The 700 MHz Dramedy Continues

Ya know, I had real hopes that, barring a Petition for Reconsideration or two, I was pretty much done with the 700 MHz auction. Sure, Verizon filed a lawsuit with the DC Circuit, but at least we could sit back and stop worrying about the FCC stuff. And besides, the lawsuit didn’t really have much of a chance anyway. So, after a grueling 6 months or so, I thought I could finally relax and turn to something new, like kicking the bejeezus out of the cable monopoly.

Hah.

As recent reports indicate, Verizon has apparently pressed the FCC to “clarify” the C Block conditions. I say “apparently” because Verizon has not actually filed a request for any sort of clarification, reconsideration, or declaratory ruling. Indeed, to my considerable annoyance, it took a modest reprimand from the Wireless Bureau and Martin’s staff for Verizon to actually put something in the record vaguely resembling a description of what Verizon’s most senior lobbyists actually discussed with the Chairman and his staff. Verizon, meanwhile, vigorously denies they ever asked for reconsideration (and, separately, that it finds the accusation that it violated the ex parte shocking and deeply offensive).

In any event, it appears the issue is whether or not Verizon (if it won the C Block licenses) could continue its practice of asking manufacturers to strip out or limit features or applications on devices that run on the C Block. Verizon argues that consumers love subsidized handsets and letting the cell phone operator make all the tough decisions (like what applications can run on the device), and it would therefore be cruel to deny the C Block licensee the right to offer such fantastic products and deals — as long as the C Block licensee will hook up any third party device that meets the technical standards.

To Martin’s credit, he reached out to the Public Interest Spectrum Coalition (PISC) and asked our opinion on whether the C Block licensee should be able to sell “crippled” devices as long as it will also connect any third party device to the network. Martin was apparently sufficiently impressed by my wisdom that he then tried to issue a clarification that Harold Feld is right and Verizon is wrong. The Democrats promptly moved to block, because they suspected a trap, since the idea that Martin would side with me over Verizon is apparently laughable (I have no doubt the Democrats mean that in a nice way and that it does not reflect on the quality of my wisdom). Of course, I have no idea what the proposed clarification actually said, since it is illegal to show me the actual predicisional text. But it is not illegal for Martin to say that he agreed with me or for the Dems to say that’s not how they read the proposed clarification. Remember, ambiguity is the essence of comedy.

In any event, as in any good dramedy, further hijinks naturally ensue from this potent combination of distrust and lack of information. Rumors of this “clarification” prompted Verizon’s arch-nemesis, supporter of wholesale access, and potential rival bidder Frontline to challenge Verizon’s efforts to get the rules changed. This triggered a response from Verizon that they hadn’t asked for a rules change, and that furthermore, on reconsideration, the FCC should issue a declaratory ruling that “Frontline is ugly and their VCs dress them funny.” Meanwhile, now with a full posse of PISC buddies, I went back to the FCC to explain that while I am always flattered to have the FCC declare my interpretation of its rules to be the law of the land (and encourage them to do this on a more regular basis), we at PISC think the Order is perfectly clear and that if anyone wants it clarified they should have to formally file a motion and ask.

One might logically ask why, if Verizon wants the Order changed or clarified, it doesn’t just file a motion and ask. That would be a problem for Verizon, however, because it cannot simultaneously file a Recon Petition under 47 USC 405 and a Petition for Review by a federal appellate court under 47 USC 402. There are ways to try to get around this, but this statutory conflict would explain why Verizon has danced around this issue and pretended it is merely a continuation of its previous arguments properly filed in this docket. Assuming, of course, that they actually want a clarification, which they claim they don’t.

So, if Verizon hasn’t put in an explicit request, why does Martin feel a need to act? Does Verizon really have a leg to stand on, or is this just an effort to refight the same battle? And what about the tech companies? Why don’t we want the FCC to proclaim that I am right on my interpretation of the Order? And will the Red Sox finally face the Cubs in a World Series “curse off?”

O.K., I have no clue on the last one. But as for the rest of these questions (and perhaps a bit more), see below….

So, Harold, What’s Verizon Up To Now In 700 MHz Land?

