Politics

The Fight for 700 MHz — continued

Everyone's a critic
Some critics say Frontline, or whoever won the D block bidding, would in effect be getting a discount because it would pay for 10 MHz, but get access to 22 MHz. Balancing that, the winner would be obliged to spend millions—or billions, Frontline claims—on a network that public safety organizations would otherwise have to pay for out of their own budgets.

"The network [will] likely cost five to ten times as much as you would pay for the spectrum," Newman points out.

Another criticism of the proposal is that attaching such conditions will reduce the revenue the federal government earns from auctioning the spectrum, a valuable public commodity, because bidders won't be willing to spend as much if they know that winning commits them to a heavy burden of capital expenditures.

Newman points out, however, that the FCC's mandate is not only, or even mainly, to generate income from the sale of radio spectrum. Its primary objective should be to further the public good. And there are lots of examples of the commission attaching requirements in spectrum auctions that similarly reduce its earning potential in order to serve the public good. Requiring winners to provide expensive e911 services is an example.

There is also a Catch-22 in auction dynamics that balances the effect of adding demanding requirements. If there are no conditions on the use of spectrum, incumbents are more willing to pay a "blocking premium." In other words, they're willing to—though in the end they may not have to—pay more for spectrum, just to block new entrants.

"That's the irony," Newman says. "If you set no rules, it favors the incumbents. Others all know this, so they don't enter—and the spectrum ends up going for less."

Critics also question whether the Frontline proposal is really in the public interest. Newman dismisses this, noting that public safety organizations are already backing its proposals. He also implies that most of this type of criticism comes from incumbents such as Verizon—with which Frontline has been carrying on a bitter public debate—that want at all costs to block new entrants.

"The people opposing us, they don't want a new entrant and we're a new entrant," he says. "We think what we're proposing is strongly in the public interest. We also think our business plan is one that can make money."

Politics
But it's not clear whether the FCC will adopt Frontline's proposals. At the time of writing, Newman was under the impression the commission was leaning towards incorporating only some of its suggestions in the rule making. It would auction 10 MHz of the commercial spectrum and give the winner use of 12 MHz of the public safety spectrum, with the requirement that it build a broadband network for use by both public safety and commercial service providers.

It would not, however, require the winner to provide open access to the network and be a wholesale-only carrier. The speculation in mid-July was that the FCC might attach some version of this condition to a second special block of 22 MHz of spectrum, known as the C block. But it would not require the full open access Frontline advocates.

As Newman explains, there are levels of open access. An "unlocked" network, unlike today's locked cellular networks, allows any user to log on as long as he has a device that meets the protocol requirements and does no harm the network. In contrast, most cellular networks today, and all of them in North America, only allow users to log on with approved devices sold and controlled by the carrier.

More importantly for ISPs, an "unblocked" network would allow users to access any internet application, including an ISP's value-added services. Under many current cellular subscriber contracts, users are prohibited from using certain applications, including streaming media services such as VoIP.

An unblocked broadband wireless network would remove these restrictions, providing network access more like today's wireline internet services. This could be important to ISPs. It would mean mobile roaming subscribers could use their value-added Internet services—whether for fee or free—and might as a result be more likely to stay loyal.

The best option for ISPs, though, would be a requirement that the network be completely open and the carrier wholesale only. ISPs would then be able to buy and resell wireless capacity to mobile subscribers as a value-added service and compete with incumbent cellular carriers that will all eventually have "4G" broadband networks—whether they bid for and win 700MHz spectrum or not.

Frontline fears the FCC will balk at requiring a completely open-access, wholesale-only business model. If that's the case, incumbents such as Verizon may be more willing to spend the money to outbid Frontline just to keep it out. As Newman says, "Without the wholesale requirement, it might be considerably more difficult to win that spectrum."

The company will watch and wait to see what happens. If it can win the D block auction even without the wholesale requirement, it will pursue its open access, wholesale-only business model despite it not being a requirement, Newman implies. It might also conceivably bid on the C block spectrum.

"We'll evaluate all options," he says. "At this point, no options are off the table."

Stay tuned.

—End

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