Last night at 6 p.m., the anticollusion rules finally lifted and everyone in the universe started blabbing about the auction. Google confirmed that the conventional wisdom was right and I was wrong about their motives for bidding (ah well). AT&T and Verizon talked about their upcoming 4G Networks, and AT&T confirmed it places enormous value on its ability to squeeze monopsony rents out of its customers and vendors and therefore avoided the C Block. But most interesting, and not terribly well reported, was Morgan O’Brien’s response to the allegations around D Block, and subsequent interview with Jeff Silva at RCRWireless. While denying that Cyren call “killed” Frontline or “demanded” $50 million/yr for ten years, O’Brien does say that yes, a meeting took place, and yes, O’Brien asked for $50 million/yr as a lease payment in his opening negotiation positions.
One will pardon me for regarding this as a complete vindication of the story I broke back in January, thank you very much. I have always been careful to observe that I don’t think Morgan O’Brien meant to drive Frontline out of the auction or scare off other bidders, or even necessarily did anything wrong. But whatever O’Brien’s intent, it seems pretty clear that this was the straw that broke Frontline’s back and may have scared away other bidders as well (that still remains to be seen based on the FCC’s processes and investigations, and what turns up at the House Telecom Subcommittee Hearing on the 15th).
Critically, however, I agree with Morgan O’Brien’s bottom line. This should not be about finding a “fall guy” or assigning blame if it turns out no FCC rules were broken. What’s important is to figure out how to make the D Block public/private partnership work (or find some other productive solution for this spectrum). PSST will be an important part of that process going forward, and no one should imagine that I am suggesting otherwise.
More below . . . .
To give Cyren Call proper credit, their chief beef is with the concern that (a) it would be inappropriate to ask for a lump sum lease payment (assuming they did so), and (b) that the demise of Frontline is their fault. As with all things in a complex world, especially when we factor in the Rashomon Effect, I think O’Brien is telling the truth. On the other hand, the careful wording and the bluster on key points pretty much confirms (in my view) that — as I reported — a meeting did take place between O’Brien and Frontline’s backers in which Morgan O’Brien stated as an opening position that the “lease payment” for access to the public safety spectrum would be $50 million/year.
Notably, I draw attention to this detail from Jeff Silva’s piece:
Cyren Call did acknowledge that during conversations with potential bidders, it presented an estimate of $50 million a year when asked about the spectrum lease payment likely to be requested by the PSST during negotiations over a network-sharing agreement.
What O’Brien objects to, in good lawyerly fashion, is characterizing this as a “demand.” “Anyone stating or implying that I or any member of Cyren Call or the Public Safety Spectrum Trust Corp. ‘demanded’ a spectrum lease payment is lying. Furthermore, anyone suggesting that any spectrum lease payment would be paid to Cyren Call is lying,” said Cyren Call in its official statements. Please note that the quotes around ‘demanded’ are in the original and are not my invention. Elaborating on this to Silva, O’Brien Said:
“They asked for a meeting. We set up a meeting with them, which we did with others, to walk through where we were between PSST bidder document one and getting ready to put out bidder document two. At that meeting, when asked, ‘When you talk about a lease payment, can you give us an idea — an order of magnitude what you’re talking about?’ we said a $50 million annual payment subject to about a half-dozen things, including getting the FCC to approve it in the NSA.”
Frontline didn’t object, according to O’Brien. “They could have said are you are out of your mind — $50 million — but they didn’t.”
So apparently (a) a meeting took place, (b) it took place after PSST released its released its November 30 “Bidder Information Document” which indicated they would require a lease payment (as permitted by the FCC) and after Frontline had already filed their short form – but before the upfront payments were due, and O’Brien told the Frontline folks (and others) that their initial estimate was $50 million a year for ten years.
That would seem to match pretty much what I wrote. O’Brien does add a few details, such as the fact that they talked to other people besides Frontline, and fails to confirm some of the other reported demands — such as whether O’Brien said that Cyren Call would be the one point of contact and that any services sold by the D Block winner to the public safety community would be sold through Cyren Call as a sort of public safety MVNO. And, of course, it doesn’t tell us whether Frontline’s backers or others interpreted O’Brien’s statements as “demands” even if O’Brien never intended them as such.
Cutting away the Rashomon Effect, it seems to me from what we know so far that O’Brien did not try to kill Frontline or drive them out. OTOH, O’Brien seems to have completely failed to appreciate that the nature of the FCC’s Order potentially exposing the D Block winner to huge liability if they “unreasonably” failed to enter an agreement and O’Brien’s position as the gatekeeper to PSST made his proposals seem like “demands” for financiers unfamiliar with the FCC and its workings. O’Brien also failed to appreciate just how nervous financial markets had become, and that the financial crisis would dramatically worsen from the time PSST issued the BID document to the opening bell and throughout the auction. (Hell, I also thought other bidders would make a run for D Block even after Frontline died. No one appreciated how the financial crisis would impact the auction.)
So while I doubt any rules were broken, or that Morgan O’Brien tried to throw the auction, it appears to have been a perfect storm of events that caused Frontline to implode and frightened off other potential bidders.
Which really brings us to the bottom line. Assuming no FCC rules were broken, this shouldn’t be about finding a “fall guy” to blame the D Block mess on and then moving on to a reauction. As I’ve repeatedly argued, the FCC needs take a serious look at D Block and do a total reevaluation of what would best serve the public interest — including the public safety community. In any such conversation, PSST and Cyren Call will clearly play an important role, and trying to cast them as the Villains of the D Block is not productive. The important thing is to figure out how to move forward. Particularly, as O’Brien put it to Silva:
How the PSST is going to relate in that environment, I think, will be an important question and it’s a work in progress. The FCC is going to give it, I hope, guidance on how they want the PSST to relate. I think the FCC is going to give us more guidance than we had before. Before it was pretty much a blank sheet of paper. I believe they’re not going to do that this time. I think they’re going to give PSST — which is a good thing — instruction on how they want us to behave.
I couldn’t agree more.
Stay tuned . . . .