Wireless Spectrum Auctions

FCC Comr. Copps, speaking at first of 4 workshops being held by agency’s Spectrum Policy Task Force, said Thurs. he would like Commission to move quickly to notice of inquiry on potential policy changes once group released report in fall. “These are new times and we need new thinking,” he said at start of day-long workshop, which focused on unlicensed spectrum and experimental licenses. “I think the problems in the last 12 months demonstrate the cracks in our system and demonstrate that we need all the help we can get. There are insufficiencies in our auction process and they have become quite manifest over the course of the past 12 months.” Industry experts wrestled with how FCC could encourage innovation in unlicensed bands without either creating “free- wheeling” environment for interference or overly protecting incumbents from new competition. Several wireless developers urged FCC to facilitate set of protocols or etiquette rules, similar to ones that helped Internet develop, to address increasing use of unlicensed spectrum, which some panelists referred to as creating potential “meltdown” in certain crowded bands. Few panelists, however, called on FCC to provide new spectrum for unlicensed uses, with several experts pointing to ability of technology to develop more efficient uses for Part 15 and other unlicensed bands.

ICO and Globalstar technical proposals to use ancillary terrestrial component (ATC) with satellite systems are nothing more than plans to deploy 2 separate, plain vanilla mobile satellite services, AT&T Wireless said in ex parte filing at FCC Fri. “Although the prospect of obtaining spectrum for free can engender many promises,” it said, “before the Commission devalues previously auctioned spectrum and becomes a party to a massive public giveaway, it should carefully scrutinize whether the promises hold any water.”

FCC Wireless Bureau rejected challenge to revisions it made in lower 700 MHz auction procedures, saying statutory- mandated changes didn’t amount to new bidding rules under Sec. 309(j) of Communications Act. One of largest lower band bidders, Spectrum Holdings, petitioned FCC for reconsideration of decision to let previously qualified bidders select licenses to pursue other than ones originally identified in their applications. To select additional licenses, bidders must have provided information to FCC by July 26, with supplemental upfront payments due in same time frame. Legislation Congress passed in June indefinitely postponed most of 700 MHz auctions set for June 19, with exception of moving smaller C- and D-block bidding in lower band to date between Aug. 19 and Sept. 19. Law stipulated that only bidders that could participate in remaining auction were those that qualified to take part in original lower 700 MHz band auction. Bureau allowed qualified bidders to leave auction altogether and receive return of down payments and those that remained to select additional licenses and supplement upfront payments. Spectrum Holdings contended that part of notice that allowed selection of additional licenses and augmenting of payments violated Sec. 309(j) of Communications Act, which mandates that Commission allow adequate period before bidding rules are issued to permit notice and comment on proposals. In order released late Thurs., bureau said it previously sought comment on process of having qualified bidders set initial maximum eligibility by selecting licenses and making upfront payments. That procedure wasn’t changed in revised public notice, it said. “Rather the bureau merely modified the deadlines by allowing qualified bidders to select additional licenses and make supplemental upfront payments within a specific time period.” Bureau said: “These modifications do not amount to the issuance of new bidding rules within the meaning” of Sec. 309(j). It said its use of notice and comment period when creating mechanism for initial bidding eligibility didn’t require further notice and comment “before the bureau modifies deadlines for selecting licenses or submitting upfront payments, when other relevant concerns make such modifications appropriate.” Law itself that postponed most of 700 MHz auctions, except for licenses up for bid next month, doesn’t “limit the pre-existing discretion” that FCC has under Sec. 309(j) to modify dates for selecting licenses and making payments without comment, it said. “Recognizing that the bureau needs flexibility and discretion in this area in order to respond to changed circumstances and conduct an orderly auctions process, the Commission has granted the bureau broad authority to administer competitive bidding procedures,” order said. It reiterated bureau position that procedural changes were needed because bidders qualified to take part in original 700 MHz lower band auction couldn’t have anticipated changes in subsequently passed legislation when they made initial upfront payments. “The removal of 3 of 5 originally available license blocks significantly changed the availability of lower 700 MHz band spectrum licenses for the near future,” bureau said. “In light of the extraordinary changes in Auction No. 44 required by the Auction Reform Act, permitting qualified bidders to select additional licenses and supplement upfront payments may be the only way to permit a party that currently most highly values a particular license to bid on and win it in the auction, thereby promoting statutory objectives.” Thomas Jones, who heads Spectrum Holdings, said company still disagreed with FCC’s interpretation of law, but said company hadn’t made decision on whether to pursue legal action.

