Rural Groups Say Worst 700 MHz Fears Were Realized

“You don’t have to be as smart as a fifth grader to tell that something was fundamentally wrong with the auction design,” said RTG President Michael Higgins. “It is outrageous that [Verizon Wireless] could acquire the most desirable spectrum for a third less than what small businesses and new entrants have to pay. It is indefensible.”

“Verizon Wireless obtained its bargain not because the C block licenses are less desirable than B block licenses,” RTG said. “To the contrary, the C block was the jewel of the auction. Rather, Verizon Wireless obtained its bargain because the FCC auction rules prevented all but Verizon Wireless and a few other bidders from even bidding on the C block spectrum.” C-block spectrum cost an average of $0.76 per MHz/POP, compared with $2.68 per MHz/POP for B-block spectrum.

“RCA members that participated in Auction 73 found that prices escalated very quickly for the only license made available with paired spectrum and with relatively small, cellular market boundaries,” said David Nace, counsel to RCA. “The imbalance in price paid per MHz pop between Block B in the Lower Band and Block C in the Upper Band is reminiscent of the situation that occurred in 1995 when the FCC sold large area, PCS Block A and B licenses for a small fraction of the amount paid for other PCS licenses that were offered a short time later with smaller license areas.”

The FCC should learn from the auction, Nace said. “This auction proves again that competition among carriers and service choices for the public are enhanced when spectrum is offered with small license areas and without combinatorial/package bidding that benefits only the largest carriers.”

Agency officials still are analyzing the auction results; the worst fears of those criticizing the FCC bandplan in the 700 MHz band do seem to have come true, they said.

“It really didn’t help us on what we set out to accomplish,” said an FCC source. “We wanted the C to be the new nationwide provider… What we ended up having is some polluted real estate that drove prices up in other bands while you have a large incumbent walking away with the C- block.” The source added that while Verizon committed to open access requirements in buying the largest C-block licenses, the carrier had been “thinking about and planning how they were going to approach the open access for a long time” and now has been able to “define what open access is.” By all appearances “AT&T and Verizon were the big winners and small players were the losers and we could have avoided that with a different bandplan,” the source said.

It’s unclear how Dish will use the 700 MHZ spectrum it acquired in the E-block. Chairman Kevin Martin and FCC staff suggested Thursday that technology exists to use the spectrum to offer wireless broadband, creating the elusive additional pipe into consumers’ homes, but industry sources said Friday this appears unlikely.

Sources speculated that it could be used by Dish to offer mobile video, as a competitor to Qualcomm’s MediaFLO, or to offer local must carry. One source said in speaking with a Dish official that he had the impression the company was eyeing a mobile video offering. Qualcomm bought five of the most important E-block licenses -- New York, Los Angeles, Boston, Philadelphia and San Francisco. Qualcomm paid an average of $1.36 per MHz-POP for the five licenses, compared with Dish’s average of $0.55.

“They of course haven’t said how they plan to use the spectrum, but it seems likely that [Dish] will use it to improve operation of existing services (like local must carry) or to expand into mobile video,” said Rebecca Arbogast, analyst at Stifel Nicolaus. “The spectrum would be good for either purpose. And they have essentially a nationwide footprint.”

There are many uses for 700 MHz spectrum, an industry source said. “Any time that someone says Dish will use the spectrum for ‘x’ be very skeptical,” the source said. Using satellites for video is the most efficient method because it is point-to-multipoint, making it easy to imagine why Dish would forego the satellite platform for the more cumbersome terrestrial platform, said satellite experts.

To use the spectrum for local-into-local service, Dish would have to install UHF TV antennas for its subscribers in targeted markets, Bruce Elbert, president of Application Technology Strategy, said Friday. “700 MHz spectrum is not satellite spectrum. It is limited to terrestrial uses,” he said. “I'm not saying it is impossible. I'm saying it is not practical.”

“It appears to be another mobile TV offering, probably to compete with Qualcomm,” said a telecom industry source who has closely followed the auction. The source said he was told by a company official that Dish CEO Charles Ergen wanted the company to offer mobile TV. -- Howard Buskirk, Heather Forsgren-Weaver

Auction Notes

The FCC must “get back on track” in offering D-block spectrum for sale for a private-public partnership, said Commissioner Jonathan Adelstein. “It is nothing short of a tragedy that the D block failed to sell,” he said late Thursday in a written statement. “Admittedly, finding a balance was fraught with difficulty, but we failed to make it viable, and heed concerns about finding a balance on issues of concern like penalties. We need to do a top-to-bottom review of what went wrong so we can make it work in the next round.” Commissioner Michael Copps called the network critical to safety. “Until they receive the communications resources they need, our nation’s police officers, fire fighters, emergency medical technicians and other first responders will remain unable to adequately protect themselves--and all of us,” Copps said. “It is a travesty that our nation has failed, so far, to meet this urgent public safety challenge.” He added, “Now we have another chance to build the network that public safety and the American public need.”

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Cox Wireless was the biggest cable winner in an auction in which operators and affiliates made high bids of about $428 million. The other winning cable operators and affiliates were Bend Broadband, Bresnan Communications and Vulcan Spectrum. Cablevision and an affiliate of Bright House won clearance to bid but got no spectrum. Larger operators Comcast and Time Warner Cable didn’t participate. They belonged to a consortium whose winning bids in the 2007 advanced wireless spectrum auction totaled $2.38 billion, third highest in that auction. Cox Wireless had provisionally winning bids of $304.6 million in the 700 MHz auction. Its investors include cable operator Cox Communications, with systems in many areas where it won spectrum, including Norfolk-Virginia Beach, Va., New Orleans, Phoenix and San Diego. Vulcan Spectrum, owned by cable investor Paul Allen, had provisionally winning bids of $112.8 million for A blocks in the Portland, Ore., market and in Seattle. Microsoft co-founder Allen controls Charter Communications. Bend Cable won a $6.7 million B block in southern Oregon, where its systems serve about 30,000 customers. Bresnan Communications is spending the least of any winning cable operator, with provisionally winning bids of $3.9 million in the Billings, Great Falls, and Mineral, Mont., markets. The company has systems in those areas, in the A block in Billings and Great Falls. The spectrum in Mineral is in the B block.