Promoted as the most important FCC auction in decades, it appears that the 700 MHz auction has been a failure on several fronts. We were promised private operator-public safety partnerships (for the D Block) along with a new nationwide wireless broadband network (Frontline Wireless’ initiative), open access for any device and any application (Google’s petition), and new entrants (e.g. start-up carriers and WISPs) that would take advantage of the excellent propagation properties of the 700 MHz spectrum. There was also talk about regional carriers and WISPs bidding on the spectrum for mobile WiMAX deployment. But few if any of these visions will be realized, in our opinion.
However, a big positive we see is that the FCC will raise double the minimum reserve amount of $10B. That means approximately $20B to the US Treasury. Do you think that will make a dent in the federal budget deficit? All blocks auctioned (see next section below), with the notable exception of the D block, have raised more then the reserve requirement.
Objectives and Process for FCC 700 MHz Auction 73 #
700 MHz spectrum has been occupied by TV broadcasters and is being made available for new commercial wireless mobile and public safety services as a result of the Digital Television (DTV) transition in February 2009 .
- License Term is 10 Years, with geographic and service provision obligations
- Auction 73 includes 1,099 licenses in the 700 MHz Band:
- 176 EA licenses in the A Block,
- 734 CMA licenses in the B Block,
- 176 EA licenses in the E Block,
- 12 REAG licenses in the C Block, and 1 nationwide license in the D Block, to be used as part of 700 MHz Public/Private Partnership
- Aggressive Auction Timing
- January 24, 2008 bidding for licenses
- June 2008 – payment
- February 2009 – Spectrum cleared
- Spectrum Bandwidth – 62 MHz total
- Lower 700 Blocks A, B 2 x 6 MHz paired
- Lower 700 Block E 6 MHz unpaired
- Upper 700 Block C 2 x 11 MHz paired
- Upper 700 Block D 2 x 5 MHz paired
- Channelization permits separation of uplink (device to base station) and downlink (base station to device)
- Can use separate frequencies (FDD) or separate timeslots (TDD)
- Anonymous bidding for the first time (no one really knows who is bidding or winning)
- Auction will not close until bidding on all Blocks cease (no one knows when that will be, but the money being raised now is insignificant compared to what’s been committed.)
For a more extensive backgrounder, please refer to our earlier research on this topic:
What’s Happening Now- Especially the important D Block #
As the auction winds down after 132 rounds of bidding, the commission has raised $19.6 billion. During the last round held Friday morning, 25 new bids brought in a meager $644,000. That negligible amount has been the pattern of late as the bids keep dribbling in at lower and lower values.
Some of the bids during the last round were for E Block slices in Maryland, Delaware, Louisiana, Virginia, Georgia and A Block slices in Georgia, Kentucky, North Dakota and South Carolina. So far, the FCC has auctioned off 1,089 licenses with winning bids on them. Denver’s E-Block license received the largest bid, drawing an offer of $640,000 to reach $23.1 million. Bidding for the B Block centered in the Eastern U.S. while E Block activity remained in the Midwest and Southwest.
The D Block bidding stalled in the first round and even the FCC admits the reserve of $1.3B will not be met ($472M has been bid to date). Frontline Wireless was planning to bid for the D Block, but they shut down after failing to raise $1.3B reserve price. If the auction ends and the D Block falls short of the reserve price, the FCC has two options:
- Rewrite the rules of the auction to eliminate the public safety requirement, or
- Request Congress to give a fully or partially funded mandate to build and operate a dedicated public safety network.
The D Block bidding failure underscores the financing dilemma given the stringent network build out requirements imposed by FCC and limitations of the 20 MHz designated for the shared public/ private network. Before its demise, Frontline Wireless estimated build out costs to be at least $10B. This was in addition to costs associated with spectrum acquisition. Licensee is also responsible for cost of relocating narrowband operations, capped at $10M. Public safety communications today is via a raft of incompatible networks and that does not appear likely to change with the D Block bidding failure.
