Get Your Brackets Set for Tomorrow's Spectrum Sweet Sixteen!

In the FCC’s version of “April Madness,” the FCC will hold a meeting tomorrow (April 25). Among other items, the meeting will consider an Order and Further Notice of Proposed Rulemaking for the upcoming 700 MHz Auction.

Readers who plowed through my impossibly long field guide to the 700 MHz auction may recall that I highlighted a large number of issues and players that have clustered around this extremely important auction. Many critical filings and proposals (including, I am embarassed to admit, those of the public interest spectrum coalition) came in after the official deadline. (Hey! We’re busy! If someone wants to give Media Access Project a million dollars or two so we can stay on top of everything, email me!)

The combination of far reaching proposals and lack of time has prompted incumbents to challenge the FCC’s ability to grant these proposals because they do not comply with the “notice” requirements of the Administrative Procedure Act (APA). The APA requires that an agency give everyone notice of what it plans to do and give interested parties a chance to comment. So the FCC will solve this problem by making some basic decisions now, and rolling over the remaining decisions to a Further Notice. Since we have a statutory deadline ticking away, parties will get only a month for comments and replies, and the FCC will make its final decisions at the end of May or early June. That way, they can still get to the auction by January 2008.

In other words, Wed. represents the first cut on how the FCC will proceed and the general direction it will go for the auction. Will it favor the incumbent push for large license blocks and open bidding? Will it allow the Frontline proposal to go forward? What about network neutrality?

Below I give my “spectrum bracket” for who gets to go from the Sweet Spectrum Sixteen to the Final Four. What’s likely to get cancelled, get renewed, or remains on “the bubble” for next season? Which proposals get “voted off the Island?” For my guesses, and my further entries for the next Stephen Colbert Meta-Free-For-All, see below . . .

First, a minor brag and PSA for my employer Media Access Project. We persuaded the FCC to extend the time for presentations (aka the “Sunshine Period”) from Wed. April 18 to Monday April 23. That allowed our coalition to get in one last meeting with Chairman Martin. Hopefully, we did some good. This is why we need a stand alone public interest law firm that specializes in this stuff. We know the funky little tricks. And if you would like to thank us with a piece of your tax refund, you can find out donation page here.

O.K., back to tomorrow’s FCC meeting. I’m going to assume that readers remember the players and the main issues from my 700 MHz Field Guide, otherwise this will take way too long. If you get lost, you can follow the above link and review.

Issue: Should the FCC Have Mostly Large Licenses or Smaller Licenses?
Who wants Large Licenses?: Verison Wireless wants larger licenses, and submitted this paper by auction expert Peter Cramton (i.e., the guy who opposed anonymous bidding for T-Mobile) in support. The DBS providers also want large license areas.
Who Wants Smaller Licenses: Just about every other incumbent, including the Comcast/Time Warner/Cox consortium Spectrum Co., wants smaller licenses. Rural guys also want smaller licenses.
Why does it matter? Larger licenses make it easier to build a national or regional footprint. They also reduce the ability fo bidders to signal, by reducing the number of objects for information transmission or for trade. But larger licenses favor well-capitalized companies because they go for higher prices. They also may contribute to “spectrum waste” if a provider gets a large license area and only builds in the most populated area. Rural guys therefore prefer smaller licenses so they can win licenses and have them tailored to their desired coverage areas.

My feel is the larger incumbents want smaller licenses because they (a) want to block potential competitors, and (b) primarily want to use 700 MHz spectrum to fill in existing holes in their wireless networks rather than to create a new network based on 700 MHz. Why Verizon wants larger blocks is less clear. They have publicly stated that they plan to bid vigorously for licenses in 700 MHz. This suggests that they see 700 MHz as more than a means of filling in holes, and may want to use it for more rural areas or outside their wireline footprint as a genuine “third pipe” broadband network.

Public Interest?: The Public Interest Spectrum Coalition filed weak comments on this, slightly favoring larger licenses but acknowledging the need to make spectrum available to smaller bidders and rural bidders.

Public Safety: No unified position.

Possible Wild Cards: At a House Hearing on wireless last thursday (April 19), prominent Democrats and Republicans voiced approval for the mix of smaller licenses and regional licenses the FCC used in the AWS auction last summer. That supports the incumbents and cuts against Verizon and the DBS providers.

Prediction: Martin is reported to champion the larger license areas, apparently in sympathy with Verizon and DBS operators that they will use them to create national networks. Adelstein vigorously supports smaller licenses, apparently from his traditional concern for rural wireless and in response to lobbying from the rural bidders. Tate and Copps appear to have lined up along party lines. This leaves McDowell as the tie breaker. I make this one too close to call, but give a slight edge to larger licenses given Martin’s support. The issue may get rolled over to the next rulemaking.

