FCC EYES POTENTIAL AUCTION OPTIONS FOR MSS SPECTRUM, INCENTIVES

Auction concept is among several on table at FCC and still is in relatively early stage, although it appears to be getting serious attention on 8th floor, several sources said. If Commission ultimately were to auction returned MSS spectrum, several industry observers said they would view details as dress rehearsal for how agency would provide future incentives for incumbents to vacate spectrum to allow more flexible allocations. It also would raise questions about valuation of potential bid credits, especially because of varying extent to which MSS operators had built out their licenses, industry source said.

FCC in Aug. 2001 opened rulemaking in response to request by New ICO to develop terrestrial spectrum using bands allocated to MSS. In March, agency sought additional technical comments on proposals that would allow flexibility in services provided using MSS spectrum. It earlier had sought comments on plan that would allow MSS operators in certain bands to provide service in areas where MSS signals were attenuated by integrating terrestrial operations with their networks using assigned MSS frequencies. In more recent comment period, FCC wanted feedback on alternate proposal that would open parts of MSS bands for any operators to offer terrestrial service that could be provided in conjunction with MSS or alternative mobile service altogether. While New ICO had sought flexible use of MSS spectrum to allow ancillary terrestrial component (ATC), CTIA has urged FCC to reallocate that spectrum and make it available to other services such as 3G. Last month, AT&T Wireless, Cingular, and Verizon Wireless asked FCC to take another look at MSS to ascertain whether it could be viable technology without ATC.

Process of looking at MSS options has involved “multibureau team effort,” including International Bureau, Wireless Bureau, Office of Engineering & Technology and Office of Plans & Policy, source said. Team has been looking at issues and is developing recommendations for commissioners, source said. Industry source said proposal involving auction of MSS spectrum and accompanying incentives was “the theory du jour” and had particular interest of FCC Chmn. Powell. Several industry sources said some bureaus had embraced that approach more enthusiastically than others, although they stressed that details still were being worked out. Auction idea still appears to be one concept among several under discussion on 8th floor, although some expect Commission will issue further notice this fall. One possibility eyed as part of auction proposal for MSS would entail providing bidding credits for licensees who returned their spectrum, several industry sources said. Along with that, MSS licensees who returned spectrum and then competed in auction along with other bidders could receive flexibility to provide ATC, sources said. Several sources said that other options remain on table at FCC, including original proposal raised by New ICO.

“Bidding credits are vehicles of auction distortion. They distort auctions fundamentally,” said wireless industry source. Were the FCC to allow auction credits, it would mark historical shift toward basing decision on whether business was success or failure, particularly because MSS licensees didn’t pay for their spectrum, source said. (Several MSS interests have told FCC that adding ATC was only financially viable way to make satellite service work.) Numerous industry observers said one key question involving auction scenario was how bid credits, if they were allowed, would work. One possibility is that credits could be structured so they could be used in any auction, not just bidding involving returned MSS licensees, which would mean they could potentially be sold to other carriers and converted to cash, industry source said. Source said system could work for MSS licenses at 2 GHz by allowing them to keep license and build out their system without ATC or to turn it in and receive bidding credit in particular auction. “The devil is in the details and there are no details here yet,” source said. “Is it a bid credit in any auction for the next 5 years? Is it some percentage of the amount that you bid at the auction, like the entrepreneur credit you get in some auctions? Or is it just some fixed dollar amount and, if so, what is it based on?” That source asked whether such credit could be based on amount spent preparing licensee’s application and constructing its system: “For most applicants that would be a very small number.”

Outcome of MSS proceeding is seen by some as having implications for how FCC addresses such flexible use questions in future. How rights of incumbents should be balanced against those of new users when more flexible allocations are granted is among questions that FCC’s Spectrum Policy Task Force has been examining. Several mobile wireless companies have urged Commission to make distinction between prospective and retroactive grants of flexibility, saying that degree of flexibility must be defined when spectrum is auctioned because that helps bidders to make accurate valuations. “I view this as a dress rehearsal,” industry observer said. “How do you monetize the value of MSS spectrum that licensees would be turning back?”

Several industry sources said reception that auction proposal, if finalized, would receive among wireless carriers would depend on how or whether bidding credit was allowed. Concern would hinge on providing financial rewards to MSS operators that didn’t pay for their satellite spectrum in first place. “It seems the game is going to be how you work that incentive to get these guys to throw their licenses into the auction and ascertain the value of the spectrum being contributed,” industry expert said. Even between satellite licensees, valuation of returned spectrum could be tricky, another source said. Globalstar is seeking authorization to offer ATC services in Big LEO frequencies it’s using for existing satellite services as well as newly licensed 2 GHz bands. In bands such as Big LEO, “are you going to give someone an option to turn in the license on an operating system?” source asked. Another question on how to value bidding credits could involve Constellation and Ellipso subsidiary ESBH, which signed merger agreements with New ICO earlier this summer to launch 2 GHz MSS. Industry source questioned whether that could entitle New ICO to 3 bidding credits or if transfer of control applications would be treated differently.

Possibility of MSS auction came up at ISCE’s Long Beach, Cal., show last week. In panel discussion, Iridium Chief- Corporate Development & Strategy Charlene King said MSS operators “plan to fight terrestrial carriers for spectrum that FCC could possibly auction.” King said MSS users didn’t want “new spectrum,” but simply right to use “our own spectrum” in conjunction with ancillary terrestrial components.

Mobile Satellite Ventures Pres. Gary Parsons said he would take wait-and-see attitude because FCC had been known to switch back and forth on numerous proposals from bureaus before making final decision: “I'm pleased to see the FCC considering options.” King said Iridium wanted “level playing field” for spectrum. Like others in satellite industry, she has heard speculation “about auction and bidding credits” for MSS operators. “There is no single issue that’s more important” to MSS operators, King said.