Yes, for policy wonks in the summer, this is high drama. Once upon a time, before the 700 MHz auction, we used to have two very clear groups of stakeholders in spectrum policy land. We had public safety on one side and commercial wireless carriers on the other. (We also had us public interest folks, but no one — especially in the Wireless Bureau — gave a crap about us.) While these two groups might disagree internally, they solidified into utterly united and utterly opposing camps when confronting each other — regarding the battle for spectrum as a zero sum game with each side trying to wrestle every last MHz out of the other one.
But the 700 MHz changed all that. It cemented the spectrum advantage of AT&T and Verizon over all other carriers, breaking the commercial world into “AT&T and Verizon” and “carriers who need backhaul, roaming agreements, and special access — all of which they buy from AT&T and Verizon.” And it fractured consensus in the public safety community by creating the enormous loose end known as the “D Block.” As readers may recall (and if they don’t, you can check out my extensive coverage of the 700 MHz auction) the D Block was the private part of a public/private partnership where a private entity would bid and then build out the network, then enter into a sharing agreement with the public safety block. Sadly, for various reasons I will not rehash here, this didn’t work out.
And now, just when it looked like public safety was lining up behind AT&T and Verizon to lobby Congress to reallocate the D Block entirely to public safety, all Hell breaks loose. The “not Verizon and AT&T” wireless carriers have introduced a counter proposal to take back the 12 MHz on the public safety side of the partnership and auction the whole 22 MHz for commercial use as one, unpaired block. And they have received the backing, sort of, of the National Emergency Number Association (NENA).
What drama to greet the arrival of Chairman Genachowski and the finally fleshed out full FCC! Commercial wireless carriers at war! Public safety in disarray! Spectrum brother against spectrum brother in the ultimate spectrum policy smackdown!
I analyze the possible deals, the potential winners and losers, and my guesses on odds for success below . . . .
“Ah, nabbed from sadists by terrorists. Kind of a dream come true, ya know?”
— Opus the Penguin, from Night of the Mary Kay Commandos
That quote captures how I feel about the gradual emergence of either D Block resolution. OTOH, the “give it to public safety and encourage regional partnerships” will both cement AT&T and VZ’s spectrum advantage and likely leave the least desirable rural public safety regions unbuilt. OTOH, the thought of doing yet another auction wherein the usual players will snarf up the existing spectrum, reenforce the current industry structure, and still not provide adequate spectrum for public safety is not exactly appealing either. The only thing we can all agree on is that the current situation, with nobody using this very valuable spectrum and public safety orgs sitting in limbo, serves no one and needs some kind of resolution.
As always, public policy is chock full of hard choices, and this one lands squarely in the lap of the new Commission. So lets review the relative merits and see where we come up from a public interest perspective — keeping in mind that either solution on the tale will have significant drawbacks and uncertainties and enjoying the fact that most folks reading this don’t have to make the call and get blamed for whatever happens.
Our Story Thus Far . . .
When last we left the D Block, the FCC had issued a new Notice of Proposed Rulemaking (NPRM) trying to save the public/private model, with the threat that if this didn’t work, the FCC would auction the 10 MHz of choice 700 MHz spectrum to the private sector. To which the private sector and just about everyone else responded with “yeah, right.” Because while few folks had any confidence left in the public/private partnership, no one had a better idea. No one really wanted to auction this stuff off free and clear to the private sector anymore either because, if you haven’t noticed, the financial markets suuuuuuuuuuccccccckkkkkkkkk. So the most likely winners of an auction — according to the conventional wisdom — would be AT&T and Verizon. Worse they would likely get the spectrum at bargain basement prices because no one else can afford to bid, or can afford to build out if they win.
But with the FCC declaring that the spectrum screen will now apply to auctions, and the cost of building and maintaining the network still unclear, and the revenue model for public/private partnership untested, VZ and AT&T are unlikely to show up and bid. That would certainly encourage folks like Sprint and T-Mobile to show up, but they are not likely to bid the billions that made the previous 700 MHz auction so exciting.
But, amazingly enough, AT&T and Verizon came up with a solution. Reversing their previous pre-auction insistence that every MHz possible should be auctioned to the private sector, they now proposed to divide D Block into regional chunks and give it back to public safety and let the regional chunks negotiate with commercial carriers for regional partnerships. And, since AT&T and Verizon are the only major carriers with a national 700 MHz footprint, guess who would negotiate the partnerships and get access to all that spectrum without an auction — with the added benefit of cherry picking the best regions to partner and leaving the less profitable regions behind? Hint: they make an anagram of ANT ROVE ZIT.
