My Impossibly Long Field Guide for the 700 MHz Auction (It's Really Important, Even If You Haven't Heard About It Much In The Main Stream Media)

Few events in the wireless world matter so much, yet get so little coverage, as the upcomming 700 MHz wireless auction. Why? Because they’re hard, and the mainstream media (MSM to us “bloggers”) are afraid you will get all confuzzled and bored. Besides, isn’t non-stop coverage of Anna Nichole Smith more satisfying? (Hint: She’s still dead.)

Small wonder that even if you are in the minority of folks who have heard about the “digital television transition” and the “return of the analog spectrum,” you have not heard about the huge policy fights over how to auction off the single most important block of spectrum for the foreseeable future. Which is, of course, how the big carriers like it.

You can find a pretty good 12-page summary prepared by some investment analysts over here. But, being the highly-opinionated public advocate and believer in democracy that I am, I also provide a hopefully helpful guide for de-mystifying the swirl of players and activity attracted to the distribution of this multi-billion dollar block of spectrum licenses. Issues include network neutrality, open access, wireless competition, the future of broadband competition, and a whole lot of public safety stuff. It includes a cast of thousands from Frontline to Cyren Call to the Ad Hoc Public Interest Spectrum Coalition (I thought up the name myself! O.K., I was in a rush . . . .) and an army of incumbents that like the universe just the way it is, thank you and do not look kindly on those of us trying to shake things up.

I warn you, this is extremely long (13 pages, I probably should have broken it up into more than one post), and complicated, and all that stuff that mainstream media figures your pretty lil’ heads can’t handle without getting all confuzzled. So, if ye be readers of courage, willing to risk getting all confuzzled and thinking about how our wireless and broadband future will unflold for the next 10-15 years, read on! Or you can go back to Google News and plug in “Anna Nichole Smith” (yup, still dead).

Our Story Thus Far . . . .

In 1996, Congress gave broadcasters free spectrum goodies. In exchange, the broadcasters promised to move to digital television and to return 108 megahertz of “analog” broadcast spectrum (Channels 52-68). (The efficiency of digital lets the broadcasters pack together on the lower part of the dial.) 24 of these go to public safety. 60 MHz get auctioned for commercial use (the rest got auctioned under different rules earlier, don’t worry about them). The FCC developed various proposed “band plans” (based on 1997 era tech), divided the 24 public safety MHz into 12 MHz for voice and 12 MHz for “data,” to be distributed as standard regional licenses. Then the FCC sat back and waited for the broadcasters to keep their promises and migrate to digital. A game the broadcasters played to great effect for many years to try to extort favors from the FCC by promising to get serious about the digital transition if the FCC would just give them some nifty bonus like broadcast flag or digital must carry.

Alas for the broadcasters, all good things must come to an end. Not because the FCC wised up and realized that trying to cajole the incumbents by giving them everything they asked for was a stupid policy. No, things changed because we got a Republican Congress and a Republican Administration that combined an ideological commitment to reducing taxes with an utter lack of fiscal restraint. As a result, by 2005, Congress needed money they could raise without raising taxes — really, really badly. So they passed a law that forced broadcasters to complete the digital transition by February 2009.

As part of the statutory timeline (and so they can book the auction revenue), Congress required the FCC to auction the (to be) returned analog spectrum by the end of January 2008. Since, as I have previously observed, FCC auctions go one foreeeevvvvvveeeeerrrrrrrrrr, the FCC needs to start the auction no later than the beginning of December 2007 (ideally earlier). But before the auction, the FCC must define the nature of the licenses (so companies know what they are actually bidding on) and the rules under which the auction will take place. All of those decisions need to get made in enough time for companies to decide whether to play, line up financing, and all manner of other details. That means the FCC wants to get a decision out by the April 25 meeting, and really has to get a decision out on these critical issues by mid-May at the latest.

So the race is on to shape the rules that run the auction that distribute the licenses that provide the access that delivers the wireless broadband for a heck of a lot more than the two Zuzim my father used to buy a goat. (Hey, it’s Passover!)