On September 10, Verizon filed a Petition for Review in the DC Circuit. The Petition for Review challenged the C Block conditions as unconstitutional, violations of law, generally beyond the Commission’s authority, and “arbitrary and capricious” (legal code for “so dumb the Court should reverse”). As always, the Petition for Review did not actually make any argument or offer any proof. Petitions merely list the arguments the Petitioner plans to make. Think of the Peition for Review as kind of an “invitation to the lawsuit” for any parties that might want to get involved.

While something of a surprise, given that Verizon’s opposition had appeared to be softening, the lawsuit was not wholly unexpected. Such things happen routinely in policy land. Verizon clearly did not like the C Block conditions, and faced two choices: it could file a Petition for Reconsideration with the Commission on or before September 24 (Recon Petitions are due 30 days after publication in Federal Register, 47 USC 402), or it could decide it was pointless to reargue the matter with the FCC and go right to the court (47 USC 405). Critically for our story, however, Verizon needed to chose one or the other. The Communications Act and case precedent prohibit the same party from doing both although, as usual, clever folks with resources can try to dance around this. But even the best dancers can find themselves tripped up by this rather complicated 402/405 two-step. Indeed, just last week, the Third Circuit dismissed VC Firm Council Tree and the Minority Media Telecom Council challenge to the FCC’s AWS Auction rules because having sought Reconsideration from the FCC, Council Tree filed its appeal 7 days too early after the FCC effectively denied their Recon Petition. Yes, that’s pretty harsh, and Council Tree faced real timing issues of getting to court before the auction started. But life is not always fair when you dance the 402/405 two-step.

Still, most of us sort of yawned on the Verizon filing because, and I voice only my own personal opinion here, it looked really unlikely to succeed. The FCC traditionally gets a great deal of discretion from the courts on regulating wireless services, in no small part because the Communications Act gives the FCC broad powers to regulate in the “public interest” and sixty years of case law establish that FCC licensees have zero First Amendment rights or Fifth Amendment rights in their licenses. Mind you, licensees persistently refuse to believe that, and scholars decry this perceived injustice on a regular basis, but that’s the way the law stands. So even though the DC Circuit positively lusts to deregulate and enjoys scourging the FCC on a regular basis regardless of the actual law, it has generally let the FCC have its way in wireless.

So then why did Verizon file its lawsuit? Especially when Martin had made it clear that he regarded this as a key element of his legacy and Verizon has every reason to keep Martin happy? As usual, no one can say for sure. Some speculate that Verizon wanted to create a cloud over the auction to frighten off bidders (the DC Circuit has reversed auctions in the past). Others suggest that Verizon wants to exact changes from the Commission through other means and wants the lawsuit as leverage. And, finally, some observe that a petition for review really doesn’t cost Verizon much (Martin is a big boy and understands how the game is played, after all) and could potentially yield huge benefits. To further fuel speculation, the fact that Verizon waited several weeks before filing their lawsuit, and neglected to ask for expedited review when they did file, strongly suggested that Verizon wanted the lawsuit as a pressure point/bargaining chip rather than because they wanted the DC Circuit to resolve the issue before the auction.

On September 17, Verizon’s most senior lobbyists met with Chairman Martin, his wireless adviser Aaron Goldberger, and Fred Campbell, head of the Wireless Bureau. According to the first ex parte notice they filed on the conversation, Tom Tauke and his lobbying buddies came by to talk about “stuff.” Well, OK, they actually said: “stuff about the C Block licenses consistent with what we said previously.” But given that Verizon previously submitted hundreds, if not thousands, of pages of argument in the record relevant to this subject, figuring out exactly what “stuff” Verizon talked about, and why they wanted their most senior lobbyists to talk about it, required a bit of work.

Fortunately, I and my boss Andy Schwartzman had come in to see Martin on another matter and — as luck would have it — we had our meeting right after “Tom Tauke and the Verizon Ring Tones” had sung their “consistent with our past filings” song. As you can see from my far more complete ex parte (in case you industry folks wanna see how this “disclosure” thing works), Martin took the opportunity to ask us our opinion on arguments raised by Verizon. If Verizon won the C Block, could they reject an “iPhone” because it doesn’t run Windows applications? “No,” we answered, because this is an example of a consumer choosing a device in a genuinely competitive independent device market, rather than selecting from the very limited menu controlled by the licensee. “Could Verizon offer its own parental controls?” (I swear, “we won’t be able to offer parental controls” now ranks with “national security” as a justification for just about anything!) “Verizon can offer its own parental controls on an opt in basis,” we said. “It can’t prevent the consumer from selecting different controls, or require a consumer to take or pay for Verizon’s parental controls.”

