........  .........
Mr. Fields..............  ........        X   .........  Mr. Markey..............        X   ........  .........
Mr. Oxley...............  ........        X   .........  Mr. Tauzin..............        X   ........  .........
Mr. Bilirakis...........  ........        X   .........  Mr. Wyden...............        X   ........  .........
Mr. Schaefer............  ........        X   .........  Mr. Hall................        X   ........  .........
Mr. Barton..............  ........  ........  .........  Mr. Bryant..............        X   ........  .........
Mr. Hastert.............  ........        X   .........  Mr. Boucher.............        X   ........  .........
Mr. Upton...............  ........        X   .........  Mr. Manton..............        X   ........  .........
Mr. Stearns.............  ........        X   .........  Mr. Towns...............        X   ........  .........
Mr. Paxon...............  ........        X   .........  Mr. Studds..............  ........  ........  .........
Mr. Gillmor.............  ........        X   .........  Mr. Pallone.............        X   ........  .........
Mr. Klug................  ........  ........  .........  Mr. Brown...............        X   ........  .........
Mr. Franks..............  ........  ........  .........  Mrs. Lincoln............        X   ........  .........
Mr. Greenwood...........  ........        X   .........  Mr. Gordon..............        X   ........  .........
Mr. Crapo...............  ........        X   .........  Ms. Furse...............        X   ........  .........
Mr. Cox.................  ........        X   .........  Mr. Deutsch.............        X   ........  .........
Mr. Burr................  ........        X   .........  Mr. Rush................        X   ........  .........
Mr. Bilbray.............  ........        X   .........  Ms. Eshoo...............        X   ........  .........
Mr. Whitfield...........  ........        X   .........  Mr. Klink...............        X   ........  .........
Mr. Ganske..............  ........        X   .........  Mr. Stupak..............        X   ........  .........
Mr. Frisa...............  ........        X   .........  ........................  ........  ........  .........
Mr. Norwood.............  ........        X   .........  ........................  ........  ........           
Mr. White...............  ........        X   .........  ........................  ........  ........  .........
Mr. Coburn..............  ........        X   .........  ........................  ........  ........           
----------------------------------------------------------------------------------------------------------------

           committee on commerce--104th congress voice votes

    Bill: H.R. 1218, A bill to extend the authority of the 
Federal Communications Commission to use competitive bidding in 
granting licenses and permits.
    Motion: Motion by Mr. Fields to order H.R. 1218 reported to 
the House.
    Disposition: Agreed to, by a voice vote.

                      Committee Oversight Findings

    Pursuant to clause 2(l)(3)(A) of rule XI of the Rules of 
the House of Representatives, no oversight hearings were held.

              Committee on Government Reform and Oversight

    Pursuant to clause 2(l)(3)(D) of rule XI of the Rules of 
the House of Representatives, no oversight findings have been 
submitted to the Committee by the Committee on Government 
Reform and Oversight.

                        Committee Cost Estimate

    In compliance with clause 7(a) of rule XIII of the Rules of 
the House of Representatives, the Committee believes that 
enactment of H.R. 1218 would result in no additional costs to 
the Federal Government.

                  Congressional Budget Office Estimate

    Pursuant to clause 2(l)(3)(C) of rule XI of the Rules of 
the House of Representatives, following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
403 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, March 22, 1995.
Hon. Thomas J. Bliley, Jr.
Chairman, Committee on Commerce,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1218, a bill to 
extend the authority of the Federal Communications Commission 
to use competitive bidding in granting licenses and permits.
    Enactment of H.R. 1218 would affect direct spending. 
Therefore, pay-as-you-go procedures would apply to the bill.
    If you wish further details on this estimate, we will be 
pleased to provide them.
            Sincerely,
                                              James L. Blum
                                   (For June E. O'Neill, Director).

               congressional budget office cost estimate

    1. Bill number: H.R. 1218.
    2. Bill title: A bill to extend the authority of the 
Federal Communications Commission to use competitive bidding in 
granting licenses and permits.
    3. Bill status: As ordered reported by the House Committee 
on Commerce on March 15, 1995.
    4. Bill purpose: H.R. 1218 would extend the authority of 
the Federal Communications Commission (FCC) to auction certain 
radio spectrum licenses through the end of fiscal year 2000. 
Under current law, FCC's auction authority will expire at the 
end of fiscal year 1998.
    5. Estimated cost to the Federal Government: CBO expects 
that, under current law, distributing radio spectrum licenses 
through competitive bidding will result in the collection of 
approximately $13 billion in offsetting receipts over the next 
six years, and that enacting H.R. 1218 would increase 
offsetting receipts for the 1998-2000 period by approximately 
$2 billion. The following table compares estimated receipts 
under current law and under H.R. 1218.