Why Everybody Cares

The 700 MHz auction attracts so much attention because the physical characteristics of the “broadcast bands” make it the Holy Grail of wireless. Radio waves in this band travel farther, penetrate physical objects better, and bend around obstructions better than in any other band likely to become available in the foreseeable future. As a result, it becomes economically, as well as technically, possible to do really high speed wireless broadband access with licenses comprising fewer frequency bands. It takes many fewer cell sites to cover an area, and it becomes easier in urban areas to deal with the “concrete arryos” and other topography issues that make cell phone service difficult.

In addition to the quality issue, the spectrum will also come in quantity and unencumbered by existing licensees (after the shut off in February 2009). Contrast that with the AWS auction last summer. That spectrum isn’t as good, and must still be cleared of federal licensees – a process that will take years. But it still went for nearly $14 Billion — and cheap at that price (on a MHz/Pop basis). In 2005 (before the AWS auction, when the DTV auction legislation was pending),the Congressional Budget Office (CBO) projected revenue for the auction at about $12.5 Billion. (You can read the Congressional Research Service report here.) As you can imagine, the thought of $12.5 billion dollars without raising taxes has riveted attention of assorted policy makers. It has also given a powerful card to incumbents that like the status quo, who argue that any change they don’t like could diminish the auction revenues. Saying this to FCC Commissioners and members of Congress has the same impact as threatening addicts with cutting off their crack.

The Players
Unsurprisingly, this auction has attracted a host of players and overlapping coalitions. While not possible to list everyone, I try below to give some sense of the groups and the major individual players.

The Large Incumbent Wireless Carriers: These guys have a general set of common interests — compete against each other, but keep everyone else out. Many are also affiliated or in joint ventures wth wireline broadband players. Members of this class include: Verizon Wireless, T-Mobile, and AT&T. Sprint-Nextel has not participated actively, and has signalled they do not intend to bid seriously.

Mid-Size Wireless Incumbents: These companies have a strong regional presence, but not necessarily a national footprint. They are junior members of the “incumbent club,” many of whom hope to graduate to national footprint size someday.

Small Incumbents/Rural Telcos: While small, these guys have strength collectively because so many Senators come from states with substantial “rural” areas. As a result, ensurng that rural providers get enough spectrum is a major goal of telecom policy and reflected as a concern in the Communications Act. They frequently have relationships with larger carriers for roaming and termination of calls.

Designated Entities: Called “DEs,” these are small businesses eligible for bidding credits. DEs have become controversial since FCC began a rulemaking to curb various abuses. This issue will keep coming up.

Wireline Broadband Incumbents: I and others argue that because the 700 MHz band offers a chance for real broadband competition, we should treat the incumbent wireline broadband providers (cable companies and telcos) the same as we treat incumbent wireless companies. Others argue that because these are wireline companies, their entry into wireless means an increase in competition because they are “new” entrants for wireless. You can find my arguments over here. The biggest player in this class is Spectrum Co., controlled primarily by Comcast and Time Warner. Spectrum Co. won a ton of licenses in the AWS auction and looks ready to play over here as well.

DBS Providers: Echostar and DIRECTV. They desperately need a way to deliver broadband and voice (aka “triple play”) to customers in order to compete with cable. They tried to pick up licenses in the AWS auction and got their butts handed to them by Spectrum Co. and the wireless incumbents.

Cyren Call: Cyren Call wants to take 30 MHz of spectrum allocated for auction and give them to public safety (on top of the 24 MHz already allocated to public safety). This 30 MHz would go to a “public safety trust” licensee, that would partner with a private company (e.g., Cyren Call) to build a public safety network and sell excess capacity through the private partner. You can read about the FCC rulemaking this spawned here, and my rather nasty personal assessment of Cyren Call here.

Frontline: Frontline takes the idea of Cyren Call and goes one better. They propose auctioning a single 10 MHz national license proximate to the proposed national public safety license distributed by auction. This new “E Block” licensee would work with the Public Safety licensee to create a national network for public safety. The E Block can resell the public safety spectrum when it is available, and the public safety folks can automatically use the E Block spectrum whenever they need it. Critically, the E Block licensee can only lease spectrum as a neutral wholesaler. This is often referred to as an “open access” model.

Public Safety Entities: Unsurprisingly, national, regional and local organizations that are invovled in various aspects of public safety care enormously how these issues work out. While not bidders, they care about how things like Frontline and Cyren Call turn out.