And that, I figured was that. Apparently, however, Martin decided to issue a clarification of the Order. And here is where it gets somewhat more murky. Martin maintains that he wanted to clarify that Verizon was wrong and I was right, and circulated an Order to that effect. Martin also required Verizon to file a more detailed description of their September 17 meeting. The Democrats, however, read the clarification differently, and pushed back hard. This prompted Martin to withdraw the clarification draft and to ask PISC to come in and talk about the issue. You can read the general summary here.

So PISC met with Martin, Goldberger and Campbell twice in the last two weeks. First, Sascha Meinrath and I explained that we did not think the Order intended to ignore the impact of real world economics and the ability of a licensee (particularly an incumbent like Verizon) to strangle a nascent thrid-party equipment market. Accordingly, if the Commission wants a bright line rule, it should prevent the C Block licensee from manufacturing and marketing devices that deliberately limit features or allow incumbents like Verizon to go about their business as usual. After all, it is the ability of an incumbent to leverage its economic so many independent analysts rushed to declare the proposed C Block conditions more symbolic than effective when Martin first proposed them.

This leads to the natural rejoinder. Assume Apple or Google wins the C Block licenses instead of an incumbent like Verizon winning. Could Apple market it’s iPhone if it became the licensee, or would it need to modify the iPhone to permit a user to easily download and use applications like RealPlayer? Could Google as a C Block licensee offer a “Googlephone” that defaults to Googletalk, Googlemaps, Googleetc.? Further, if you say “no, an Apple C Block licensee would need to modify an iPhone to make downloading RealPlayer easy,” will Apple still want to bid (assuming it actually wants to bid in the first place)? After all, it is one thing for Apple to say “We want a network so badly we will build one, and even agree to hook up Zunes and other competing devices as a cost of doing business.” It is another thing for Apple to say “we want an independent network so badly we are even willing to modify our products to get one.”

So now things get complicated. Of course, as we (PISC) pointed out in our second meeting, one of the reasons the Order used a case-by-case approach is precisely because defining discrimination in the abstract is much too difficult. Worse, trying in the abstract to come up with “permissible” and “impermissible” activities historically ends up creating “safe harbors” for anticompetitive conduct. We therefore said we thought the Order as it stands says what it means clearly enough, and if anyone (like Verizon) wants to see it changed then they need to file a real request so that all interested parties can respond to specific proposals.

Meanwhile, parties unhappy with the FCC’s Order but not wanting to go to court filed Petitions for Recon on the 24th of September. No one raised anything about the C Block conditions. So the FCC doesn’t actually have any legal thing in front of it requesting that it reconsider existing rules, or even clarify what it already wrote. End of matter, yes?

Well, maybe not. On September 27, Verizon asked for expedited briefing and files a motion with the DC Circuit asking to get briefing done ASAP. Did Verizon suddenly realize it had forgotten to file for expedited briefing on the 10th? Or was Verizon reacting to Martin’s failure to ram through a “clarification”/change by trying to ratchet up the lawsuit threat? If the later, Verizon’s strategy backfired badly. The FCC slammed back by telling the Court that Verizon does not meet the standard of an emergency and is unlikely to win on the merits anyway. The FCC also suggested that the FCC had violated the 402/405 Two-Step by seeking clarification below and the Court should consider dismissing the lawsuit altogether. Unsurprisingly Frontline (which has sought to intervene in the case in support of the FCC) submitted a similar response calling for the court to dismiss Verizon’s claim, and Verizon again denied it had asked for anything improper below. (The Court denied the motion for expedited briefing last week. It also declined to dismiss Verizon’s petition, but may still resolve the 402/405 question against Verizon later if it so chooses).

So Who Else Has Shown Up To The Party?