The public safety orgs — especially the Public Safety Spectrum Trust (PSST), which holds the license for the national 12 MHz public safety band that matches the D Block — really did not like this idea at first. But as time passed and the DTV transition actually happened and cleared the band, lots of folks started to really push to get some solution so they could actually build out systems. Over the summer, it looked like the major public safety orgs were finally giving up on the D block public/private partnership dream and converging on the AT&T/Verizon solution. A number of national public safety orgs agreed to ask Congress to give D Block to pub safety, and, at about the same time, the same public safety groups endorsed LTE as the standard for interoperable equipment. Since this is the standard AT&T and Verizon have chosen to deploy on their 700 MHz networks, it looked like public safety had settled on the AT&T/Verizon proposal as the best way to get out of this quagmire and get their networks deployed. Even the FCC started talking about giving D Block to Public Safety.
But suddenly, the National Emergency Number Association (NENA) broke ranks with the public safety community and proposed auctioning both D block AND the PSST public safety block to commercial carriers. Meanwhile, the “wireless carriers that aren’t AT&T and Verizon” contingent filed a strong opposition to the VZ/AT&T plan and insist that if the FCC will put spectrum up for commercial auction it will bring billions and billions of much needed money into the public coffers and enhance competition. Meanwhile, PSST has independently endorsed LTE, aligning it with the VZ/AT&T proposal to give it all to public safety.
NENA then followed up with this letter to Chairman Genachowski saying: “Whatever you’re going to do, for God’s sake DO IT ALREADY so we can actually start building something — preferably with the help of some of that there Broadband Stimulus money we’d like to apply for.” The letter does not explicitly endorse either the Sprint/T-Mobile auction or the VZ/AT&T reallocation, but provides for some overall “guiding principles” the Commission should use as it evaluates the various proposals. But, just to make sure we are all thoroughly confused about where NENA actually stands, NENA concludes with a few suggestions that seem basically in line with the Sprint/T-Mobile plan of combining the existing public safety block with the commercial D block, assigning the entire 20-MHz block to commercial use, and using the sale or lease revenues to finance public safety wireless systems.
So as of today, the line up is:
In favor of the “give the D Block to public safety”: VZ, AT&T, PSST, and most public safety orgs that are members of PSST.
In favor of “auction the public safety block to commercial users and use that to fund public safety network”: Sprint, T-Mobile, most other wireless carries who aren’t AT&T and Verizon.
Wishing this would all go away: Julius Genachowski, Michael Copps, Robert McDowell, Mingon Clyburne, and Meredith Baker.
Advantages and Disadvantages of Each Proposal
O.K., so which proposal is, if not good, at least less bad?
Give D Block To Public Safety Proposal
1) Gets lots of spectrum available nationally to public safety.
2) Endorses a singles standard technology — LTE. This would have significant impact over time because it would at last allow public safety systems to realize economies of scale and to have greater potential to escape “lock in” with the numerous vendors each using its own proprietary standard. Hopefully, the availability of this equipment on a national basis would drive the development of common standards for other public safety bands, further reducing costs and promoting spectrum efficiency. That’s somewhat speculative, but it is a big first step on a perennial public safety problem that has seemed utterly intractable until now.
3) A lot of systems will actually get built out. This makes the economics work for a significant number of markets depending on how negotiations between regional public safety and VZ and AT&T work out.
4) More spectrum gets into productive use.
5) We reenforce the value of public interest uses of spectrum rather than maximizing auction revenues.
1) VZ and AT&T already have dominance in 700 MHz, as well as in the other mobile bands available in the “sweet spot” between 500 MHz and 1 GHz. This prevents any other wireless provider from challenging this dominance.
2) Because VZ and AT&T have the biggest 700 MHz footprints, they are the natural partners for any public safety region. Plus, AT&T and VZ are already going to deploy, so while building a network that shares 20 MHz with public safety will cost more than just building their existing network, the cost to them is significantly reduced. And, in exchange, they get access to even more primo 700 MHz spectrum, further cementing their spectrum dominance.
3) Odds are good that AT&T and VZ will not want to partner with the most rural regions, i.e. those with the least population density, greatest cost of deployment, and lowest rate of return. These rural regions can try to partner with the commercial rural guys who have licenses in those areas. But the rural wireless telcos are dirt poor themselves, and the extremely low rates of return in regions with low population density make it harder for the little rural wireless companies to recoup the additional cost of building and maintaining the public safety network. So we either will get less than 100% national coverage or we will need significant federal subsidies to get the network built in the rural regions.
