Views mixed on FCC’s 700 MHz rules

While the Federal Communications Commission touts anticipated public-safety and wireless benefits of its 700 MHz rulemaking decision, others are skeptical about whether the ruling will indeed produce a competitor to the Bell telephone-cable TV broadband duopoly or a strong commercial entity willing to partner with first responders on a shared national wireless network.
“We believe the key impact for investors is that there is unlikely to be a new national wireless carrier using the 700 MHz spectrum to compete with the telco and cable broadband incumbents, though we expect some potential new entrants to bid and make a significant effort,” said Blair Levin, an analyst with investment banking firm Stifel, Nicolaus & Co. Inc.
Commissioner Robert McDowell, a Republican on the GOP-led FCC, agreed. “Pinning our hopes on a single national ‘white knight’ to offer only one new pipe is risky at best,” he said.
Indeed, Google Inc. and other large companies often mentioned as prospective new national competitors in the wireless space have yet to commit to participating in the 700 MHz auction scheduled for later this year or early January. McDowell predicted the FCC ruling is more likely to stifle innovation and competition as well as hurt small wireless carriers.
The FCC yesterday decided to auction a nationwide 10 megahertz spectrum block-one adjacent to a 12 megahertz public-safety spectrum block-that would be available for consumer and first-responder communications. Police, firefighters and medics would have priority access during emergencies.
On a separate 22 megahertz regional spectrum block the agency imposed limited open-access requirements, enabling third-party devices and applications to connect to the wireless network so long as they cause no disruption to other communications. If a reserve price of $4.6 billion is not reached for the 22 megahertz of open-access spectrum, the block would be re-auctioned without the open-access mandate.
The FCC majority rejected calls for a wholesale mandate on the 22 megahertz of spectrum, which was advocated by Internet companies, consumer and special interest groups, the two Democratic commissioners and various lawmakers. A wholesale mandate would have required licensees to lease or sub-license spectrum to others.
How limited open access will actually work and be enforced by the FCC remains unclear, the latter apt to be influenced by the outcome of the 2008 presidential election. The 62 megahertz of total spectrum will not become available until early 2009, when broadcasters must relinquish control of that spectrum.
The FCC gave public safety considerable discretion in determining technical and operational aspects of the first responder-commercial wireless broadband network, with the agency making itself the arbiter if the two sides cannot agree on a network-sharing agreement.
But while public safety got the level of control it sought, FCC guidelines governing national public safety and commercial broadband wireless licensees could have unintended consequences that actually work against government and stakeholders’ objectives.
“We think the highest level of uncertainty is over the D block, where we think the commission’s decision to provide public safety a high level of control could discourage potential bidders and could harm the D block winner’s incentives to build and operate the network,” said Levin. The FCC wants to put a $1.3 billion reserve price on the 10 megahertz spectrum block next to 700 MHz public-safety channels.
However, Silicon Valley-backed Frontline Wireless said it is still in the game.
“In the wake of the FCC’s decision, we can roll up our sleeves and get to work building the business of our dreams,” said Frontline Wireless CEO Haynes Griffin.
At the same time, Frontline executives did not hide their disappointment over the absence of a wholesale mandate and the contours of designated entity qualifications necessary for bidding discounts.
“Frontline’s vision remains unwavering for a nationwide 4G network for interoperability-bringing together the promise of high tech with the needs of public safety,” said Frontline partner Jim Barksdale. “We entered this debate to ensure that FCC policy would enable a viable commercial enterprise to meet public safety’s needs through a partnership. But without commitments to ensuring competition-such as wholesale obligations-we are disappointed. The risk is that this spectrum will simply be warehoused by the largest carriers rather than turned loose to meet public safety’s needs.”
Frontline and other parties are expected to petition the FCC to reconsider various elements of the 700 MHz decision. The auction is expected to generate $15 billion for the U.S. Treasury, though that estimate was made by congressional budget experts long before FCC conditions were attached to 700 MHz spectrum. The 700 MHz spectrum being auctioned is highly valuable because the frequencies have excellent propagation characteristics and represent perhaps the last big chunk of increasingly scarce airwaves.
Any court challenge of FCC 700 MHz rules could complicate matters for the agency and stakeholders. Indeed, a suit challenging DE rules in last year’s advanced wireless services auction is pending.