Public Interest Spectrum Coalition (PISC): Also known as “Save Our Spectrum Coalition,” this group includes organizations that care about competition and open networks and see the 700 MHz action as the “last, best hope for competition” in wireless and broadband generally. (Being a Babylon 5 fan, I laugh every time I hear this.) Members: my employer, Media Access Project, New America Foundation, Public Knowledge, Free Press, Cnsumers Union, and Consumer Federation of America.

Guard Band Licensees: Back in 2000 and 2001, the FCC auctioned off the slivers of spectrum known as “guard bands” in the 700 MHz band. Two companies, Access Spectrum and Pegasus Spectrum, hold these licenses.

The 4G Coalition: A coalition of folks unhappy with the current auction rules because they favor the incumbents. It includes the DBS providers, the guard band licensees, some rural folks, and a handful of tech companies that want competing pipes into the home (Google, Skype, and Intel).

Trade Associations: Various and sundry trade organizations wonder through on behalf of their industries. The most active, unsurprisingly, is the Cellular Telecommunications Industry Association (CTIA) which represents the incumbent wireless players.

The Fights

As always, you can find a fair amount of back and forth about the details such as the size of licenses, the nature of build out rules, what people will or won’t disclose before, during and after the auction. After all, a minor change in the rules can make huge differences in how things play out and how people offer services afterwards. Taking a high-level view, the issues breakdown into the following major catagories.

Bidding Rules

As I have blogged before, the current set of auction rules outrageously favors the incumbents. The results of the AWS auction prove that rather clearly for anyone who cares to look. Yes, you can argue that cable providers and mid-size incumbents are “competition” — if we are living in the 1990s world of cellular telephone as a stand alone market. But we’re not. And since the FCC, the Federal Trade Commission, and everyone else in broadband policy keeps betting on wireless as the great hope for broadband competition (and thus relieving them of the need to regulate broadband as a duopoly), it’s kind of stupid to treat big wins by cable companies and wireless incumbents with closed networks as a win for “competition.”

To understand why the rules matter, consider this. The incumbents may compete against each other for customers, but they all share a common interest. They want to keep an genuinely disruptive new entrants out. This includes wireless incumbents, who fear disruptive entrants that will challenge their established business models, and cable incumbents, who want to block DBS providers and other potential video or broadband competitors.

To succeed, new entrants must accumulate enough spectrum to compete nationally (or at least in the largest markets). It does no good to pay top dollar for spectrum and remain a marginal player because you can’t get to customers — especially when you can’t get to the wealthiest and most desirable customers.

Incumbents therefore do not have to block every license from new entrants, or even most licenses, they only have to block enough licenses. Because there are many more incumbents than potential new entrants, they can work together effectively to block potential new entrants. Economists call this “collusion.” But while open collusion is illegal (the FCC rules prevent participants from discussing such things during an auction), repeat players over time have ways to work together. Some of this flows naturally from the fact that the incumbents have detailed knowledge of all the players and their needs. Some of this flows from being repeat players over time.

But by far the most consistent and most detailed way incumbents communicate to block new entrants, and then divide licenses among themselves as cheaply as possible, lies in the use of auction bids themselves. The FCC uses an simultaneous multiple round (SMR) open ascending auction. Everyone can bid on any and all licenses in any round, and everyone sees who has bid what where. Really skilled players can communicate a great deal of information, and even unskilled players can read the strategy of a potential new entrant and determine whether some other incumbent will block or whether to engage in blocking behavior directly.

If you think this an awful lot to lay on auction bids, consider a more popular bidding game: contract bridge. In contract bridge, players communicate via an initial auction and by leading or discarding particular cards as signals to their partners. The rules prohibit players from communicating directly, but skilled players can accurately describe their hand, inform partner what cards to play if the opportunity arises, and otherwise convey a great deal of information with a very small number of permissible signals.

Spectrum auctions have become a multibillion dollar game of contract bridge, in which incumbents use well established conventions to exclude new entrants. This does not violate any laws, but it doesn’t exactly serve the interests of competition either.