----------------------------------------------------------------------------------------------------------------
                                                        1995      1996      1997      1998      1999      2000  
----------------------------------------------------------------------------------------------------------------
Projected auction receipts:                                                                                     
    Under current law:                                                                                          
        Estimated budget authority..................    -9,300    -1,000      -500      -500      -700    -1,300
        Estimated outlays...........................    -9,300    -1,000      -500      -500      -700    -1,300
    Estimated changes:                                                                                          
        Estimated budget authority..................         0         0         0      -400      -800      -800
        Estimated outlays...........................         0         0         0      -400      -800      -800
    Projected auction receipts under H.R. 1218:                                                                 
        Estimated budget authority..................    -9,300    -1,000      -500      -900    -1,500    -2,100
        Estimated outlays...........................    -9,300    -1,000      -500      -900    -1,500    -2,100
----------------------------------------------------------------------------------------------------------------

    The costs of this bill fall within budget function 950.
    6. Basis of estimate: Although the FCC has not indicated 
how it would allocate the spectrum to be licensed through 
competitive bidding, the estimate assumes that the FCC would 
allocate spectrum to the highest-valued use, which we expect 
would be for land mobile telephone services. Such services 
could be similar to those to be offered by winners of the 
recent broadband personal communications services (PCS) auction 
conducted by the FCC.
    The precise frequencies and amounts of spectrum the FCC 
would allocate for assignment by auction are uncertain. The 
prices that bidders would be willing to pay are also difficult 
to estimate. It is likely, however, that these prices would be 
significantly lower than those paid at recent FCC auctions 
because the market for and mobile telecommunications services 
will be more competitive in the late 1990s than it is 
currently.
    CBO expects that some receipts would result from this bill 
in 1998 because we expect that under current law the FCC would 
choose not to move forward with auctions that would likely take 
place near the expiration of the Commission's current 
competitive bidding authority. Any delay in the process for 
these later auctions could push the auction date past the FCC's 
authority deadline, resulting in a cancellation of any such 
planned auctions. Extension of the FCC's competitive bidding 
authority would remove any incentive potential bidders might 
have to delay the auction process, and the FCC would be more 
likely to plan and move forward with auctions in the 1998.
    CBO assumes that the auctioned licenses would grant the 
same property rights as current licenses. The licensee would 
have exclusive use of the frequencies that are auctioned and 
could expect FCC approval in selling the license to another 
qualified party. The licensee would have a very high 
expectation that the license would be renewed upon expiration 
and that the license would not be auctioned again when it 
expires.
    Taking into account the uncertainties surrounding the 
amount and quality of the spectrum the commission may choose to 
allocate and market conditions, CBO estimates that extending 
the FCC's auction authority would increase receipts by $1.5 
billion to $2.5 billion from 1998 through 2000. CBO's estimate 
is $2 billion, the mid-point of this range.
    7. Pay-as-you-go considerations: Section 252 of the 
Balanced Budget and Emergency Deficit Control Act of 1985 sets 
up pay-as-you-go procedures for legislation affecting direct 
spending or receipts through 1998. CBO estimates that enactment 
of H.R. 1218 would result in increased offsetting receipts 
(negative direct spending) of $400 million in 1998, as shown in 
the following table.

------------------------------------------------------------------------
                                              1996      1997      1998  
------------------------------------------------------------------------
Change in outlays.........................         0         0      -400
Change in receipts........................     (\1\)     (\1\)     (\1\)
------------------------------------------------------------------------
\1\ Not applicable.                                                     

    8. Estimated cost to State and local governments: None.
    9. Estimate comparison: None.
    10. Previous CBO estimate: None.
    11. Estimate prepared by: John Webb.
    12. Estimate approved by: Paul N. Van de Water, Assistant 
Director for Budget Analysis.

                     Inflationary Impact Statement

    Pursuant to clause 2(l)(4) of rule XI of the Rules of the 
House of Representatives, the Committee finds that the bill 
would have no inflationary impact.

                      Section-By-Section Analysis

                 Section 1. Extension of the Authority

    Section 1 amends the Communications Act of 1934 by 
extending the authority of the FCC to continue the competitive 
bidding of spectrum licenses from September 30, 1998 to 
September 30, 2000.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3 of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

             SECTION 309 OF THE COMMUNICATIONS ACT OF 1934

SEC. 309. ACTION UPON APPLICATIONS; FORM OF AND CONDITIONS ATTACHED TO 
                    LICENSES.

