Jobs Act Would Impose $4.77 Billion Spectrum Tax

Jobs Act Would Impose $4.77 Billion Spectrum Tax
October 31, 2011

Among the provisions of President Obama’s “American Jobs Act” is authorization for the Federal Communications Commission to impose taxes on broadcast spectrum and on profits earned by telecommunications companies that voluntarily return broadcast spectrum to the agency for auction. Market advocates say the taxes will hamper further an industry struggling to remain competitive in a prolonged period of economic stagnation.

Commercial wireless, satellite, and broadcast radio would be hit by the fees. Television broadcasters and public safety services are statutorily exempted from the fee.

The FCC will be granted authority to establish rules to determine the actual classes of licenses, authorizations, and construction permits whose holders must pay the fees. As written, Section 278 would exempt current license holders, as well as those seeking renewals or modifications, who obtained spectrum through a FCC competitive bidding process.
Failure to pay the spectrum fees in a timely manner could result in loss of license or permit with 30 days notice to pay or show cause why not.

“It’s noteworthy that the current language in the Jobs Act is compulsory—that is, the FCC is not only authorized to collect these fees but is required to do so, and in the specified amounts,” said Luke Pelican, a policy fellow for the Competitive Enterprise Institute, a Washington, DC-based, pro-market think tank.

 ‘Considerable Annual Regulatory Fees’
Section 278 of the Act requires the FCC to collect spectrum license user fees of $200 million in fiscal year 2012; $300 million in FY 2013; $425 million in FY 2014; and $550 in each subsequent FY from 2015 through 2021. All told, the fees would amount to $4.775 billion in government revenue.

Funds collected through the spectrum taxes would be placed in the U.S. Treasury's General Fund.

In an October 12 letter to Congressional Members of the Joint Select Committee on Deficit Reduction, industry organizations CTIA – The Wireless Association, the National Association of Broadcasters, Satellite Industry Association, PCIA – The Wireless Infrastructure Foundation, and National Religious Broadcasters, expressed concerns the proposed taxation “ignores the considerable annual regulatory fees already borne by our respective industries and the tens of billions of dollars in private capital expended annually by wireless, satellite and commercial, non-commercial and public radio operators alike to build networks and invest in the infrastructure necessary to serve the American public. Each of our industry sectors is extremely efficient in its use of spectrum, thereby mitigating any likelihood that any new spectrum fee would compel greater efficiencies.”

‘Inhibit Job Growth’
Incentive auctions are voluntary auctions in which current broadcast license holders cede some or all of their licenses back to the government in exchange for a cut of auction proceeds, explains Pelican. He says the auctions are gaining momentum because of the continued growth in mobile data usage and the perceived lack of sufficient spectrum for wireless operators.

Various pieces of legislation contain provisions for taxing spectrum-auction profits, including the Jobs Act and the Rockefeller-Hutchinson Public Safety Spectrum and Wireless Innovation Act.

Pelican disputes the Obama administration’s claim that the Jobs Act will stimulate the economy. “It’s difficult to see how imposing nearly $5 billion in fees on license holders will stimulate job growth. If you want to cripple an industry and inhibit job growth, levying taxes is a good way to go about accomplishing that,” Pelican said.

No ‘Adequate Justification’
Pelican says claims Section 278 fees will create jobs through network infrastructure development and ensuing innovation in technology are overstated. “A more effective and less burdensome way of making more spectrum available would be for the government to scrutinize its spectrum usage and place unnecessary holdings up for auction,” he said.

Pelican points out radio broadcasters have struggled to maintain revenues over the past few years, and, although the industry has seen an increase in revenue in 2011, market turmoil could cut those gains. The impact, he says, could be significant given the amount set for collection.

“The administration has so far failed to provide adequate justification for imposing this burden on spectrum holders,” Pelican said.

Alyssa Carducci (ad.carducci@gmail.com) writes from Tampa, Florida.

Internet Info

“The American Jobs Act: President Obama’s Plan to Create Jobs Now,” September 12, 2011: http://www.whitehouse.gov/sites/default/files/omb/legislative/reports/american-jobs-act.pdf

“Letter to Members of the Joint Select Committee on Deficit Reduction,” CTIA – The Wireless Association, the National Association of Broadcasters, Satellite Industry Association, PCIA – The Wireless Infrastructure Foundation, and National Religious Broadcasters, October 12, 2011: http://news.heartland.org/sites/default/files/Spectrum_Fee_Letter_FINAL.pdf