I made the same arguments last year, but despite agreement from the Department of Justice, the Federal Trade Commission, and the FCC’s own Chief Economist, the FCC decided to side with the incumbents. Why? Because everyone in the industry argued that using open auctions produced no documentable problems (academic literature and government filings apparently not sufficient) and that messing with the auction rules would reduce revenues. Some of the major carriers even hinted that they would sit the auction out if the FCC changed the rules.

Now you would think that (a) if the incumbents –large and small — are accused of gaming the system, and (b) all the incumbents defend the rules, while all the non-incumbents argue for a rule change, that the FCC would believe its own Chief Economist rather than the very people accused of gaming the rules to their advantage. Ha ha. Instead, the FCC adopted an industry sponsored “compromise” that they easily manipulated to achieve open bidding. With the predictable result that the incumbents blocked the DBS guys and any other real competitor (while rewarding the mid-sized carriers with needed licenses).

Why? In part because this stuff is hard to understand and it’s very difficult to buck the kind of political pressure the incumbents brought to bear. In part because a number of folks at the FCC stil think of mid-sized carriers and cable cos as “competitors” rather than “incumbents.” But, most importantly, because spectrum auctions are the crack cocaine of public policy. Faced with the threat that the major incumbents would refuse to play (as if they could let that spectrum fall into the hands of rivals) and that the AWS auction would not gross the promised billions, the FCC caved like a chocoholic at a Godiva’s outlet.

You may also wonder why the DBS guys didn’t lobby for blind bidding last year. I confess I don’t know the answer to that. But I suspect that, being new to auctions, they just hadn’t thought that it was that important. Besides, given that they paid a bilion dollars “upfront”, they probably figured they could win no matter what the rules.

Then they got their butts handed to them on a platter.

So this year, the DBS guys and the 4G spectrum coalition, along with the Public Interest Spectrum Coalition (whose members argued the same thing last year), have pressed for significant changes in the rules to make it possible for new entrants to win enough licenses to create a national footprint. These include “anonymous bidding” (which hides the information incumbents use to communicate) and “package bidding” (which makes it easier to build a national footprint).

Anyway, you can read the general comments of the Public Interest Spectrum Coalition on bidding rules here. I briefly describe the major issues below.

Anonymous bidding
Last year, in advance of the AWS auction, then-FCC Chief Economist Leslie Marx proposed “anonymous bidding” as a way to deal with the problem of incumbent signaling. In anonymous bidding, the parties see no information beyond the value of the highest bid that round for each license. You don’t know who bid on licenses, or what bids got made other than the highest bid. You don’t even know who the highest bidder is (unless it is you).

This makes it impossible for bidders to find patterns and communicate via signalling. Nor can you easily engage in unilateral blocking. That license for the Northeast region you don’t really need but would bid on to block a new entrant, do you need to bid on it? Is that winning bid a safe incumbent, or a disruptive new entrant? Suddenly, you need to bid on the intrinsic value of the license to you rather than the value of blocking a new entrant.

In the face of industry pressure, the FCC abandoned Leslie Marx’s proposed rule in favor for a compromise sponsored by T-Mobile. The FCC would determine if enough bidders entered the auction to make it sufficiently “competitive.” Under the theory of T-Mobile’s expert Peter Cramton, a sufficiently competitve action would be immune to manipulation.

The FCC settled on an eligibilty ratio of 3 bidders/license. Amazingly, when all the bidders qualified, the ratio turned out to be 3.04. Wow! What an amazing concidence. Even more astounding, 21 of these bidders with material ties to incumbents (essentially, incumbent financed DEs) either failed to bid, bid once and quit, or bid twice and quit. Almost as if their heart wasn’t in it, as if they had only showed up to pump the elegibility ratio. Not that I would accuse the incumbents of bringing in sock-puppets for the sole purpose of gaming the system and getting to open bidding. Well, o.k., I would. And did.

This year, the FCC has asked if it needs to “limit bidder information” in any way. i.e., keep the current eligibility ratio, go to anonymous bidding, or revert back to open bidding under all circumstances. Unsurprisingly, the incumbents have all said open bidding works just fine and the FCC should drop the silly eligibility ratio. Also unsurprisngly, the Public Interest Spectrum Coalition wants full anonymous bidding (you can find the comments I drafted on why here (warning, supporting documentation makes this a muckin’ huge pdf file).