Issue: The Frontline Proposal
Frontline has proposed a 10 MHz national “E Block” that would operate as a wholesaler under “open access” rules. They also propose to permit any network attachment (aka “wireless Cartefone). The E Block winner would build a national public safety network for the proposed 12 MHz public safety national “data” license and would negotiate with the national public safety licensee for access to spectrum, giving E Block and Public Safety access to each other’s spectrum.

Who Supports? Frontline is supported by the PISC, which sees open access and wireless network attachment rules as important ways to stimulate innovation and break the current “spectrum oligopoly.” PISC beleives getting an open wireless competitor in the market will pressure other wireless providers to open their networks.
Frontline has also gathered support from the public safety community, which sees the hope for Cyren Call fading fast.

Who Opposes: Just about every other potential bidder, including possible new entrants seeking a national footprint like DBS. This proposal takes spectrum from the “general” auction and imposes conditions they don’t like. They have argued that adopting the Frontline proposal will drive down auction revenue and prevents others with “different business plans” from winning the proposed E Block. They also allege that allowing E Block to access the public safety band and the public safety folks to access E Block violates the 2005 DTV transition/auction statute that divided the spectrum up between public safety and commercial uses.

Wild Card: At the Thursday House Hearing, Frontline received express support from Commerce Chair Dingell (D-MI) and Telecom Subcommittee Chair Markey (D-MA). It also received support from Pickering (R-MI), considered an influential player on telecom issues. Only Upton (R-IL), the ranking member on the Telecom Subcommittee, voiced strong opposition. Other members, including Ranking Commerce Member BArton (R-TX), expressed neutral views or vaguely supported Frontline.

Prediction: It was the need to do a public notice on Frontline that got the impetus for a Further Notice in this meeting in the first place. Martin appears to support Frontline, although it is rumored that he may try to strip out the open access and/or network attachment rules on the grounds that the FCC shouldn’t “regulate business models” and that these issues are subject to other pending inquiries such as the Skype Petition and the network neutrality Notice of Inquiry. The Dems support open access and wireless network attachment rules, but have traditionally been hesitant to allow public/private partnerships in public safety. McDowell has expressed concerns that this will delay the auction and might open the FCC to some undefined “legal exposure” that would give rise to a license challenge.

Look for the FCC to advance Frontline to the next round, but explicitly solicit responses on whether to keep the open access and network attachment conditions.

Issue: The Band Optimization Plan (BOP)
Allows certain players to swap spectrum, resulting in benefits to public safety and the guard band licensees by simplifying the spectrum plan and changing the size of the guard band licenses between public saftey and commercial spectrum.
Who Supports?: Public safety, the “4G Coalition” (DBS providers, Gaurd Band Licensees, and tech companies such as Google), Frontline, and the PISC.
Who Opposes?: All incumbent licensees.

The BOP went from widely considered a non-controversial shoo-in to dead-in-the-water over the last two months. Numerous rural incumbents filed cookie cutter oppositions protesting that it would upset their settled expectations about the band since the FCC settled on the original plan in 1997-98. Incumbents generally challenged the legality since it would give greater spectrum access to public safety than allocated under the 2005 DTV transition and auction statute.

I personally feel that incumbents oppose it because it makes it much easier for new entrants to create a national footprint. This is why the DBS guys support it. It also makes it much easier for Frontline if Frontline is adopted.

Predicition: Look for the BOP to get rejected. In the last few days, the BOP supporters have pressed hard for an alternate plan. If BOP survives at all, it will be in considering the alternate plans and possible variations.

Issue: Open Access, Network Neutrality, and Network Attachements
The Public Interest Spectrum Coalition (PISC) filed comments proposing to apply network neutrality and network attachment rules to all commercially auctioned spectrum. In addition, PISC asked the FCC to auction 30 MHz of the spectrum as open access licenses.
Who Supports?: Public Interest Spectrum Coalition.
Who Opposes: Pretty much everyone who opposed Frontline, i.e., all the other potential bidders who want to offer networks on the same terms they offer now (or would if they had the chance).
Annoyingly Missing In Action: Our supposed Lords and Masters, Google, et al., who already showed up at the auction for the 4G Coalition because they want more broadband competition. Hellloooooooo!!!!!!!!!!!!!!!!

I won’t rehash the issues. Gigi Sohn does a good job of why the FCC needs to do this and get the 700 MHz rules right over here.

