Wireless Spectrum Auctions

Consumers Union (CU) and Consumer Federation of America (CFA) urged the FCC Thurs. to view with skepticism a pledge that Verizon Wireless made last week to bid $5 billion if the Commission were to auction PCS spectrum at 1.9 GHz (CD April 9 p1). Verizon Wireless and other wireless carriers have been calling on the FCC to hold an auction for the 10 MHz at 1.9 GHz if it’s part of an 800 MHz rebanding plan. The FCC has been considering a proposal for mitigating public safety interference at 800 MHz. An original staff proposal sent to the 8th floor would reband 800 MHz and give 1.9 GHz to Nextel for a price. Under that original staff proposal, Nextel would have to pay the cost of rebanding incumbents at 800 MHz and then the difference between that and the value assigned to the 1.9 GHz spectrum. “This so-called bid does nothing to advance the cause of eliminating public safety radio interference, and appears to be yet another anti-competitive tactic aimed at delaying a vote on this urgent matter,” CU and CFA said. “Regardless of motive, the Verizon ‘bid’ should be considered non-qualifying because it would unduly concentrate the wireless market horizontally and would represent a significantly increased threat to consumers’ hopes that wireless competes against landline telephone monopolies.” The groups argued that the opening bid promised by Verizon Wireless would lead to “less aggressive” competition between wireless and wireline companies and would be inconsistent with the Communications Act. “Any dominant wireless company’s bid for spectrum should be subjected to the same scrutiny that would be applied for a review of a merger in the wireless market,” CU and CFA said in a letter to Powell. The groups said that because Verizon Wireless has a national market share of nearly 25%, virtually any merger between it and another provider would violate merger guidelines. “Unfortunately, this letter seems to be filed in a proceeding taking place on another planet,” a Verizon Wireless spokesman said: “To paraphrase my mother, if you can’t say something relevant, don’t say anything at all. This is a laundry list of opinions that have nothing to do with the matter at hand, which is to legally and quickly provide public safety with the tools that they need.”

Public broadcasters are unlikely to get very far with their early hand-over of analog spectrum proposal if they aren’t able to rope in their commercial counterparts, wireless industry and public safety, officials told us. The Assn. of Public TV Stations is pushing a proposal for public TV stations to embrace a hard date for analog switch-off in return for the creation of a trust fund for public broadcasters from a portion of the proceeds of the spectrum auction. Although wireless industry and public safety officials saw the public TV offer as a “step in the right direction,” some wireless officials consider the trust fund concept too “self-serving.” One industry source said wireless operators would rather see auction proceeds used for things directly related to the spectrum, such as a relocation fund.

Verizon Wireless told the FCC late Thurs. it would open bidding at $5 billion if the agency auctioned nationwide PCS spectrum at 1.9 GHz. The pledge by the largest U.S. wireless carrier upped the ante in the battle over 800 MHz rebanding. It came as the FCC neared a vote on a proposal to fix public safety interference, which wasn’t widely expected to entail an auction. Several sources cautioned Thurs. some plan details were still under deliberation, although a majority appears to have coalesced around key elements of a rebanding plan backed by Nextel and others.

Critics of a “consensus plan” for addressing public safety interference at 800 MHz said at a briefing Wed. they were concerned about a “spectrum giveaway” to Nextel. At a breakfast sponsored by the New America Foundation (NAF), NAF Vp Michael Calabrese said an ideal solution would be for public safety relocation costs to be folded into a spectrum relocation fund now pending on Capitol Hill. The FCC is considering a staff proposal that would entail Nextel paying for incumbent relocation at 800 MHz and receiving spectrum at 1.9 GHz for a price. Some wireless carriers have urged that Nextel not receive 1.9 GHz outright but that this spectrum be part of an auction. The Spectrum Enhancement Act would earmark proceeds from an auction of advanced wireless services -- or 3G spectrum -- to be used for relocating govt. users from 1710-1755 MHz, Calabrese said. Under an auction scenario for 1.9 GHz, “in the name of homeland security, Congress can earmark the roughly $5 billion in revenue from an immediate auction of spectrum at 1.9 [GHz] into an account to pay the cost” of moving public safety users at 800 MHz and upgrading their equipment, Calabrese said. The spectrum relocation trust fund bill has passed the House but hasn’t cleared the Senate, he noted. “It’s still pending up there,” he said. “If the FCC simply admitted its lack of lawful authority and asked Congress in the name of homeland security to add state and local governments to the federal legislation they have, I believe that Congress would very likely agree.” A “second best” option would be for Nextel to receive some version of a bidding credit for an auction connected to the 1.9 GHz spectrum, he said. The value of the voucher could reflect the cost of the 2.5 MHz Nextel may give up at 800 MHz as part of public safety relocation and the cost of retuning incumbents, he said. “That still presents a problem of valuation” for the spectrum, he said. “But at least the margin of error is far lower.” Cingular Wireless Vp- Governmental Affairs Brian Fontes warned that the impact of a plan in which Nextel pays for relocation of incumbents at 800 MHz could be onerous in terms of litigation risks. Fontes said states such as S.C. have argued they haven’t had interference at 800 MHz and shouldn’t face rebanding. The item is likely to appear on the sunshine notice outlining the FCC’s planned agenda for the April 15 open meeting, he said. “But it may not be on the [final] agenda -- there’s still a lot of questions to be answered,” he said. The NAF briefing didn’t include representation from Nextel or public safety groups. NAF said Nextel and the Assn. of Public Safety Communications Officials declined an invitation to participate.

