FCC Makes Frontline-Friendly Change to Auction Rules

Federal Communications Commission Eases Rules on Smaller Companies Partnering with Larger Firms

By John Eggerton -- Broadcasting & Cable, 11/16/2007 4:54:00 PM

The Federal Communications Commission made it easier for Frontline Wireless to bid in the 700-megahertz auction of reclaimed TV-broadcast spectrum set for January, and for small companies in general to combine with larger ones and still get a break on the price of the spectrum.

The FCC had said that a small business or other designated entity bidding for the D-block of spectrum could not resell more than 50% of the spectrum and still get a bidding credit. The spectrum must be used for a public-private partnership that creates an interoperable public-safety network for first-responders.

The FCC has cracked down on what it had called "impermissible material relationships" -- cases in which a smaller company got the bidding credit as a front for a larger one -- but in this case, it made an exception, saying that to apply that eligibility rule in this case would be "unnecessary and inequitable."

Frontline Wireless, which had proposed such a shared network, agreed, arguing that with the steep build-out requirements for such a network -- the government wants that emergency network ASAP -- no small business like Frontline could afford to win the bid and make the business work unless it was allowed to wholesale the spectrum.

The FCC also said that since it would have an ongoing oversight role of the dual network -- public-safety officials get to commandeer it in an emergency -- "The FCC’s significant oversight role, along with the requirements and obligations of the license, will ensure that today’s waiver will not undermine the underlying purposes of the ‘impermissible material relationship’ rule or risk any abuses that the rules is designed to address."

Media Access Project, which pushed for wholesaling on more of the auctioned spectrum, praised the move as a step in the right direction.

"We are pleased that the commission recognized the importance of encouraging a wholesale model by granting limited DE relief," MAP senior vice president Harold Feld said. "The limitation on leasing capacity adopted last year to discourage the use of 'sham' DEs remains an important protection against previously well-documented abuses, and the limited relief granted given the unique circumstances of the D block will serve the public interest without compromising this necessary safeguard. Although we had also asked for DE relief on the C block subject to additional safeguards, the commission's actions represent a positive step forward for the wholesaling model."

But MAP is worried that with the D block of spectrum now more attractive, the C block may not attract enough bidders to meet its several-billion-dollar reserve price. "Because C block will likely prove attractive to small, entrepreneurial firms and start-ups that have not developed business models based on locking in subscribers, the failure to provide DE relief for wholesalers in C block is disappointing,” Feld said.

Feld also aksed the FCC to act on MAP's petition asking it to prevent a bidder from being able to win both the C and D blocks.