Wireless bandwidth bill on the last train out of Crazytown (Updated)

Bandwidth For those who can bear to look, the debt ceiling bill being humped through the Senate this weekend by majority leader Harry Reid (D-NV) could turn out to be critical to the long-term prospects of the mobile video delivery business.

In an effort to find every possible dollar of deficit reduction without actually cutting federal programs, Reid has wedged a provision into the bill authorizing the FCC to conduct “incentive auctions” of slices of radio spectrum currently controlled by broadcasters for use as wireless broadband capacity.

The idea is that broadcasters would “voluntarily” relinquish frequencies they’re not currently using. Government agencies would also contribute some spectrum currently assigned to them by the FCC. Some of the newly collected spectrum would be allocated for a nationwide public safety network and the rest would be auctioned off to wireless service providers in order to increase the total amount of bandwidth available for wireless broadband. Broadcasters that agree to give up spectrum for the auctions would then receive a cut of whatever revenue the auctions raise.

Reid’s bill assumes the auctions will raise $15 billion for the government, net of broadcasters’ cuts (a figure even some supporters of the auction plan question), which would be applied to reducing the federal deficit. Reid began moving the bill on Friday, after the House failed to act Thursday night on a bill prepared by House Speaker John Boehner (R-OH). In a speech from the Senate floor Friday, Reid called his bill “the last train leaving the station” with a chance to avert a government debt default and possible economic calamity on August 2.

The idea for the auctions was introduced by the FCC last year as part of the National Broadband Plan mandated by Congress. One of the plan’s priorities is to make more spectrum available for use by wireless bandwidth services, which are currently being strained by the rapid increase in wireless data traffic driven by the popularity of tablet devices and smartphones.

Leading wireless carriers, including Verizon Wireless and AT&T, have recently imposed bandwidth caps on users to try to cope with the rising traffic on their networks. If the log jam is not eventually broken, bandwidth constraints could significantly impact both the cost of delivering bandwidth-intensive applications such as video over wireless networks and consumer adoption of those services. Those outcomes would be bad news for content providers and distributors dreaming of new revenue streams from mobile video services.

Not everyone is thrilled with the auction idea, however. The National Association of Broadcasters has launched a full-court press to try to strip the provision from Reid’s bill before it gets to the president’s desk. Broadcasters fear the Reid bill does not contain sufficient protections for broadcasters who just not to participate in the auctions. The Reid bill also goes farther than other proposals in allowing the FCC to “repack” broadcasters into different frequencies in order to create large contiguous blocks of spectrum for wireless use, an idea broadcasters hate.

If the Reid bill (or something like it) ultimately is the debt ceiling bill that ends up on President Obama’s desk, the auction provision would likely preempt a standalone spectrum bill passed by the Senate Commerce Committee in June.

That bill faced an uncertain future in the House, where many conservatives are wary of giving the FCC any more authority, and where NAB has considerable influence. But with time running out on the debt ceiling, the Reid bill could become a very fast-moving train very quickly. Regardless of how much it reduces the deficit, it could abruptly change the political dynamic around spectrum reallocation and the build-out of wireless broadcast capacity.

UPDATE (7/31): Things are moving quickly on Capitol Hill today. The Reid plan was voted down in the Senate. But prior to the vote the auction provision was dropped from the bill, officially because it raised revenue and under the Constitution, revenue bills must originate in the House. Unofficially, the move was probably intended to make the bill more palatable to Republicans, but the question is now moot.