    (a) * * *
          * * * * * * *
    (j) Use of Competitive Bidding.--
          (1) * * *
          * * * * * * *
          (11) Termination.--The authority of the Commission to 
        grant a license or permit under this subsection shall 
        expire September 30, [1998] 2000.
          * * * * * * *
                             MINORITY VIEWS

    We dissent from the majority for two fundamental reasons: 
the process that the Republicans have utilized to approve this 
legislation, and the lack of meaningful oversight before 
proceeding to extend the Federal Communications Commission's 
authority to issue licenses using competitive bidding 
procedures.
    Our procedural objections are based on the fact that this 
bill was approved in a vacuum. Ordinarily, before this 
Committee approves a revenue raising measure of this magnitude, 
Congress will have approved a Budget Resolution setting forth 
spending and revenue projections that provide an overall 
context in which to consider a bill such as H.R. 1218. The size 
of the budget will be known ahead of time. If there is to be a 
tax cut, as well as a serious attack on the deficit, Members of 
the Committee will have had the opportunity to decide whether 
or not approving this bill represents a responsible course of 
action.
    In this case, however, the House has not approved a Budget 
Resolution. No reconciliation instructions were issued. The 
size of the overall Federal budget, the size (if any) of the 
deficit, and the magnitude of any tax cut are, at this point, 
unknown.
    Yet despite the lack of an overall context to provide the 
basis for making a responsible decision to extend competitive 
bidding authority, the majority saw fit to move the legislation 
to the full House anyway. The Democratic amendment to earmark 
the estimated $2 billion for deficit reduction was defeated on 
a party line vote. In our view, approval of this bill by the 
Republican majority was both premature and irresponsible.
    In addition, we also object to the fact that the 
legislation was approved without a hearing or any attempt to 
determine whether, in fact, competitive bidding authority ought 
to be extended. The authority has been used by the Federal 
Communications Commission for only six short months. It has 
been used to issue only three classes of licenses, and there 
are significant differences among each of the classes. We are 
all pleased that the broadband MTA licenses in the Personal 
Communications Service (PCS) appear to have raised in excess of 
$7 billion. However, in our view, the decision to extend this 
authority ought to be based on more than a newspaper headline 
announcing the total amounts bid.
    For example, several members--both Republicans and 
Democrats--expressed concern about the manner in which the 
Commission was utilizing this authority with respect to 
licenses in the Specialized Mobile Radio Service (SMR). During 
the course of the mark-up, the Subcommittee Chairman announced 
that a briefing was going to be held to give Members a better 
understanding of the Commission's decisions and intentions. In 
our view, the Committee ought to have held that briefing before 
deciding to extend the authority to utilize competitive bidding 
procedures.
    Ironically, during the same week that H.R. 1218 was 
introduced and approved by the Committee, a court issued a stay 
to prevent the Commission from utilizing its competitive 
bidding authority to issue licenses for one group of licenses 
for broadband PCS. These are blocks of frequencies reserved for 
``Designated Entities,'' including small businesses, firms 
owned by minorities and women, and small telephone companies.
    Many of us support the ``Designated Entity'' approach 
adopted by the Commission. No matter what our position, 
however, in our view it is irresponsible to approve H.R. 1218, 
thereby blessing the Commission's ``Designated Entity'' 
policies, without conducting the necessary oversight so as to 
determine whether the underlying statute ought to be modified 
or in some way clarified.
    We understand that the funds resulting from the extension 
of competitive bidding authority will be used to offset some 
portion of the tax cut that will soon be brought to the House 
floor. Whether or not we end up voting for the tax cut, we 
object to the irresponsible manner in which H.R. 1218 was 
brought before the Committee. The combination of the lack of 
both an overall budget resolution upon which to base our 
decisions, and any oversight whatsoever, particularly given the 
limited experience with competitive bidding, have led us to 
oppose the enactment of H.R. 1218.

                                   John D. Dingell.
                                   Henry A. Waxman.
                                   Edward J. Markey.
                                   Billy Tauzin.
                                   Ron Wyden.
                                   Ralph M. Hall.
                                   John Bryant.
                                   Rick Boucher.
                                   Thomas J. Manton.
                                   Edolphus Towns.
                                   Gerry E. Studds.
                                   Frank Pallone, Jr.
                                   Sherrod Brown.
                                   Blanche Lambert Lincoln.
                                   Bart Gordon.
                                   Elizabeth Furse.
                                   Peter Deutsch.
                                   Bobby L. Rush.
                                   Anna G. Eshoo.
                                   Ron Klink.
                                   Bart Stupak.