Not surprisingly, Frontline, which has positioned itself to become Verizon’s arch-nemesis in this proceeding, has shown up at both the DC Circuit (where they asked to intervene) and at the FCC. Also not surprising, I am generally supportive of Frontline’s efforts here. Still, while I normally bow to none in my quest for vigorous enforcement of the FCC’s ex parte rules, I think that asking the FCC to sanction Verizon by barring them from participating in the auction is just a shade over the top. (I would content myself with making Tom Tauke write 1000 times on an FCC blackboard “Ex Parte is NOT Latin for ‘vague beyond all recognition.’”) More substantively, and frankly I think right on the merits, Frontline wants the FCC to force Verizon to file something or refuse to take any action. Verizon can’t have it both ways in the 402/405 two-step. They decided to go straight to the courts of appeals, so they shouldn’t get a chance to get reconsideration of the rules. If Verizon is sincere that it didn’t seek reconsideration, then they have nothing to worry about if the FCC does nothing to “clarify” or otherwise explain or alter the C Block rules.

Even if this is merely a “Request for Clarification” and not prohibited by their decision to take a judicial appeal under Section 402, Verizon should at least have to write this stuff down and argue its case. While I applaud Martin for trying to get broad input, the lack of anything from Verizon turns this into an exercise in shadowboxing. I can keep throwing punches, but I’ll never connect with anything because there’s nothing there to actually hit except my own shadow. As a matter of procedural fairness, and because Verizon ought to have to state its case and work for a living, I think the FCC should just sit tight until it actually receives a real motion or request to address this.

Any Tech Companies Show Up?

Intel, supposedly part of the “4G Coaltion” (aka Google and the Tech Boys) in what has to be one of the more perplexing moves on the planet, told Commissioner McDowell’s wireless adviser that Intel agreed with Verizon. The context of this looks like an off-the-cuff reaction rather than something the 4G Coalition agreed to on the whole. Or it could be that Intel wants to sell lots of chips to Verizon when Verizon wins C Block. But however it goes, there is now something in the record from one of the tech companies supporting the Verizon interpretation, and creating a record that would support the Verizon point of view.

Yeah, Yeah, But You Know Who We Really Care About. Have The Great Google Overlords Filed Anything?

Yes, The Great Google Overlords filed. It helps that Google’s chief FCC lobbyist, Rick Whitt, used to work for MCI, has first-hand knowledge of all the exciting little tricks that an incumbent can play. Google came down hard against letting Verizon sell crippled devices and stated that “as a potential bidder,” Google would find the C Block “more attractive, not less, if they include a device-side openness requirement.” (Google also spanked Verizon for its failure to comply with the ex parte rules, prompting Verizon to file this “what we said to Frontline applies to you too” response.)

So, that Evil Bellhead Martin Is Selling Us Out! I knew it!

From the press coverage, which ranges from Martin Working to Revise 700 MHz Open Access Provisions to “Did Anyone Really Think Martin Was Serious About Open Access Anyway?”, the weight of popular opinion certainly leans toward the idea that Martin wants to rewrite the rules to benefit Verizon. Leaving aside that Martin staunchly denies any such change, I have two basic problems with the “Martin is doing Verizon’s bidding” theory.

The first, as I pointed out when Martin first proposed C Block, lies with the fact that Martin could have done Verizon and AT&T’s bidding by doing nothing on C Block. At any time in this debate, it was always easier to hold a standard auction than impose any kind of openness condition — even the less-than-wholesale condition imposed on the C Block. Indeed, creating the C Block conditions cost Martin political capital with conservatives and members of his own party. Why go through all that only to rush to do Verizon’s bidding? Yes, Martin may have started with good intentions then backed down in the face of Verizon bullying, that’s possible. But if that were the case, it would have been much easier to make an explicit deal with Verizon (drop the lawsuit and file Recon instead) then go through what has become a regulatory farce that threatens to squander all the political capital Martin built with the tech companies by being seen as either a dissembling weasel or a gutless bureaucrat bullied by Verizon’s lobbyists and political connections. If this is the result of Verizon calling in political favors and getting Martin to back down, this kind of paper trail is either utterly inconsistent or outrageously sloppy.