Senate Appropriations Committee Chmn. Stevens (R-Alaska) said any 800 MHz rebanding plan that involves relocating incumbents must be “self-financing.” In a letter to FCC Chmn. Powell made public Tues., Stevens said he wasn’t weighing in on either side the complex proceeding about mitigating public safety interference at 800 MHz. But he said that if Nextel must give up spectrum at 700 and 800 MHz to eliminate public safety interference, it must get replacement bands elsewhere. He said an auction wouldn’t be needed to do this.

The FCC Wireless Bureau plans to auction 20 automated maritime telecom system (AMTS) licenses Sept. 15. The AMTS service is a specialized system of coast stations that offer integrated marine voice and data communications, similar to cellular service, for tugs, barges and other vessels. The FCC public notice said service to units on land is allowed, “so long as marine-originating communications receive priority.” The FCC plans to auction two 500 kHz blocks of paired spectrum at 217/219 MHz in each of 10 AMTS areas. The FCC sought comment on reserve prices or minimum opening bids and other auction procedures by April 23, with replies due April 30.

One of several possibilities under consideration as the FCC mulls ways to mitigate public safety interference at 800 MHz is a bid credit for Nextel for spectrum at 1.9 GHz, sources said. Some in the wireless industry who have opposed the “consensus plan” for fixing interference at 800 MHz have been interested in a bid credit for Nextel instead of that operator receiving spectrum at 1.9 GHz for a price, sources said. But sources following the proceeding said the details of a final proposal for FCC action were fluid.

In the continuation of a pitched battle among wireless carriers over 800 MHz, Verizon Wireless petitioned the FCC late Wed. to “expedite actions” to put 1.9 GHz up for auction. Verizon Wireless told the Commission in Feb. it was willing to bid in an “immediate” auction of spectrum at 1.9 GHz (CD Feb 26 p1). Since then, an FCC staff proposal on how to correct public safety interference has begun circulating on the 8th floor, which would have Nextel pay for incumbent retuning at 800 MHz and pay the difference between that and the value of 10 MHz at 1.9 GHz. Verizon Wireless and other wireless carriers have opposed the “consensus plan” for 800 MHz backed by Nextel, the Assn. of Public Safety Communications Officials (APCO) and others. They have argued against Nextel getting a “spectrum windfall.” In the petition filed Thurs., Verizon Wireless urged the FCC to redesignate 1910-1915 MHz and 1990-1995 MHz for licensed PCS, adopt broadband PCS service rules and auction the spectrum in a paired block. “Nextel has advanced a plan that would have the Commission circumvent required auction procedures by granting licenses for these 1.9 GHz bands exclusively to Nextel,” Verizon Wireless said. (The consensus plan entails a spectrum swap covering 700, 800 and 900 MHz and 1.9 GHz, in which Nextel would gain spectrum in bands such as 1.9 GHz in return for spectrum it would relinquish elsewhere to do rebanding to eliminate public safety interference.) “This end run around the auction process would ignore the congressionally mandated mechanism used to license CMRS spectrum, drawing the Commission into a subjective, valuation guessing game rather than relying on the marketplace results from competitive bidding.” Verizon Wireless said this plan would grant Nextel exclusive use of 10 MHz at 1.9 GHz, to the detriment of competitors. “Verizon Wireless is ready, willing and able to participate in the auction of the 1.9 GHz bands and believes that an open auction of the 1.9 GHz spectrum is likely to attract significant interest and participation by other competitors,” the petition said. A Nextel spokesman dismissed the filing as the latest in a “long line of attempts to delay a solution to public safety. We see nothing that is new in this filing.”

