FCC Releases Final Rules for 700 MHz Spectrum Auction

The FCC has released the rules for the auction of 62 MHz of spectrum in the 700 MHz band that will be released following the switchover from analogue to digital TV broadcasting by 17 February 2009. Five separate blocks of spectrum—A, B, E, C, and D—will be auctioned with the geographic size of the blocks divided into 734 cellular market areas (CMAs), 176 economic areas (EAs), or 12 regional economic area groupings (REAGs). The different licence areas will have different build-out requirements attached. CMAs and EAs will require 35% geographic build-out coverage within four years and 70% by the end of the licence term. REAGs will require 40% population coverage within four years and 75% population coverage by the end of the licence term. Licence terms will be reduced from 10 to 8 years if licences fail to meet initial build-out requirements with licences reclaimed on unserved areas of the region.

As previously reported, different rules will also be attached to different spectrum blocks to meet the FCC policy objectives.

Public Safety Partnership: The 10 MHz Upper D block (two paired 5 MHz blocks) will be sold as a nationwide licence as part of a public safety/private partnership to create an in interoperable network for disparate national emergency services. The service will be made available on a priority basis to public-safety users in times of emergency under a network-sharing agreement. This will be negotiated between the commercial licensee and the public safety broadband licensee, subject to approval from the FCC and including provisions on build-out schedules and service fees. This block adjoins the broadband portions of a 24 MHz allocation of spectrum for public-safety communications at 763-775 MHz and 793-805 MHz. These will be protected by 1 MHz guard bands from interference by commercial services.

Open Access: The 22 MHz Upper C block will be auctioned off as 12 regional licences, with the requirement that the winning bidder provide an open platform for devices and applications, allowing any service, device, or application to run over the network as long as it does not cause harm to the network. Undefined package bidding procedures will be used for this portion of spectrum to facilitate the creation of a national network.

Auction Procedure: Bidding will be conducted anonymously, with any information indicative of the bidder withheld until the close of the auction. This will include licence selections and bidding activity. Reserve prices will be established for all bands, although so far only a US$4.6-billion figure has been discussed for the 22 MHz block.

Outlook and Implications

The rules announced today appear to have been pushed forward by FCC Chairman Kevin Martin as an acceptable compromise to demands from different parties and were not passed unreservedly. Commissioners Jonathon Adelstein and Michael J. Copps approved or concurred with the rules on the same basis. However, both decried the lack of a wholesale requirement with Copps pushing for "…requiring licensees to offer network capacity on non-discriminatory terms" for the 22 MHz C block as it would have helped smaller companies and entrepreneurs to access the opportunities for service providers. It would also have helped to break incumbents' hold over wide area network capacity, helping smaller players to gain a market foothold with incumbents' dominance exacerbated by market consolidation and the removal of spectrum caps. Copps notes that the dominance of AT&T and Verizon, owners of the two largest wireline and wireless companies, has prevented the emergence of wireless as an effective competitor to wireline services. The Sprint-Clearwire-Google joint WiMAX venture is, however, one response to this argument (see United States: 20 July 2007: Sprint and Clearwire Announce WiMAX Partnership and United States: 27 July 2007: Google Named as Applications Partner for Sprint WiMAX Network).

Commissioners Copps and Adelstein also argued for further "use it or lose it" build-out requirements, with Copps stating that "spectrum is too valuable a resource" to let it lie "fallow."

Both commissioners also expressed limited concerns about the commercial viability and technical feasibility regarding the implementation of the public-private partnership, with Adelstein stating that "while I would prefer direct federal funding for building a national public-safety broadband network, it presents the only option available to us at the Commission."

Commissioner Deborah Tate gave "overall support" for the rules, strongly supporting the public-safety provisions, and was "lukewarm" regarding open access, only concurring so far as open access to applications but noting support for device portability between network providers. Tate noted that open access to applications may leave the network or device exposed to risks that could limit basic service access. The varied geographic region sizes were applauded for giving opportunity to small and particularly rural service providers to compete in the auction.

Robert McDowell was the only commissioner to "dissent in part" to the rules, noting that while the order had "certain positive attributes", particularly regarding public safety, some doubts appeared to be voiced about bidders emerging and the viability of the network. McDowell's main bone of contention was the open-access requirements, which he saw as prescriptive and counter to market forces and favouring specific companies and business plans, which may have unintended consequences including market failure as it pushes the wealthier incumbents away from this section of spectrum. Although this may run counter to ideology, this is surely an intended consequence as part of the aim to increase competition. A comment that "I have not heard a convincing argument refuting why wealthy Silicon Valley new entrants are not as capable of bidding on unencumbered spectrum as other wealthy companies" was clearly targeted at Google (see United States: 23 July 2007: Google Pledges Spectrum Bid, Invests in Femtocell Co).