Second, and I say this despite the recent reports that Martin has continued the usual FCC practices of giving industry insiders advance info of upcoming items (on which I hope to blog eventually), I just don’t buy the idea that Martin planned to sell us out to Verizon all along in some twisted scheme so hideously Machiavellian that I can’t even imagine what it might be. Martin is one hell of a hard-ball player and master strategist, the sort of opponent who routinely thinks in three different directions at once. He reminds me of Sky Masterson’s quote in Guys and Dolls: “Someday, a man will show you a sealed deck of cards and bet you that he can make the Jack of Diamonds jump out of the deck and spit cider in your ear. Do not bet this man. If you do, you will be standing there with no money and an earful of cider.” And, as he has demonstrated with his utter refusal to investigate the domestic spying the Bells did for the administration, Martin is quite capable of toeing the Bush party line when the situation calls for it.

Nevertheless, Martin has consistently worked with us in the public interest community where we agreed, fought us hard where we disagreed, and — for all that he has often told a highly-nuanced truth or declined to tell the whole truth — never told us an outright lie. As far as I can tell, he has never screwed us over simply because that would be the partisan or industry thing to do. From the time Martin started as a Commissioner, he has remained open to input from all parties and avoided the utterly poisonous partisan scorched earth policy implemented by nearly everyone else in the Bush administration. And while that has certainly proven excellent politics since the Democratic takeover, it also (with me at least) buys a certain amount political capital.

Each one of these arguments has its counter-arguments, and I cannot get away from the possibility that I am letting my personal investment in this, will to believe we have something worthwhile, and overall flattery at being on the inside turn my head and spoil my judgment. And further, as I explain below, Martin’s actual intentions are not necessarily relevant to what I see as the possible negative outcomes here. Nevertheless, both because it seems so out of character and because it I just can’t see what he would get out of it, I put the “Martin is double crossing us and selling us out to the Bells” in the “least likely hypothesis” box. I may end up wrong and looking like a naive idiot, but I am just not buying it here.

O.K., So What Do You Think Is Going On Here?

I feel like I’m stuck in the FCC version of Rashomon. In fact, I routinely look down to see if I am now appearing with subtitles. (Although I suppose I could just reference Allison’s Essence of Decision and stay written in English.)

More seriously, there are just too many variables going on here to be definitive. I think Verizon wants to press the FCC to change its rules or, at the least, “clarify” them in a way that would let Verizon as a C Block winner carry on business as usual. Why else would Verizon’s top lobbyists meet with Martin after filing their lawsuit to “revisit” everything previously filed and raise some new points? Just to shoot the breeze and remind Martin how they are throwing one of his major legacy policies in jeopardy? The “covert Verizon pressure” theory also explains why Verizon waited so long to file their lawsuit, then waited again to ask for expedited briefing. It provided a way to ratchet up the pressure without filing formal petition subject to attack and possibly giving the FCC a chance to firm up its arguments before a lawsuit. While Verizon might not be so gauche as to actually propose a quid pro quo to drop the lawsuit in exchange for a “clarification,” I do not doubt they could make their intent clear.

And Martin? From his perspective, why not take an issue off the table? Especially if public interest groups like Media Access Project appear to agree with his interpretation of the Order. Keep in mind that, above all else, Martin wants the auction to work. That means not only getting Google to show up. It means getting Verizon to show up, and at least two or three other bidders ready to bid at least $4.6 Billion for C Block licenses. If Verizon is coming in with horror stories about how the C Block conditions will prevent Apple from selling it’s iPhone or Google from selling a Google phone, that it requires every device to be entirely open source, and therefore no one will want to bid and the auction will be a total failure, Martin is going to have to worry about that.

Also keep in mind that the economic difference I worry about between an incumbent capable of leveraging market power and a new entrant is unlikely to be as much of a concern for Martin. Martin, after all, continues to believe that the wireless market is competitive (I think it remains an oligopoly). And while Martin may seem an outrageous liberal heretic to his conservative brethren for considering regulation necessary — especially if a market is at certain levels ‘competitive’ — Martin remains an economic neoconservative deeply suspicious of government regulation. He may be a member of the Reformed Church of the Free Market rather than the Fundamentalist Church of the Free Market, but that doesn’t make him a general believer in regulating to prophylacticly to prevent future abuses of market power. So Martin would be a lot more eager than I would be to just issue a “clarification” that would take away the Verizon boogeyman arguments and possibly get Verizon to drop its lawsuit.

