Assessing success in the FCC's 700MHz auction

News.com's Anne Broache co-wrote this report.

The Federal Communications Commission generated $19.6 billion in the 700MHz spectrum that ended Tuesday, but the true success of the auction will take months or even years to assess.

There's no question that the auction, which began on January 24, was a monetary success for the government--it raised a record $19.6 billion in 261 rounds of bidding. During a conference call with reporters Tuesday after the bidding closed, FCC Chairman Kevin Martin said the 700MHz auction was the most successful auction the agency has ever conducted, raising more money than all previous auctions put together, excluding the Advanced Wireless Services, or AWS, auction in 2006.

"The $19.6 billion generated by the auction nearly doubled congressional estimates of $10.2 billion," Martin said. "All other 68 auctions conducted by the FCC in the past 15 years collectively generated a total of only $19.1 billion in receipts. Even with open-platform and aggressive build-out obligations, each of these blocks sold for more than AWS-1 blocks with comparable bandwidth and license areas."

Despite the obvious financial success of the auction, it will be a long time before it's clear whether the FCC was successful in achieving some of its broader policy goals, such as creating a more open wireless marketplace and a nationwide interoperable public safety wireless network.

The 700MHz spectrum has long been considered the last bit of beachfront wireless real estate left in the air. The spectrum, which is being vacated by the switch to digital TV in 2009, is considered valuable because of inherent properties that allow it to propagate over long distances and penetrate walls. Some experts believe the spectrum is ideal for offering robust, affordable wireless broadband services.

The spectrum auction attracted a broad range of companies, including nontraditional players such as Internet search giant Google and wireless technology provider Qualcomm. Traditional phone companies Verizon Wireless and AT&T were also interested in getting their hands on the spectrum.

Trying a new approach
As part of its rule making for this auction, the FCC tried something new. It set specific rules for two of the five blocks of wireless spectrum. For the C block, it established rules that require license winners to build a network allowing any device to operate on it. The C block reached its threshold of $4.6 billion in only 17 rounds of bidding, triggering this open-access rule. But the D block, set aside to build a nationwide public-safety network, did not meet its reserve price.

Google, which had pushed for open-access rules for some of the spectrum, was bidding on the open-access C-block licenses. But Rebecca Arbogast, a principal telecommunications analyst with Stifel Nicolaus, said she wouldn't be surprised if Verizon Wireless, and not open-access proponent Google, takes home that slice of spectrum. (Google had committed to bidding up to $4.6 billion, but the final price for that block was $4.75 billion, according to FCC figures released Wednesday.)

"When it finally came time to go into the auction, I think they (Google) were pretty firm about wanting to enforce the open-access conditions as much as it could be enforced, but also being firm on not really being interested in becoming a network operator," she said. "I think they were a willing loser."

Why open access matters
The open-access requirement is significant because today, U.S. wireless operators have tight control over which devices can be used on their networks and which applications can be used on those handsets. Google and other companies, such as Skype, have complained that this is too restrictive.

Verizon, which has traditionally been the most strict operator in the U.S. about what it lets on its network, recently said it would allow non-certified devices on its network. On Wednesday, the company is hosting a developer conference in New York where it's expected to reveal details of the first version of specifications for these new open-access devices for its network.

If Verizon Wireless is the winner of the C-block licenses, it will likely include this spectrum in its open-access plans. But until details about the actual service plan are revealed, it's difficult to say just how serious Verizon is about open access. If the service is priced too high or customers find that buying their own handsets is too expensive, the whole notion of an open-access network could be moot.

Still, Chairman Martin said on the conference call with reporters Tuesday evening that he was pleased the auction had prompted the open-access rules to take effect.

"With the open-platform requirements on one-third of the spectrum, consumers will be able to use the wireless device of their choice on those networks and download whatever software or applications they want on it," he said. "The open platform will help foster innovation on the edge of the network, while creating more choices and greater freedom for consumers to use the wireless devices and applications of their choice."

Another slice of the spectrum called the D block was set aside to build a nationwide network for public-safety operators. But that segment didn't attract the FCC's $1.3 billion reserve price. In fact, it didn't attract any bids beyond the $472 million opening bid.

Stifel Nicolaus's Arbogast said she thought a combination of factors caused the lackluster bidding on the D block, including lack of certainty over what was expected of the public-safety network that had to be built, and general tightening of capital markets.

Frontline Wireless, an entity that hoped to build a national network for emergency responders, was expected to be the big winner of the D-block spectrum licenses. But the company, which was headed by former FCC Chairman Reed Hundt, folded at the beginning of January just before the bidding got under way.

Now it looks like the FCC will re-auction the D-block spectrum separately later this year. FCC Chairman Martin would not say specifically when the new D-block auction would take place, but he said the commission hoped to expedite the process so the spectrum was available in plenty of time before the February 2009 digital TV conversion deadline. He also reiterated his hope that the spectrum could be used toward building a nationwide public safety network.

Representative Edward J. Markey (D-Mass.), chairman of the House Subcommittee on Telecommunications and the Internet, will hold a hearing to decide what to do with the D-block spectrum.

"I believe that any new auction for the 'D block' should be consistent with an overarching policy goal of advancing public safety objectives and ultimately achieving a state-of-the-art, broadband infrastructure for first responders," he said in a statement. "In developing a plan for a re-auction of the 'D block,' the FCC should also take into account the auction results to gauge the level of new competition achieved. Policymakers should also analyze whether a need for a high reserve price continues to exist."