The DBS providers are also supporting anonymous bidding, although they do not see it as the primary rule change they want. They, with the 4G Coalition, have focused on getting package bidding.

Package and Combinatorial Bidding
Package bidding allows bidders to assemble a package of licenses. If you lose on any license in the package, you can drop the licenses you won. This limits the “exposure risk” of new entrants trying to get national footprints. A bidder trying to get a national footprint worries that it may get stuck as the top bidder on a bunch of licenses but not want them because it really wants a national footprint. So the would-be new entrant holds back in markets like Memphis or Omaha because it only wants those if it also wins LA and NYC. With package bidding, the potential new entrant can vigorously compete for needed licenses in smaller markets without fear that they will end up spending billions for licenses they only want in combination with others.

The 4G Coalition and DBS have pushed hard on package bidding. PISC supports it, but with the additional precaution that the FCC needs to make the authors of the packages anonymous (to prevent incumbent analysts from deducing the bidding strategy of potential new entrants) and that the FCC must have some mechanism to screen out “blocking packages.” (If I want to block, I can submit a smaller package of critical licenses and focus on those, whereas the new entrant must concentrate on all licenses. Since I don’t actually care about winning, it is fine for me if the packages conflict and result in both packages dissolving as mutually exclusive.)

Prohibit incumbents from bidding, separate affiliates
PISC also proposed a simple means of keeping incumbents from snarfing the licenses — don’t let them bid in the auction in the first place. At the least, make them bid through seperate affiliates and force them to do business through seperate affiliates so the FCc can monitor anti-competitive behavior. We used to do this, but dropped the practice years ago as part of our general deregulatry fervor.

I don’t expect this to go anywhere, and no one else supports it. Even would-be new entrants like DBS or the tech companies don’t want to push and potentially lose political capital. Also, as they hope one day to be the incumbents, they hate to set such a precedent. But I figure you gotta at least start by pushing the right policy result, even if it has little chance of happening.

Frontline and Cyren Call

The next big item are the competing proposals of Frontline Wireless and Cyren Call. As described above (and by me elsewhere) Cyren Call wants 30 MHz of the 60 MHz allocated for auction reallocated to public saftey, which it will then operate in partnership with a the “Public Safety Trust” licensee. The FCC rejected the proposal as requiring an act of Congress to reallocate the spectrum. But the FCC did que up a separate rulemaking to determine whether to turn the 12 MHz of public safety spectrum allocated to public safety “data” as a single national license awarded to a public safety licensee with authority to partner with a private company. In other words, the Cyren Call proposal without the additional 30 MHz. Unsurprisingly, Cyren Call and its supporters in the public safety world replied that this wasn’t nearly enough spectrum to be worthwhile.

As Cyren Call would take an act of Congress, I see very little chance of it happening. But it did set the stage for Frontline, a proposal that PISC supports and that has started draw support for others.

Frontline asks the FCC to adopt its proposal for a single national public safety licensee with a 12 MHz license. The FCC should also create a single, national license of 10 MHz, called the “E Block” license, in the 60 MHz allocated to commercial spectrum. The FCC would auction the E Block license subject to certain rules. The winner of the E Block license would have to build out the broadband network for the public saftey licensee a la Cyren Call. The E Block Licensee and the Public Safety Licensee would contract to make their spectrum available to each other: E Block leases it when public safety doesn’t need it, but public safety has access to both the public safety block and the E Block when needed. So it creates a 22 MHz block that provides spectrum for both commercial users and public safety.

Most importantly, E Block will run a neutral network and lease access on a wholesale basis.

This produces a number of very powerful advantages. First, it uses spectrum very efficiently. Public safety traffic is very “bursty.” It uses a modest amount on a regular basis, punctuated by massive need for a crisis. As a result, in most places at most times, the 12 MHz of data will remain unused. But in a 9-11 type situation, 12 MHz wouldn’t provide enough spectrum. Because the public safety folks get priority, they have access to more spectrum when they need it, but other users get to use the spectrum when they don’t.

