Federal Communications Commission Chairman Kevin Martin is coming under mounting pressure to back off a controversial plan to auction a national wireless Internet license that would require the winning bidder to provide free broadband service, open access and filtering to block obscene content.
But there is no sign the FCC chief will retreat, seeing that Democrats – who control Congress and are investigating management of the GOP-led agency – support efforts to increase sagging U.S. broadband penetration and foster consumer choice in a high-speed Internet market dominated by cable TV and Bell telephone giants.
As such, with the FCC poised to adopt final rules for advanced wireless services-3 spectrum as soon as next month, leading wireless providers and influential GOP lawmakers are stepping up criticism of the agency’s proposal in hopes of persuading federal regulators to rethink what they predict will be a repeat of 700 MHz auction mistakes.
Repeating mistakes
“We think your proposed rules could repeat this mistake by tailoring the AWS-3 spectrum largely to the business model of a single party,” Reps. Joe Barton (R-Texas) and Cliff Stearns (R-Fla.) said in a letter to Martin. “Placing these conditions would result in the commission choosing winners and losers, as well as denying taxpayers the added revenue the spectrum would likely fetch if auctioned without the conditions.”
Though not identified by name, the two lawmakers appear to be referring to M2Z Networks Inc., a Silicon Valley-funded startup headed by former wireless policymaker John Muleta. The firm’s free, family-friendly wireless broadband plan was rejected by the FCC, prompting a legal challenge in the U.S. Court of Appeals for the District of Columbia Circuit. Despite the legal tussle with the FCC, M2Z appears anxious to bid on a national AWS-3 license.
Barton, ranking member of the House Commerce Committee, and Stearns, ranking member of the telecom subcommittee, accused the FCC of undermining the 700 MHz auction by approving special rules they claim were tailored to business models proposed by now-defunct Frontline Wireless LL.C. and Google Inc. The lawmakers said the 700 MHz conditions amounted to disincentives for private-sector players needed to create a national public-safety broadband network and subsequently drove down revenues from an auction that raised nearly $20 billion earlier this year.
Barton and Stearns predicted the FCC’s plan to require free broadband service, content filtering and other obligations of the national AWS-3 license winner would also lead to negative consequences.
The cellphone industry strongly opposes AWS-3 conditions, arguing that potential interference from operations in the 2155-2175 MHz and 2175-2180 MHz bands would sabotage investments from wireless carriers – particularly the smallest of the four national operators, T-Mobile USA Inc. – that spent top dollar to win licenses in the AWS-1 auction two years ago.
An FCC spokesman declined to comment on the Barton-Stearns letter, but said the agency looks forward to reviewing public comments this month on the AWS-3 proposal.. Meantime, the FCC is considering options for re-auctioning D-Block frequencies. It’s unclear when the FCC will hold AWS-3 bidding and the D-Block re-auction, but the timing of both events is bound to influence business decisions in the wireless industry.
Comments on the AWS-3 proposal are expected to arrive at the FCC on July 9, with reply comments due a week later.
T-Mobile pushes for tests
However, T-Mobile, which picked up 120 licenses for nearly $4.2 billion in the AWS-1 auction, wants the comment deadline extended three months time so that testing can be conducted to examine interference issues raised in the FCC proposal. The carrier said there is no reason for an FCC rush- to- judgment on AWS-3 rules.
“The commission cannot responsibly reach a decision on the proposal advanced in the [latest AWS-3proposal] without gathering empirical data concerning the interference risks that have been identified,” T-Mobile told the FCC. “TDD proponents have not provided any evidence whatsoever to meet their burden, and adjacent licensees concerned about the TDD proposal have not had adequate time to comprehensively finish their own interference analyses because they had no notice that the commission would shift the burden to them to provide affirmative evidence of interference. Even when it became clear that the commission was leaning toward a TDD proposal, the commission failed to take up T-Mobile’s repeated invitation to participate in joint testing of AWS-1 devices and those devices’ vulnerability to interference from TDD operations in the AWS-3 band.”
T-Mobile said at least a 30-day comment filing deadline extension is necessary so it can submit results of testing that is currently in progress.
In addition to controversy over whether the FCC is effectively dictating a business model through imposition of detailed service-related requirements on AWS-3 spectrum, there’s the question about its impact on auction receipts. Auction revenue – whose fiscal significance is only amplified at a time of a massive budget deficit and economic downturn – cannot be weighed in a vacuum when federal telecom regulators craft policy based on public-interest determinations. Some critics argue 700 MHz auction revenue could have been higher if there hadn’t been open-access conditions on one-third of the spectrum. As a consequence, Verizon Wireless picked up prime real estate in spectrum terms at a heavy discount.
The value of AWS-3
The Phoenix Center for Advanced Legal & Economic Public Policy Studies calculates that the AWS-3 spectrum could fetch about $2.8 billion at auction without conditions.
“There may be significant social or consumer value to many of the conditions proposed by the FCC for the AWS-3 license,” said Phoenix Center Chief Economist George Ford. “But policymakers should be aware of the impact that their decisions have upon the value of spectrum and the business case for offering wireless services over encumbered licenses.”
Lawrence Spiwak, president of the Phoenix Center, said the study was not underwritten by the wireless industry. Spiwak said the Phoenix Center strives to be an objective voice in telecom policy debates, declining to take sides or even to submit comments in FCC proceedings. He said the Phoenix Center does not disclose the names of donors.
Steve Largent, president of cellular association CTIA, said Martin’s plan to increase broadband competition in a virtually duopoly market could come at a high price if you happen to be one of the winning bidders for AWS-1 licenses.
“If permitted to operate as proposed, M2Z’s service will cause costly, service-degrading interference to the adjacent operations of competitors such as T-Mobile, U.S. Cellular Corp., MetroPCS Communications Inc. and Leap Wireless International Inc,” stated Largent in a letter to the FCC. He added: “Those same companies that risked billions of dollars of capital to obtain scarce wireless spectrum resources and are now seeking additional funding to finance their wireless broadband deployments are being told caveat emptor, buyer beware. In other words, they should have known that the FCC was playing a game of ‘bait and switch’ – now you have it, now you don’t.”
In response, M2Z’s Muleta stated: “CTIA, through Mr. Largent’s latest letter, continues to badger the FCC to abandon the public interest and the expansion of communication services to consumers in favor of corporate and industrial welfare for a few of the world’s most profitable monopoly telecommunications carriers. Mr. Largent’s letter to the FCC commissioners does nothing to address or refute
the public-policy issues raised in the AWS-3 proceeding. In reviewing his letter, we were disappointed but not surprised to see that there wasn’t even one mention of the public interest – the standard by which Congress requires the FCC to make its decision as it considers various ways of expanding the availability of communications services to American consumers.”
As for the Phoenix Center study, Muleta said the analysis “did nothing to refute the three independent studies provided to the FCC on the benefit of the social welfare benefits associated with making free broadband available on a nationwide basis estimating that consumers would directly benefit between $18 billion to $32 billon as a result of the conditions that the FCC is proposing to place on the AWS-3 band. In fact, we note that the Phoenix study’s author specifically caveats that he did not consider the social welfare benefits of such conditions or the fact that the unpaired nature of the AWS-3 band has a significant impact on its market value.”
Congress is carefully monitoring the AWS-3 battle at the FCC. Reps. Anna Eshoo (D-Calif.), Christopher Cannon (R-Utah) and Edward Markey (D-Mass.), the latter being the chairman of the House telecom subcommittee, have sponsored legislation to foster deployment of a national, family-friendly wireless broadband network with open access using AWS-3 frequencies.