The identities of the auction bidders are still a secret. To prevent anti-competitive behavior, the FCC kept the bidding anonymous. Martin said the names of the auction winners would not be revealed until the commission voted on separating the D block from the rest of the auction. Since the FCC won't be able to get this item on its agenda for at least three weeks, the names of the winners won't likely be revealed until April.

[directorblue]

Auction success must be gauged by total return to the economy...

...only that would have made too much sense for the FCC, who limited the evaluation scope to a hard-dollar return.

Had a wholesaling requirement and all of the other open-access requirements Google suggested been stipulated by the FCC, we'd have touched off a tidal wave of innovation similar to Web 1.0.

Instead, FCC-head-und-former-telco-lawyer Kevin Martin set the stage for more market domination of wireless by Verizon and AT&T.

In fact, the last technical innovation I think AT&T came up with was the pink princess phone.

So we've got that going for us.

[chash360]

No Success

The fact that the auction occurred ensures that there will not be success for the people. Things that put money into the economy are things that put money in the common peoples pockets (for them to spend) not to be vacuumed up by the telco's. Telco profit does nothing for the economy. Paying for wireless 'service' is like paying someone for gravity. The only way to create real value is through productive work, not leaching off the public with government sanctioned monopolies.

The devices themselves can provide the service, what do we need the telcos for? Oh yeah billing, right???

Karma put a curse on Kevin Martin for selling out the American people, just like the rest of this screwed up Administration!

[My-Self]

What about us, the people ?

network operators had it sliced between themselves, but what about the rest of us ?
Why can't we have a part of the frequency spectrum ?
Why aren't citizen authorized to setup any form of private communication / wireless access / community service ?
Why is radio communication a privilege strictly reserved to powerful and wealthy corporations ?

The huge success of WiFi despite it's minuscule transmission power illustrate the need for citizen operated wireless and a reserved citizen bandwidth (allocated and shared among groups and individuals) that would spur a wave of innovations and public interest not unlike what ham radio did for previous generations. Part of the easy / cheap to use 700Mhz bandwidth would have been perfect for that use.

[JohnDPage]

What happens to the money?

$19.6 billion. That's money taken from the communications industry and fed into government coffers. A tax in reality. This notion that the spectrum 'belongs' to the FCC is odd. They sold something they don't own.

How about at least using the money to remove all federal taxes from phone service? That would immediately benefit the end users, grow the industry, and simplify billing.

[paulsecic]

Phony war

that's it

[chash360]

The people will end up paying for it....

The EM spectrum is a natural resource, and a limited one at that. It will be no surprise when they anounce what huge telco got the spectrum. And we will again pay 3 times as much to use what is cheaper than wired networks to maintain and provide service over, and they will continue to monopolize the airwaves. The gov and FCC will pocket this money and there will be no insurance that the people will get any benefit, that is not paid for 3 times over by their gouging pricing practices. The FCC had the perfect opportunity to establish a new updated wireless communications infratstructure to bring us through the next century, and instead they decided to line their pockets.

Don't be fooled by their claims of interoperability, when they say you can use any device, that means you can use any device as long as you pay for access.

What the people want and need is a free open network, where the FCC can regulate frequencies, power spectrums and device specs, but access is free and unimpeded by greedy telco's. If the FCC would regulate at the device level instead of the license level, we could revolutionize all communication at the pace of the peoples demand, verses the pace of telco's ability to gouge and profit (which does not drive innovation). For example if you could buy a single device that provided all of your communications service needs (Broadband Video, Voice and Internet, etc.) and did not require monthly fees, how much would you be willing to spend? I can tell you for absolute fact that such a device already exists, and costs less than any American pays for even one of the 'services' in a year (and that's making a profit on the device). Why don't we have it? because the FCC will not allow you to use this natural resource without a license, and they have just sold those licenses to the highest bidder ensuring we will not have free communication, and probably never will. The FCC has violated the American public by directly and intentionally creating a monopoly, AGAIN! Thanks for nothing FCC.

[freemarket--2008]

Nothing is FREE...

We would end up paying much more in taxes for the government bureaucracy needed to run this so-called 'free' network. But since you don't really know what your taxes are paying for anyways...who cares, right?

[ebswimax]

D Block Options...

The FCC grossed $19B+ for auction of this spectrum (700MHz A, B, C, & E Blocks). It is my opinion that the FCC decision makers knew that the D Block would not be bid on and that potential bidders were ?encouraged? to stay away because if the spectrum was to go to re-bid, it would provide another 10 ? 12 MHz of spectrum for strictly commercial broadband use.



Back in the 1960?s and 70?s the FCC assigned ITFS (now EBS, 2495MHz ? 2690MHz) to colleges, county and state school boards, and other non-profits for broadcast of educational content within their geographical service area (GSA). This did not cost these entities anything. Now this EBS is in high demand for its capabilities regarding WiMax and with the rule changes by the FCC back in 2004 companies like Sprint/Nextel and Clearwire have approached EBS Licensors with long term lease deals (big bucs for the EBS owner) for use of this spectrum within their GSA. The FCC screwed up on this one by allowing a ?du-opoly? to acquire long term use/lock of this spectrum.



Rather than going to re-bid for the 700MHz D Block, I believe the FCC should sit on or ?assign? (for now) this block to each individual County (3077) within the United States. As this spectrum is developed, and applications deployed, the Counties would then have this asset available for public/private partnerships. This could also provide the ability for this asset to address not only Public Safety apps, but other Municipal Operations, School System, and Community Outreach Programs such as Digital Inclusion & Literacy (low income/poverty level), Workforce Development, Urban, Youth, or Senior programs, etc.