Predicition: Well, we always knew it was a long shot when we filed. In addition to the usual up hill struggle at an FCC where the majority doesn’t even want to think the words “network neutrality” too hard, we face the usual incumbent threat that “if you mess with the auction rules no one will show up to bid and everyone will hate you forever.” That makes even the Democrats look askance at possibly burning political capital. Remember “spectrum auctions are the crack cocain of public policy,” and no one wants to mess with the multi-billion dollar hit of revenue supposedly waiting at the end of the spectrum auction crack pipe. But even if the Ds fight whole hog for us, there isn’t a single R that has embraced the principles we are fighting for here. Given the utter absence of either tech companies or the kind of public outcry that made the AT&T/BellSouth merger conditions possible, I think our chances of moving forward to the next round are pretty close to zero.

OTOH, I live from day-to-day in the hope of pleasant surprises. If nothing else, the Ds may be able to leverage our demands to negotiate some positive language or other concessions out of this.

Also, I have to say, this was almost worth it for the incredibly whiny reply we got from MetroPCS (the other incumbents, as usual, ignore us and hope we go away). Mostly, it boils down to how awful it is that members of the public think they can just waltz in to the cozy little spectrum club and demand all manner of consumer protections and stuff as if they had some right to participate instead of leaving all this extremely technical and very important spectrum stuff to the people who really matter here — the incumbent licensees. I swear to God, when pressed to the wall, the incumbents invairably act like spoiled six-year olds. The fact that it is a public process and that members of the public have every right to come in, even at this late stage, and demand that the FCC pay attention to the public interest, is a good lesson for them to relearn.

Issue: Anonymous Bidding
For folks coming to this for the first time, anonymous bidding means that bidders in the auction will not see anything except the winning bid for each license at the end of each round. Regular readers will identify this as one of my favorite auction problems to yack about endlessly with great passion. In the interests of brevity, I will direct folks in need of background to my recent public knowledge post and this post from when the issue came up in last year’s AWS auction.
Who Supports?: PISC
Who Opposes?: All incumbents except, oddly enough, Verizon, which offered luke-warm support for the concept last time and hasn’t said anything this time.
Who Needs to Get Off Their Asses On This?: DBS providers, Tech Companies, and anyone else who wants to win a license or see new competitors.

Prediction: I think this makes it to the next round. In fact, the FCC may put it off another round until it gets to the public notice on actual bidding rules. While the Ds sided with industry last time, the new evidence from the Rose Reports should give it the push for further discussion.

Issue: Package and Combinatorial Bidding
Allows bidders to create packages of licenses so that if you lose a license in the “package,” you don’t have to take the other licenses. This lets those trying to get a national footprint bid aggressively without worrying they will get stuck with only a handful of licenses they can’t really use.
Who Supports?: 4G coalition, PISC.
Who Opposes?: Most large and small incumbents. Small rural providers particularly dread the prospect that “their” licenses might get included in a package and they would go head-to-head with a well-financed party seeking a national footprint.

Predicition: Package bidding is a popular way to do something for competition if the FCC does not opt for anonymous bidding (or even if it does). OTOH, implementing it is a real bear, and creates potential problems for FCC staff in terms of vetting and tracking the packages, and tallying winners post-auction. If a package bidder has the high bid on a number of licenses, but loses the package, then the winners of the licenses need to be redetermined. I predict the FCC tentatively decides to go with some form of combinatorial or package bidding, but solicits further details on how to implement it given various concerns and complaints.

That’s what I’ve got for now. As always in intensely lobbied proceedings with billions of dollars and the future of industry at stake, the situation remains fluid and anything can happen.

Stay tuned . . . .

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One Comment

  1. Jonathan A. Holloway says:

    25 April 07

    This remark will reveal my total ignorance of the many aspects of this matter.

    A couple of things are irrefutable. The government is rubbing its hands together at the prospect of making $10-15 billion off this auction. Why does the government feel that this is their money? I thought the airwaves belonged to the public. Government has repeatedly shown that the best interests of the public frequently conflict with its concept of what is best for us rather than what is best for it—and we know who wins that one.

    Second, this (no surprise) is all about money. The people with the gold, and the power that it can buy, will have their way with the upcoming auction. Be assured of that. That doesn’t mean that the outcome will necessarily be good for the average U.S. citizen. Greed and power are such a powerful drugs that the addicts will assert their right and need to accommodate their continued use.

    An idea that will never happen: why doesn’t someone write a “Constitution” and “Bill of Rights”, (where have I heard those words before?) which govern the operation of this valuable piece of spectrum, defining all persons’/organization’s access to, and use of, this resource. Also, figure a way to make the auction and money a non-starter. If ways were devised to share the spectrum in order to maximize its efficiency rather than cordoning off select portions for one outfit’s exclusive use, (and we know that things like “packets” work because we use and depend on them all the time), wouldn’t that be a more honest way of providing the best deal for the American public and guarantee respect of the public’s alleged ownership of the airwaves?

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