Bush Administration Tues. released long-awaited 3G viability assessment under which Defense Dept. agreed to clear most of 1710-1755 MHz but said freeing additional 15 MHz beyond that was untenable between now and 2008. Result is that report finds way to clear 90 MHz of spectrum for advanced wireless services at 1.7 GHz and in 45 MHz of 2110- 2170 MHz, which is occupied by nongovt. users. That’s less than 120 MHz that NTIA and other Executive Branch agencies had left on table last fall for 3G evaluation, after taking 1770-1850 MHz occupied by DoD out of consideration following Sept. 11 attacks (CD Oct 9 p3). While spectrum is less than originally sought by industry, private sector and govt. officials at Commerce Dept. briefing touted outcome as providing certainty that allocation decisions and auction could be held in 2004-2005 time frame. Also Tues., Commerce Dept. released draft bill to create spectrum relocation fund to pay incumbent govt. users for relocating and modernizing equipment. Commerce Secy. Donald Evans said 3G assessment strikes “a necessary balance between our country’s economic growth and national security, as well as public safety.”

FCC Comr. Abernathy, in speech in San Diego, stressed importance of Commission’s secondary markets proceeding as “an essential piece in our future spectrum policy.” Abernathy spoke Sat. to FCBA Seminar West on future of FCC’s licensed spectrum policy, following speech she gave last week on unlicensed spectrum issues. “We must have secondary markets that will withstand judicial scrutiny if the property-like rights-driven model is to succeed,” Abernathy said. “We must overhaul the antiquated Intermountain Microwave test, we must speed spectrum transactions that do not raise competitive concerns and we must facilitate spectrum leasing.” Intermountain test refers to 40-year-old case interpreting Sec. 310(d) of Communications Act for evaluating wireless ownership transfers. Case has been interpreted to mean that licensee must keep relatively tight hands-on control of licensed property, making spectrum leasing difficult. FCC announced rulemaking on secondary market policy for spectrum last year, including questions on how to update transfer of ownership evaluations to ease secondary markets. If spectrum sharing is possible, FCC “should treat the subset of rights available as a ‘virgin’ spectrum resource,” Abernathy said. That would be potential scenario for non-mutually exclusive applications, which cover spectrum that FCC doesn’t have to auction. So if domestic satellite use can be made available without harmfully interfering or creating efficiency losses to incumbent terrestrial licensee, FCC “should get those rights into the hands of commercial interests” once certain incumbency issues are addressed, Abernathy said. Among questions agency must ask on incumbents is what “bundle of rights” does current licensee have and whether incumbent holds rights to spectrum use proposed by new operator. Where sharing isn’t possible, FCC must ask whether incumbent should be forcibly moved or if proposed new rights should be granted to incumbent, Abernathy said. “When granted discretion, I begin with the presumption that relocation of incumbent service providers is complex, imposes costs on the economy, takes time and may undermine investment incentives,” she said. “Moreover, I am generally very reluctant to insert government into the marketplace on the basis of some asserted ‘better understanding’ of what is the ‘right’ service offering in a band,” Abernathy said. In cases where govt. has relatively high level of certainty that new use has higher value than current use and that incumbent “would not rationally exercise the rights if they were granted to them,” govt. may be justifiably able to forcibly relocate incumbents if there is: (1) Failure of secondary market. (2) Irrational holdout problem. (3) “Temporal urgency.” Problem of irrational holdouts “is why government has eminent domain,” Abernathy said. Point is to bar individual property holder from “irrationally’ blocking asset from evolving to its best use. “This can be a real problem even in fully functioning markets -- so the Commission should be prepared on rare occasions to step in and force a lone holdout out of a band,” she said. Agency should do that only “reluctantly” and on case-by-case basis, Abernathy said. In other cases, forcible relocation may be warranted when there is “temporal urgency,” she said. “Sometimes markets take time, and in extremely rare circumstances the Commission may need to intervene to enable some new service essential to the public welfare,” she said.