NextWave recently filed with the U.S. Bankruptcy Court, White Plains, N.Y., the terms of settlement agreements that entail it paying $1.25 million to NY Telecom and Eldorado Communications. The court approved the agreements last week. One agreement involved NY Telecom and Eldorado challenging NextWave’s compliance with its 5-year buildout requirements. After the Commission returned NextWave’s previously cancelled PCS licenses, the bankrupt carrier made initial construction filings for most of its C-block licenses. One issue raised during the proceeding was whether an earlier settlement agreement reached by the FCC, NextWave and the Jan. 2001 PCS re-auction winners gave NextWave additional time to meet certain construction requirements. NY Telecom argued NextWave missed its buildout deadlines. NextWave had argued that the clock stopped on its buildout requirements during the period when the FCC had cancelled its licenses and before the U.S. Appeals Court, D.C., ruled otherwise. During the period covered by the original FCC agreement, which expired Dec. 31, 2001, when Congress didn’t act, the clock had also stopped, NextWave argued. The FCC Wireless Bureau agreed with that interpretation last year (CD March 4/03 p1) and NY Telecom sought full FCC review. NextWave paid NY Telecom and Eldorado $1.23 million under the settlement terms for the tolling challenge. NY Telecom and Eldorado also settled with NextWave their challenge of a Feb. 13, 2004, FCC order authorizing NextWave to assign certain licenses to Cingular. In Sept. the Bankruptcy Court approved the NextWave-Cingular spectrum sale, contingent on FCC approval, which came in Feb. NY Telecom (NYT) had appealed that FCC decision to the U.S. Appeals Court, D.C. NextWave paid the firms $25,000 to settle that challenge. The Bankruptcy Court approved a NextWave filing that sought permission to settle the claims related to the Cingular license transfer. “Both NextWave and NYT have spent significantly more time and expense on litigation and other contested proceedings than either would have ever thought possible when their respective businesses were formed,” NextWave told the court. NextWave said it would continue to maximize the value of its assets for creditors. “However, where, as here, disputes that have been ongoing for several years in multiple forums can be resolved on a reasonable basis -- thereby avoiding further litigation and its attendant expense -- then it is in the best interest of the estates to achieve such resolution.” The agreements to settle pending matters involve all disputes and challenges between NYT and NextWave, the filing said. NY Telecom and Eldorado made separate filings at the FCC and the D.C. Circuit seeking dismissal of its challenges. For the settlement of disputes on the FCC challenge, the $25,000 that was part of the agreement represented the legal expenses NYT and Eldorado incurred pursuing the challenges.

Even if the FCC gives Nextel spectrum, at a price, at 1.9 GHz in a plan to mitigate public safety interference at 800 MHz, Nextel’s ability to use the spectrum is likely to be limited due to litigation, the Precursor Group said. In a note to investors last week, Legg Mason ranked the probability of a judicial challenge as “high” if the FCC gives Nextel exclusive use of spectrum at 1.9 GHz for a price instead of holding an auction. A staff item is now on circulation on the 8th floor that would retune incumbents at 800 MHz and give Nextel 10 MHz at 1.9 GHz for a price. Nextel also would pay for the costs of retuning public safety and private wireless incumbents at 800 MHz. “If, as we suspect, the FCC sells Nextel exclusive use of the higher- band spectrum instead of putting it up for auction, Nextel’s access to the spectrum is nonetheless likely to be limited due to high litigation risk,” the Precursor Group said. The FCC also is likely to hold Nextel responsible for funding the public safety transition in the short-term even if the carrier can’t access 1.9 GHz until the court appeal plays out in the long-term, the firm said. “The Bush Administration has made it clear to the FCC that this is an issue of first priority for homeland security,” Precursor said. “Nextel’s goal is not only to eliminate ongoing financial and technical responsibility for ‘curing’ interference its commercial operations cause to high priority public safety, but, more importantly, to increase the efficiency and footprint of its spectrum holdings at 800 MHz and 1.9 GHz.” Nextel has spectrum at 1.9 GHz in some southern rural markets acquired from bankrupt Nucentrix. But it needs the full 10 MHz nationwide to roll out its high data rate platform via the Flarion technology, the group said. Precursor said Nextel isn’t likely to be able to add to its 1.9 GHz holdings without paying a multi-billion dollar figure to the govt. “Precursor believes this FCC decision is ‘net’ bad news for Nextel, which is likely further compounded by the time delay and uncertainty of a judicial challenge.”