Second, it gets public safety out of very expensive proprietary networks and onto open standards networks for equipment. Right now, public safety licensees end up locked into proprietary vendors who jack up prices to ridiculous levels. In part, this flows from the lack of economies of scale, and in part it flows from the desire of manufacturers to make obscene profits. If the national interoperable public safety band operates on open standards and includes consumer equipment as well as public safety equipment, huge economies of scale kick in, the cost of equipment plummets, and interoperability happens.

While I like all this, what wins me over on Frontline is the open access model. Open access produced the wonderfully wildly competitive world of more than 6000 dial up ISPs. WISPs all over the country are clamoring for someone to sell them access to spectrum, and complain bitterly that the current incumbents won’t lease access to potential competitors on affordable terms. Get an open access wireless wholesaler in the market and we will see entrepreneurs in minority communities and rural communities eager to provide local service on the retail level and break the stranglehold of the current spectrum cartel.

Needless to say, the incumbents loath Frontline with a passion, and have recruited the adorable rural and small incumbents to lobby against it.
Policy makers look on them like an adorable basket of puppies who, when they get altogether and start calling their Senators and Representatives, can morph into a pack of ravenous timber wolves. While at odds with the large incumbent telcos (called ILECs) on a bunch of issues, they share common interests here. i.e. Every incumbent, big or little, urban or rural, hates the thought of a neutral wholesaler comming in and busting up their scarcity game.

Of course, you can’t actually say that in an FCC filing. So the chief stated argument against Frontline is that Frontline’s plan takes spectrum from potential local licenses to make a national license, and a deep concern that we not risk public safety with a public/private partnership. They and the larger incumbents also argue — SURPRISE — that the Frontline proposal will reduce auction revenue. The underlying irrationality of this last argument doesn’t matter for it to have the desired effect on the FCC and members of Congress. We’re talking about our $10 Billion pile of “blow” here. If the chief bidders/pushers hint they won’t show up, addicts in policyland tremble and think twice.

My chief worry is not that no one but Frontline will bid on this “wortheless” wholesale E Block license. Selling stuff wholesale is a very profitable business model. The incumbents prefer to warehouse spectrum because it is MORE profitable to maintain spectrum scarcity than lease it on the secondary market, which makes perfect economic sense and sucks as public policy. (Attention Neo-Cons who keep arguing auctions prevent wharehousing because the winner needs to recoup the auction price! Reality calling on line 3! Gonna answer it or should we take a message again?)

So no, I don’t worry about getting enough bidders for the E Block. I worry that the incumbents will buy the E Block license, build out the public safety network, then set ridiculous lease terms for potential commercial wholesale customers. So PISC proposed that the FCC adopt precautions to keep the incumbents from winning the E Block and prevent incumbents from leasing all the wholesale capcity after the auction. We’ll see what happens.

Network Neutrality and Open Access

What debate about broadband would be complete without network neutrality and, more importantly, the return of open access. You can get the basics from this post by Gigi Sohn at PK. You can read the PISC network neutrality comments here, and the open access comments here.

Briefly, the 700 MHz band represents the best chance for terrestrial broadband competition. The FCC so far refuses to regulate, on the grounds that we have all this emerging competition and stuff and that everyone should have the opportunity to try nifty business models. Leaving aside whether we should leave public policy entirely to the the Gods of the Marketplace, there exists a little problem that even if consumers prefer an open neutral network, or if a market would support dozens of ISPs reselling broadband via an open access model, we will never know if the market doesn’t offer these as choices. And when the wireless world is dominated by what Professor Wu has described in his recent paper as a “spectrum oligarchy” that forces subscribers to accept a single business model, cripples disruptive innovation, and generally ignore what subscribers want because they are the only game in town, odds are pretty good that “the market” will not offer me the alternatives I want.

Or, as the old joke goes: “How many libertarians does it take to change a lightbulb?” “None. If the market wanted a working lightbulb, the lightbulb would work.”

So to give people a chance at “voting with their dollars” and proving that wholesale spectrum works or that consumers will prefer a neutral network to a non-neutral network, the FCC needs to make sure these possibilities get to market in the first place. The 700 MHz licenses present a unique opportunity to do so. First, the physical characteristics of the band make it possible to offer broadband on something vaguely competitive with wireline, and create a large enough footprint to get some big competitors with the existing incumbent megacorps. But even better, no one who wants to offer a proprietary network has to bid on the licenses. Cause you knw all the pissing and moaning of incumbents that you just can’t make money as a “dumb pipe” and they spent their own hard earned money building networks, and blah blah blah, and government mandates are bad, blah blah blah, and return on our investment and incentive build, blah blah. Well, IT DOESN’T APPLY HERE. You don’t like taking a license with these rules, GO GET SOME DIFFERENT LICENSES. Oh wait, YOU ALREADY DID.