Three key rural senators wrote to FCC Chmn. Powell last week, rebuking agency for rule changes for Aug. 27 auction of lower 700 MHz C- and D-block licenses that they said ran counter to legislation that delayed Ch. 52-59 and Ch. 60-69 bidding. “Unfortunately, these modifications to the auction rules allow participants to change their original bidding intentions, and are directly contrary to the statutory language concerning Auction 44 and the intent of Congress in passing the Auction Reform Act,” said letter from Sens. Johnson (D-S.D.), Baucus (D-Mont.) and Enzi (R-Wyo.). Legislation signed by President Bush in June indefinitely delayed most of 700 MHz auctions that had been set for June 19, moving smaller C- and D-block bidding to Aug. 27 for lower band. Smaller configurations of those licenses have been particularly sought by rural carriers. Senators said in July 18 letter that “bottom line” was that legislation didn’t authorize FCC to allow bidders to increase their upfront payments or to change their short-form applications. In updated auction procedures released June 26, FCC Wireless Bureau said eligible pool of bidders for Aug. 27 auction would include carriers that had submitted qualified applications to participate in original lower band auction. It also allowed qualified bidders to select additional licenses by increasing their upfront payments.

Fire-sale values this year on wireless spectrum and equipment finally are creating financially attractive opportunities for rural telcos to lease capacity under 2- year-old FCC policies, panelists said Tues. at San Francisco convention of Organization for Promotion and Advancement of Small Telecommunications Cos. OPASTCO). They said leasing traditionally was prohibitively cumbersome to negotiate with licensees and FCC and exorbitantly expensive, especially considering network build-out. “You either own it or you can’t use it -- that was basically the situation with spectrum until quite recently,” former FCC Comr. Harold Furchtgott-Roth said. Although FCC rulemaking on secondary markets remains unfinished, the notice and related policy statement in 2000 gave regulators’ blessing to leasing, he said. He said would-be telcos needn’t worry much about lessors losing their spectrum because “typically unless something very odd happens, these things get renewed. Lawyer Caressa Bennet said risk of regulatory whiplash similarly was small. “The momentum at the FCC is to relax these rules,” she said. “Having people invested in this [spectrum leasing] makes it harder for them to do anything.” She said the FCC’s Spectrum Task Force should be encouraged to impose technology standards because excessive flexibility impeded manufacturers’ ability to reduce prices through mass production. Access Spectrum acquires capacity at auction and leases it, Pres. Mark Crosby said: “The Commission, I think, likes band management. It gets them out of some things -- licensing, compliance, ground rules -- and they get to hold one party [licensee] responsible.” He said carriers such as Winstar should be barred from leasing because they had conflicts of interest with telcos, and less commitment to leasing than specialized leasing firms such as his.

Verizon Wireless CEO Denny Strigl told National Governors Assn. meeting in Boise, Ida., that to ease “crisis of confidence” in telecom sector, govt. should release NextWave re-auction winners from commitments to pay $16 billion. In March, Commission returned 85% of deposits from Jan. 2001 re-auction but concluded that winning bidders such as Verizon should continue to be held to nearly $16 billion in potential auction obligations until pending Supreme Court review of NextWave case played out. Last year, U.S. Appeals Court, D.C., reversed FCC decision to revoke bankrupt carrier’s licenses for missed payment, overturning re-auction results and provoking govt. appeal to U.S. Supreme Court. “It is bad enough that we have to remain on the hook to the government, to the tune of $16 billion, for spectrum that it cannot deliver,” Strigl said. “Worse, investment firms see our industry as having a $16 billion liability that is impacting their willingness to raise or loan capital.” Earlier this year, House Telecom Subcommittee Vice Chmn. Stearns (R-Fla.) introduced bill that would compel FCC to return remaining 15% of deposits to bidders in NextWave re- auction and allow each bidder to wipe out its license rights under NextWave re-auction to free it from remaining payment obligations. “When FCC Chairman Powell was appointed to the President’s Corporate Fraud Task Force last week, he confirmed how critical it is for government to act on the severe capital crisis straining the telecom industry,” Strigl said. Were Commission to remove $16 billion overhang of payment obligations over NextWave re-auction, he said, “if the FCC ever gets the spectrum back, it can re-auction it then.” Strigl also called for easing “burdensome” regulations at federal and state level. As example, he cited wireless local number portability mandate, for which Verizon Wireless has petitioned FCC for forbearance. Commission is to vote on that request at agenda meeting today (Tues.). Strigl said that mandate, which takes effect Nov. 24, was designed to make wireline carriers more competitive, he said, but “wireless is already fiercely competitive. And when the rule was written, I'd suggest no one gave thought to how it would work. Today, wireless customers can expect to get a working phone number in minutes. That expectation will increase to days with local number portability.” Strigl also cited recent Cal. PUC proposal for consumer protection rules that he said would cost Verizon Wireless “tens of millions of dollars a year in paperwork.” As example, he said proposal would require customers to physically sign for any changes in their service plan, meaning that simple alterations could take days instead of hours.