4) I cannot figure out what role the Public Safety Spectrum Trust (PSST) plays here. But they still hold half the public interest spectrum in a single national license. Given that there is no love lost between us (I have, in the past, suggested the should cancel PSST’s license and start from scratch), I regard PSST sitting around on half the public safety spectrum with no obvious roles or responsibilities as a Bad Thing. Mind you, they could do good stuff. But I’d like to see their role resolved in a real way before this moves forward.
Take The Public Safety Block and Auction the Combined D Block&Public Safety Block Proposal
1) Would actually provide an independent source of funding to build out wireless public safety networks. Unfortunately, the auction revenues probably wouldn’t cover the full cost of construction.
2) Would provide a nice piece of spectrum for a non-AT&T and non-VZ bidder, especially if the FCC is serious about enforcing the spectrum screen against licenses acquired at auction. While this is not going to bring the mythical “third pipe” provider anymore than virgins attract unicorns and (in the Pacific Northwest) lovestruck vampires, it will potentially boost existing competitors to allow them to better able to challenge VZ and AT&T.
3) Provides a clear role for PSST — non-existent.
1) Auction extremely unlikely to raise major money, given the current financial markets.
2) Doesn’t really provide for national, interoperable coverage — which has been the whole point of this stupid exercise. We’ve been yakking about creating a national, interoperable wireless public safety system for year now, and without using the existing virgin 700 MHz band set aside for the purpose, it is extremely hard to see how we are ever going to achieve this goal.
3) Re-enforces the idea that auctions are the best thing to do with spectrum.
So What Happens Next?
That’s an excellent question. For one thing, either solution really needs Congress to act — and we all know how much Congress looooooovvvvvessss making the hard calls on stuff like this. On the one hand, the cuddly puppy dog heroes of public safety — beloved of photo ops if not of actual funding requests — all looking with their soulful eyes saying “please give us more spectrum . . . . or Katrina, 9/11, when the towers fell, blah blah blah and everyone will hate you forever!” On the other hand, the promise of billions of dollars without raising taxes (yeah, it’s supposed to go to public safety — but the feds will still skim some cream off the top). The two biggest incumbents chant on about supporting our public safety needs, the major competitors talk about competition and free markets.
Yeah, Congress will love making that call.
Mind you, there is a legal argument that you could reassign the D Block to public safety without going to Congress. The relevant statute required the FCC to have an auction. The FCC had the auction. Nothing in the statute directs the FCC on what to do with the leftover spectrum that didn’t sell at auction. Having followed Congress’ mandate, holding an auction in the time stated, control of the allocation of the spectrum reverts back to FCC under its usual procedures.
Alternatively, one can make the same argument about reallocating the public safety band for auction. The statute required the FCC to allocate 24 MHz to public safety. This it did, even assigning the license for the 12 MHz national public safety band to the Public Safety Spectrum Trust. OK, the FCC has now fulfilled the instruction given to it by Congress. So the FCC is now free to exercise its general authority to rescind the PSST license and reallocate the spectrum for commercial use.
I don’t expect the FCC to buy either of these arguments. For one thing, the FCC loves making a tough call on this as much as Congress does. And if the FCC adopted either argument, someone would sue and hold it up in court. So if the whole point of having the FCC adopt such an interpretation of the existing law is to break the gridlock and get the spectrum out there, it probably won’t work. Besides, nothing pisses off Congress than the FCC taking matters into its own hands, even if Congress doesn’t actually want to decide the matter. This is Washington, and people protect their turf even if it’s toxic.
Which raises the question of how do we resolve this gridlock. Basically, it can go three ways.
1) Congress gets desperate enough for cash that they decide to auction the whole thing. Or, alternatively, some horrible disaster happens that makes it politically expedient to give the whole ting to public safety.
2) The FCC adopts a plan that auctions the existing D Block and leaves the 12 MHz allocated to public safety with public safety. Nobody wants this solution, but it is the one thing the FCC unequivocally has the authority to do.
3) The two sides get together over a weekend at CTIA HQ and figure out some sort of horse-trade they can live with. This will get enough interests behind a solution. Congress and the FCC will be happy, since both institutions long ago gave up the idea they are actually supposed to make policy and instead see themselves as mediating industry food fights.
Meanwhile, the rest of can be glad we don’t have to make this decision.
Stay tuned . . . .