You would think that, if the incumbents really believed the net neutrality or wholesale business model would fail, they’d say “bring it on!” Why not create a competitior that can’t win against the superior “proporietary networks” that will offer all those niffty discriminatory services without using their power to discriminate in an anti-competitive manner? Well Surprise, Surprise, Surpise! My good buddies at Hands Off the Internet have come out against the very idea of having neutral or open access licenses available.

Gosh! Why would they even care? If they aren’t just sock puppets for the incumbents, you’d think they would either look forward to having new business models out there ot would shrug and say “not our problem.” Oh yeah, they are sock puppets for the incumbents. So it’s understandable why the thought of giving people choices that could undermine their arguments scares the crap out of them.

Hopefully, the tech companies will wake up to the need to support this network neutrality proposal. (There are times I wish this were a Google-based conspiracy, so I could be sure the tech companies wouldn’t act like their wussy loser selves.)

Band Optimization Plan, Reverse Auctions, License Size

The last issues involve the Guard Band licensees and the 4G Alliance. The Guard Band licensees have sbmitted a plan to rearrange the license blocks to maximize efficiency. Most folks support this plan, including the public safety community and PISC. Yes, it gives the Guard Band licensees better quality licenses, so they get a modest increase in the value of their public resource. But, in exchange, they will return some licenses and it really helps the potential efficiency of the public safety licenses and the commercial licenses near the public safety band (especially if the FCC adopts the Frontline Proposal). So we give a modest nod to Pareto efficiency and don’t worry that improving the position of everyone means improving the position of the Guard Band licensees without getting more money for the increased value of spectrum.

On the other hand, I absolutely give a great big No Bleepin’ Way at the proposal for “reverse auctions.” The Guard Band licensees would like to get bought out (because even 1.5 MHz is pretty useless) and so would like to have their guard band licenses rolled into the commerical license auction, with the revenue going to them. Sorry, but that completely violates a manstay principle of mine and of the Communications Act: Licenses are not property. You do not get to auction them as if they were Star Trek Communicators at Christie’s. More importantly, the Communications Act makes it illegal to do reverse auctions, even if the FCC wants to do them.

Finally, we get to the issue of license size. A lot of the rural guys want small licenses s that they can get spectrum they need that narrowly covers their communities. The downside of this is that it potentially makes it harder to build a national footprint, if you end up with too many small licenses. PISC came out in favor of small licenses, provided it doesn’t get in the way of new netrants building national licenses. The 4G guys generally support small licenses for rural providers, which is why you have some rural providers in the 4G coalition.

And One Last Item of Old Business

The FCC needs to fnish the Further Notice of Proposed Rulemaking on designated entities. The FCC started this proceeding before the AWS auction, but didn’t resolve the real issues becuase of a disagreement between Martin and the Ds. Martin wanted to prevent DEs from having material relationships with any large business, whereas the Ds wanted to limit the prohibition to large wireless incumbents. Martin argued that if the DE credit is supposed to go to small businesses, then no one but a real small business should get the DE credit. The Ds counter that small businesses often form “material relationships” with businesses to get access to capital or other needed resources, and that this only becomes a problem when large wireless incumbents use the system to squeeze out real competitors. Since the Commission was 2 Rs v. 2Ds at the time, they rolled the issue over into a further notice.

At this point, they really gotta vote on the further notice and get it done. I happen to agree with the Ds here (although I’d include wireline incumbents in the prohibition as well as wireless incumbents), but they need to do something to wrap this up so folks can get their financing lined up and we can tell whether the incumbents will show up with their usual array of sock puppet bidders.

Hopefully, this will provide enough of a program for folks interested to follow the action in this space over the next month. As usual, I urge everyone to file their their own comments with the FCC (the Docket Number is 06-150). And, as always,

Stay tuned . . . .