Our opinion on the D block: Perhaps the FCC should not even license the D block, but leave it as unlicensed spectrum. Colleague Ken Pyle writes that FCC Working Report #43 looks at the idea of using market-based mechanisms to designate particular blocks of spectrum as either unlicensed or licensed. Currently, this licensed or unlicensed designation is determined by administrative process that can be influenced by, as the FCC states in their press release, “interested parties.”
Getting the Auction Back on Track (Source: Yankee Group Briefing Feb 27, 2008)
The Yankee Group states: To revitalize commercial interest, FCC has several options:
- Re-offer the license on the same terms in a subsequent auction- an unlikely scenario
- Re-auction under different terms: Throw out the public-private partnership requirement and/or extend the time frame for completing the build out beyond the current 10 years, reduce the price and remove the wholesaling rights
- Abolish the requirement that the winner shares its national wireless network with public safety groups. In this scenario, the FCC will need to explore and come up with a new funding model for public safety.
- Allow multiple companies to bid, and jointly build out a network. Note: this is not allowed under the current rules.
Senator Blasts 700 MHz Auction #
Sen. Mark Pryor (D-Ark.), a member of the highly influential Senate Commerce Committee, declared the yet-to-be-completed 700 MHz auction a disaster, saying that the FCC allowed dominant wireless companies such as Verizon Wireless and AT&T to control the auction. He said this to some 500 broadcasters at the National Association of Broadcasters’ State Leadership Conference in Washington, D.C.
He also characterized the FCC of being "secretive," with FCC Chairman Kevin Martin carrying "an agenda into their agenda." I don’t really understand what that means, but obviously there are some partisan politics involved. Pryor was quoted as saying in Broadcasting & Cable that "history will show that the way the FCC structured the auction basically helped the two big wireless companies [Verizon Communications and AT&T] to the detriment of competition in this country." But how does he know that, as the auction is supposed to be anonymous?
Yankee Group’s Opinion on Likely Winning Bidders (Source: Yankee Group Briefing Feb 27, 2008)
AT&T is seen winning the A block, which it is likely to use for mobile Internet and mobile TV. Regional operators (rural carriers and WISPs) taking the B block for mobile WiMAX and mobile Internet. Verizon is likely to take the C block and use it for3G LTE and 4G mobile Internet. Qualcomm could be bidding on the E block for Media Flow or other ways of broadcasting mobile content.
Conclusions and Recommendations (Source: Yankee Group Briefing Feb 27, 2008) #
- Inherent conflict between auction goals of revenue maximization and increased competition
- Advantage to Mobile Incumbents over Innovative Challengers
- Where are Google and Media/Internet Bidders?
- Broadcasters lose in the Future of Mobile TV (assuming they have not submitted winning bids)
- Advantage to 3G LTE over Mobile WiMAX; Verizon and AT&T over Sprint/Clearwire (who probably did not bid)
- Questionable commitment to Open Access
- Big loser is Private Operator- Public Safety Partnership 
- Watch for the last minute surprise????
Summary and Conclusions (this author) #
We agree with the Yankee Group, except we don’t expect any last minute surprises. Until the license awards are made public, we don’t know who the actual winning bidders are. However, we expect Sen. Pryor has credible information that AT &T and Verizon will control much of the spectrum. Hopes for public-private partnership, as well as a nationwide broadband wireless network have been dashed with the failure of the D Block bidding process. The big wildcard is what Google has done and will do. If it has submitted a winning bid, will they contract with a network operator to build out a wireless broadband network in any parts of the U.S. How will they get their “any device connected to the network and any application,” if they don’t control the network itself?
The Digital Television and Public Safety Act of 2005 established February 17, 2009, as the cutoff date for over-the air analog transmissions. It will force broadcasters to vacate spectrum in the 700 MHz band. 24 MHz has been designated for interoperable communications systems for first responders, with the remainder will be available for commercial wireless services.
 Another big loser, in our opinion, is the vision of a new nationwide broadband wireless network. Since there are no new entrants to fund such a build-out, we think LTE will be a big winner, with mobile WiMAX being a big loser.