It’s time for Congress to take a stand on nationwide network
By most estimates, the 700 MHz auction probably won’t be completed for more than a month, but there was a virtual sigh of relief emitted from our nation’s capital this week as the total high bids on the valuable spectrum topped the $12 billion Congress established as a minimum threshold to make its budget work.
In fact, that $12 billion benchmark has been surpassed in remarkably quick order; after today’s 24th round high bids thus far totaled $17.488 billion — more than many analysts thought would be bid in the entire auction and certainly more than anyone expected at this point, given that the auction is projected to last more than 100 rounds.
The results should give FCC Chairman Kevin Martin a sense of vindication. In just one week of bidding, the auction blew away the goals set by the Congressional Budget Office despite a series of concerns raised in recent weeks, including tightening capital markets and the open-access and public-safety obligations that many analysts perceived as hindering the value of the C Block and D Block, respectively.
The open-access obligations certainly don’t appear to be a problem for the C Block, which already has surpassed the $4.6 billion reserve price the FCC set for the spectrum. As a result, the open-access provision attached to the spectrum will become effective, regardless which bidder emerges as the winner.
Things aren’t nearly so clear in the D Block. A $472 billion first-round bid quieted concern that no one would bid on the 10 MHz swath, but there has been no further action on the spectrum since — a lack of action that has been noted in public-safety circles and on Capitol Hill.
Rep. Ed Markey (D-Mass.), chairman of the House Telecommunications and Internet subcommittee, reportedly has called the lack of D Block bidding “discouraging” and expressed a desire for his committee to work closely with the FCC on new rules, if the spectrum should have to be reauctioned.
Whether Congress should stick its nose into FCC affairs regarding reserve pricing and other spectrum-related obligations — in this case, a shared network for public safety — is debatable. However, it seems clear that Congress could be immensely helpful in this process by categorically supporting the notion of a shared broadband network and providing a small fraction of the windfall it is receiving from this auction to ensure that public safety interests are represented well.
From the moment the FCC released its 700 MHz order in August, there was little doubt in the industry that the Public Safety Spectrum Trust (PSST) would be the licensee for the 10 MHz of nationwide public-safety broadband spectrum, a job that carries the responsibility of negotiating a network-sharing agreement with the D Block winner.
A nagging question emerging from the order was one surrounding the PSST’s short-term finances. Certainly 10 MHz of premium nationwide spectrum is an incredibly valuable asset, as bidding in this auction has underscored. Unfortunately, this is the only tangible asset the PSST has, and it can be monetized — in the form of a spectrum-leasing agreement or other arrangement — only after an agreement with the D Block winner is reached.
Meanwhile, the PSST has a ton of work to do before a network-sharing agreement is reached. It has to help forge a plan to relocate 700 MHz narrowband system, educate the public-safety community about the existence of this potential nationwide broadband network and solicit input from first responders about the network’s requirements and possible assets (i.e., backhaul, tower sites and backup power) that it could bring to negotiations with the D Block winner. All of these endeavors require money.
In addition, the PSST has to supply the legal and business smarts to negotiate a deal/business plan with a multibillion-dollar corporation that is the D Block winner — something that has proved challenging in the 800 MHz rebanding arena, even though those public-safety organizations pass the lawyer/consulting bills to Sprint Nextel. Unfortunately, the PSST has no such revenue source, but it has plenty of aforementioned expenses.
Some have criticized the FCC for not recognizing this problem, but the fact is that the FCC has no power to disburse money. That power belongs to Congress, which will have a few billion dollars more to spend than it had budgeted, thanks to the 700 MHz auction.
I’m sure lawmakers are eager to use that money on a number of projects, but Congress should consider using some of it to support this nationwide broadband network for public safety.
This week, PSST Chairman Harlin McEwen said the PSST secured short-term financing to maintain operations through the auction. If a D Block winner emerges with a bid that exceeds $1.3 billion, the PSST should be able to secure additional financing for the six-month period that is expected to culminate in a deal with the D Block winner that would generate revenue for the PSST.
If the high bid on the D Block does not reach the FCC’s reserve price, the spectrum will have to be reauctioned or the commission could accept the below-reserve-price bid — the latter action being one that could be disputed in court by bidders scared off by the reserve price. In either scenario, we’re talking about significant delays in the start of the negotiating process, during which time the PSST would continue to have no revenue source and mounting expenses.
Crucial to any negotiation is the power of a party to say “No” to an offer that does not meet its requirements. What public safety does not need is for the PSST to be up to its eyeballs in debt by the time it reaches the negotiating table, something that could happen if there the start of negotiations is significantly delayed.
While I don’t question the moral and intestinal fortitude of the PSST’s representatives, the fact is that it’s much more difficult to say “No” to a substandard offer when there are significant bills to pay and the only way to pay them is to agree to a deal. A D Block winner with tons of money in the bank should not have the ability to dictate the terms of the negotiation simply because it knows the PSST is desperate for funding.
This is where Congress can play a vital role by taking even a small fraction of the auction windfall — $50 million or $100 million would do wonders in helping to finance outreach efforts and negotiation prep work — and making it available to the PSST as an outright grant or a low-interest, government-guaranteed loan.
No elected officials on Capitol Hill have said they believe a nationwide broadband network for public safety is unnecessary or a waste of money. If Congress doesn’t like the idea of a public-private network, it should be prepared to allocate $50 billion or more for the construction and maintenance of a private public-safety network.
History says that’s never going to happen. As an alternative, Congress should be more than happy to allocate a fraction of 1% of that amount to ensure that the PSST is in a financial position to protect public safety’s interests when it is negotiating with a potential commercial partner.
Legitimate delays can happen, and they ultimately could benefit the process for all involved. But, when the parties reach the negotiating table, the PSST needs to be in a financial position to say “No” to a deal that falls short of public safety’s needs.
E-mail me at [email protected].