Lawmakers Press Martin on Small-Business Role in 700 MHz Auction

“Some small communications companies have raised concerns about whether the auction rules are fair and whether the benefits of the auction will in fact extend to them,” said Chairman Nydia Velazquez, D.-N.Y. “The revised [DE] rules have made it very challenging for them to raise money and imposed significant restraints on their ability to run a valuable communications business.”

Martin defended the DE rules, which his agency devised before last year’s advanced wireless services auction. “The changes the commission made in 2006, which were done on a bipartisan basis by the commission, were done to respond to the significant issues around fraud that had been raised,” he said, adding that those changes “allowed small entities to actively participate and win in the auction that we had in 2006.” Martin noted that more than half the winning bidders in the AWS auction were DEs.

Martin told reporters he wasn’t surprised at the number of questions involving DEs, and said rule changes are possible before the auction. “As we go through each auction I think we try to revise and reform all of our rules to make them better and improve upon them,” he said. “Would we consider making changes to them? Sure. We always do.”

Velazquez and other committee members asked if the open- platform requirement will promote competition. “One of the things people raised with the commission was the concern that small businesses that were developing new software and new applications were having a difficult time getting those applications placed on the devices that were sold by the large incumbent carriers,” Martin said. “Trying to have a new more open platform will facilitate the opportunities for that kind of innovation to occur.”

The FCC tried to “find a balance” on the open access requirements, Martin said. The agency didn’t impose them on the smaller spectrum blocks that will be sold, and recognized smaller carriers’ objections, he said. “We could have applied the open-access requirements everywhere,” Martin said. “But the smaller carriers didn’t want that either. They didn’t want the open-access requirements applied to the pieces of the spectrum they were more interested in. Ultimately, when we said we were going to apply it somewhere else, they were concerned it would drive some of the larger carriers to the pieces of the spectrum they were more interested in.”

Rep. Steve Chabot, R-Ohio, asked if the FCC mainly holds auctions to maximize returns or whether other “public interest values” come into play. “The rules we adopted do not maximize revenue,” Martin replied. “If we wanted to recognize revenue, all of the studies show we would sell all of the spectrum basically in the largest geographic area possible, if not nationwide, and all of it on a very large spectrum basis with no buildout requirements whatsoever.” Martin said economists agree that auction price would be highest if incumbents could buy spectrum and not use it.

The auction rules provide “only limited opportunities” for small carriers to buy spectrum, Edward Bond, president of Public Service Communications, Inc., a small Georgia carrier, told the committee. “Small businesses have no opportunity to acquire the huge C block licenses in the auction and the FCC’s construction requirements do not encourage the large C block licensees to work with small businesses,” he said.

The FCC should offer more licenses in small sizes, Bond said. Small carriers’ main opportunity is to buy cellular market area licenses in the B block. “But because only a handful of companies will be able to compete for the upper 700 MHz blocks, there will be tremendous competitive pressure from small and midsized and regional bidders on the lower 700 MHz B block licenses,” he said. “Accordingly, many, many small companies will find they have no chance of acquiring a license.”

A stipulation that DEs hold licenses for 10 years or pay steep financial penalties keep many smaller companies from bidding in the 700 MHz auction, said Shelly Spencer, president of Wirefree Partners. “The FCC intends to use the small business rules adopted just prior to the AWS auction in the 700 MHz auction,” she said. “This does not bode well at all for small business participation or success.”

Reserve prices on licenses are too high, Spencer said. For example, she said, the smallest license costs $797,000 in San Antonio, $2.9 million in Cincinnati and $59 million in New York City. “The capital requirements are staggering for small businesses,” she said.