Progress & Freedom Foundation lunch Fri. on Capitol Hill on wireless markets produced spirited exchange among panelists on timeline in which industry is seeking more spectrum. FCC Office of Engineering & Technology Chief Edmond Thomas said one question he had was “economic strength of the wireless business at this point in time to bid for spectrum. On one side we are arguing for more spectrum. But not too long ago the industry was saying ‘we don’t want 700 MHz, delay the auction.'” While both industry and govt. want additional spectrum made available in timely fashion, Thomas said argument was over what word “timely” meant in that context. “The question is what is timely and how much [spectrum] to make available for which services at which point in time,” he said. “If indeed you make spectrum available and it lies fallow, that’s a problem.” Citing lack of “viable” business plans in Europe and Asia for third- generation (3G) services, Thomas said: “3G to me is not an issue.” In Europe, for example, spectrum was made available solely for 3G without flexibility for carriers to offer services other than those proscribed by auction regulations. Steve Berry, CTIA senior vp-govt. affairs, said that regardless of discussion over whether industry needs 90 MHz or 120 MHz now for 3G, wireless sector also needs decision now “that you will make spectrum available in a very dependable and predictable fashion” so that Wall St. and others would have signal that industry has path to growth. “We have been waiting for 10 years for that to happen. We need a decision today that 90 to 120 [MHz] is made available,” Berry said. “Without a game plan,” carriers can’t invest billions of dollars needed to buy and develop spectrum for advanced wireless Internet services, he said. Brian Fontes, Cingular vp-federal relations, said that how much spectrum is needed has been well documented by global organizations, which have identified minimum of 160 MHz and “realistically” 200 MHz by 2010 in U.S. On 700-MHz issue, Kevin Krufky, legislative aide to Sen. Brownback (R-Kan.) noted that fact that spectrum-hungry wireless carriers didn’t apply to participate in 700-MHz auction that had been scheduled for earlier this summer “should say something.” He said: “The whole problem with that auction is that it had nothing to do with sound policy -- it was an appropriations- related issue.” NTIA Deputy Dir. Michael Gallagher agreed with some private sector speakers that govt. wants to see changes, including more focus on efficiency. “But I think also the industry has a tendency, as we have seen in the 700- MHz debate, to say, ‘well, not so fast there,'” he said. “If we did move a significant amount of spectrum right away, the industry would be among the first to come and say whoa, don’t go there, not so fast, because it means more competition and it means spectrum is going to be available in a way that we can’t quite control.”

Public safety groups and Motorola urged FCC to adopt channelization plan that could accommodate 802.11 technologies in part of 4.9 GHz recently allocated to public safety operations. But several commenters on proposal that would clear way for high-speed digital technologies for emergency communications in band differed on who should be eligible to use that spectrum beyond “traditional” public safety entities. Representing critical infrastructure providers such as utilities, United Telecom Council (UTC) said FCC should adopt eligibility definition that would include entities such as pipelines and railroads that coordinate with public safety during emergencies. However, Assn. of Public-Safety Communications Officials (APCO) backed narrower definition that would prevent fire, police and emergency medical entities from having to compete with others for that spectrum. One point of agreement across broad range of comments was that 50 MHz allocation in further notice approved by FCC in Feb. was important for homeland security, but still fell far short of spectrum needed for public safety operations.