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July 31, 2007

First Impression – FCC Rules for the 700MHz Auction

The FCC has issued rules which will govern the auction of valuable radio spectrum which could make a huge difference in the price and quality of communications in America. The glass is definitely half something: I’d say closer to empty than full but there are some things to like and some hope for competition.

The decision is a compromise. Republican Chairman Martin was joined by Democrat Commissioners Adelstein and Copps in setting some open access conditions for 22MHz out of the 62MHz which will be auctioned. Republican Commissioner Tate reluctantly went along with these conditions and Republican McDowell voted against them. The Democrats were happy to get what they got; if they’d held out for more, they probably would have lost even these concessions to openness. They’re declaring victory.

The rules require that the winners of this band allow the use of any application, access to any content, and access by any device to their networks – with a carve out for network safety. This step is being compared to the Carterphone decision of many years ago which did unleash a wealth of innovation by forcing the old AT&T to allow foreign devices on “its” network. However, as Commissioner Adelstein says in his statement:

“Of course, as with so much of the Commission’s work, the devil will be in the details. It is especially important that today’s item gives consumers, device manufacturers, and other interested parties a right to seek redress if the C-block licensee seeks to discriminate against them. I believe that this case-by-case approach strikes the appropriate balance between preventing harm to the network and giving teeth to our anti-discrimination mandate. Justice delayed is often justice denied, the old adage says, and that is why I am happy that we announce today a 180-day shot clock for Commission enforcement decisions.”

Led by Google many advocates of more competition pushed for a requirement that the winner of this spectrum also allow open interconnect (too technical to explain here) and be required to offer network access at wholesale. Google had promised to bid for the block if these requirements as well as the open access requirements above were in the rules. Adelstein laments that this didn’t happen:

“…the Order does not go far enough in one important respect. We all know that America’s broadband performance leaves a lot to be desired. To me, the culprit is clear: a stultifying lack of competition in the broadband market, which in the words of the Congressional Research Service is a plain old “cable and telephone . . . duopoly.” A 22 MHz block of 700 MHz spectrum is uniquely suited to provide a broadband alternative, with speeds and prices that beat current DSL and cable modem offerings. Maybe this can happen yet in this spectrum, but by declining to impose a wholesale requirement on the 22 MHz C-block, the Commission misses an important opportunity to bring a robust and badly-needed third broadband pipe into American homes.”

Nevertheless, the first statement by Google lobbyist Richard Whitt on his blog post the issuance of the rules are conciliatory and praise the Chairman and the Commission. Could be that Google will bid after all. If Google gets this swatch of spectrum, they have much more incentive to actually use it to break the power of the telecommunications duopoly than the duopolists themselves have (obviously).

The “use it or lose it” provisions are a farce. The licenses are for ten years. For the big blocks winners “must” cover 40% of the population within the block within four years and 75% by the end of the license term. Guess where those big blocks’ll lie fallow. For the smaller regional blocks 35% of the area has to be covered within four years and 70% of the area by the end of the term. And, if you bid and don’t meet these requirements…. (no drum roll).

If you don’t meet the four-year requirement, the target for the end of the term gets pulled in to eight years. If you don’t meet that, you lose the unserved areas. Big deal.

A cynical view is that Verizon and/or at&t could easily afford to buy this spectrum and not use it at all. For eight years they get to stop anyone else from providing effective competition to their existing landline and wireless networks; that’s worth a lot. Probably they’d blame the lack of buildout on the open access requirements that the Commission did approve.

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