As for the Democrats, they would naturally be deeply suspicious of an effort by Martin to clarify or redefine the rules, especially in the absence of any kind of filed request and in light of Verizon’s meeting with the Chairman’s office. The Dems would not believe that we at MAP had requested such a clarification (and, indeed, we hadn’t), and would presume Martin was trying to use us as political cover for a rewrite that would mollify Verizon. The Democrats worked very hard to make sure that the language in the Order had real meaning, and did not leave any loopholes (including economic loopholes) for an incumbent to exploit., Even if the Dems gave Martin the benefit of the doubt, they would remain deeply suspicious of Verizon’s ability to manipulate the situation and create safe harbors for future discriminatory conduct. At the very least, they would strenuously resist any effort to vote on something quickly before having a chance to study it.

So that’s my read. I still make Verizon out as the chief villain/manipulator of the piece, though perhaps less of a scoundrel than Frontline would have it. I think Verizon is telling straight truth when it says that it never made an official request, but I think they made their desires perfectly clear. Incumbents are very good at manipulating the situation to their advantage, playing on the fears of regulators and appealing to their hot button issues. I also think Martin was prepared to give them half a loaf in clarifying that they can still sell their own crippled equipment as long as they hook up any third party equipment without any kind of additional fees or other nonsense. That would stop the obvious forms of economic discrimination and eliminate the obvious barriers to entry. But it wouldn’t stop a Verizon C Block licensee from leaning on a Best Buy or a Motorola the way Microsoft used to lean on OEMs. I think such a result would be consistent with Martin’s world view, which sees this as giving third party manufacturers a shot at connecting to the network but not an effort to regulate the “equipment market.” Hence his statements that he has no intention of backing away from the rules. OTOH, I think the Dems are equally consistent in their concern that any clarification at this stage just creates new opportunities for a clever incumbent like Verizon to create and exploit loopholes. Nor do the Dems necessarily share Martin’s desire to treat the “equipment market” as something independent from the licensee where the licensee can clearly leverage all its existing assets to keep an equipment market from ever emerging. One can argue back and forth, depending on one’s perspective, whether this is leveraging the Order beyond what was intended or whether it is necessary to interpret the Order this way to make the intent of the Order a reality rather than a hope and a prayer.

So What Happens Now?

Good question. The DC Circuit denied Verizon’s request for expedited briefing, so the power of the lawsuit as a bullying tactic is greatly reduced. Martin still wants to make sure as many people show up to bid as possible, which may include trying to clear up anything he perceives as a loose end. He may also resent what he sees as efforts by the Democrats to expand the Order beyond what he intended.

At the same time, as this incident proves, trying to do anything on the 700 MHz Order is bound to raise a great hue and cry. Even if Martin can get three votes for his clarification (which seems likely), it will call his sincerity and his legacy into question. With neither Google nor PISC supporting a clarification of any sort, and Verizon likely to keep its lawsuit out there to try to scare off potential bidders with a cloud of uncertainty, the political payoff for Martin doing anything has dropped pretty low. And, although Verizon’s little misstep with NARAL has nothing to do with the auction, this is a real bad time to be perceived as doing favors for Verizon (and Verizon has far fewer political chips to call in for favors).

Taking all this together, I’m hoping the FCC will stand pat and do nothing. They still need to resolve the pending Recon Petitions. But since none of these involved C Block, they do not provide a vehicle to revisit this issue.

Any Last thoughts?

To conclude, I think everyone is being honest and sincere (with the exception of Verizon, which is merely being honest) and still conflicting with each other. I suppose this makes me the most naive innocent in Washington policy. In my defense, I also don’t think my strategy or analysis changes much if I decide someone is lying to me. So why start with the assumption that someone must be a deceitful knave when I have no reason to do so? Yes, it is always important to look to the political implications of any social policy issue. And, no, I don’t propose ignoring obvious evidence of partisan behavior or extending trust where people dumped all over us in the past. But I also note that everyone says they want to get out of the partisan toxic waste dump that has become public policy. I’ll start by making my policy choices based on my assumptions about what serves the public interest, rather than worrying about who is trying to screw me over.

Stay tuned . . . .