Auction gets an incomplete grade
More than a decade in the making, the 700 MHz auction generated tremendous response from wireless operators, which submitted high bids totaling almost $19.6 billion on more than 1000 licenses. But prospects for a public/private partnership to build a nationwide public safety network were left in limbo.
The auction ended on March 18 after 260 rounds of bidding. Given the concerns about the FCC’s reserve prices and shaky capital markets entering the auction, the $19.6 billion in bids generally represented a rousing success, as Congress had established a budget calling for the auction to generate just $12 billion for the U.S. Treasury.
One notable exception was the 10 MHz D Block, which is supposed to be paired with 10 MHz of public safety broadband spectrum licensed to the Public Safety Spectrum Trust (PSST) to build and operate a shared nationwide broadband network that prioritizes first responder communications. After a bidder submitted a $472 million offering in the first round — well below the FCC’s $1.3 billion reserve price for the spectrum — there was no other activity on the D Block.
FCC rules designed to prevent bidder collusion and anonymous bidding meant the FCC and auction participants could make few meaningful comments regarding the proceeding. However, FCC Chairman Kevin Martin and several members of Congress had stated publicly in February that it was unlikely that a D Block winner would emerge with a bid meeting the reserve price.
Theoretically, the FCC could accept the below-reserve-price bid, but most industry observers believe the D Block will be reauctioned under different rules. During a February keynote speech at IWCE in Las Vegas, FCC Public Safety and Homeland Security Bureau Chief Derek Poarch said the FCC had not discussed any alternative plans to the public/private network proposal.
“The FCC is committed to this,” Poarch said.
Morgan O’Brien — chairman of PSST adviser Cyren Call — expressed optimism about Poarch’s “unqualified endorsement” of the public/private shared network concept during his IWCE speech. While the current lack of a D Block winner is an “obstacle” for public safety, it is not insurmountable, he said.
O’Brien compared the public/private proposal to the building of the Hoover Dam, a massive engineering feat that took 14 years to complete and was almost stopped at several points. Such innovative ideas frequently experience bumps in the road, he said.
“To expect it to be easy is criminally naïve,” O’Brien said.
O’Brien has been at the center of controversy regarding the unexpected pullout of startup Frontline Wireless from the 700 MHz auction. Frontline Wireless was unable to obtain the financing needed to make a bid on the D Block, for which the FCC adopted rules that were very similar to those proposed by Frontline a year ago.
Frontline officials declined to comment publicly on the company’s specific circumstances when it closed its doors in early January, but several Internet blogs claimed a sticking point was a demand from Cyren Call that a D Block winner would have to make spectrum-leasing payments to the PSST.
O’Brien declined to comment on the specifics of allegations made by some bloggers. However, he noted that the PSST’s expectation of a negotiated spectrum-lease arrangement was included in the PSST’s bidder information document and is necessary. Given that the spectrum is the PSST’s only asset and the PSST needs money to operate, simply giving the D Block winner access to the public safety spectrum at little or no cost would be irresponsible, he said.
“I’m like, ‘What did you expect?’” O’Brien said during an interview with MRT. “I don’t know what bothers me more — the implication that we’re dishonest or that we’re stupid.”
FCC rules effectively prohibit auction participants from speaking publicly about the auction until two weeks after it ends, when payments to the U.S. Treasury are made to match the winning bids. Poarch said he did not know when the FCC would be able to speak about the D Block or provide a timetable for announcing future plans regarding the spectrum.
700 MHZ AUCTION
Start date: Jan. 24, 2008
End date: March 18, 2008
Licenses receiving bids: 1091
Total of high bids: $19.6 billion