Washington

FCC Inspector General Report Finds No Wrong-Doing in Spectrum Auction

Public Safety Spectrum Trust, Cyren Call Not at Fault for Lack of Bidders for D-Block 4/28/2008 04:02:00 AM Eastern

The Federal Communications Commission's Inspector General concluded in a report released Friday that a combination of factors led to the lack of bidders -- there was only one -- for spectrum to build a public-private network that could be used for emergency communications.

The report was prompted by a request from Media Access Project and others.

FCC chairman Kevin Martin called for the investigation after the complaints suggested that bidders might have been scared off because the Public Safety Spectrum Trust, which would oversee the partnership, and its consultant, Cyren Call, were demanding spectrum-lease payments from potential bidders on the order of $50 million.

The IG concluded that nothing untoward had happened.

“We are pleased that the commission responded swiftly and thoroughly to our request for an investigation,” MAP senior vice president Harold Feld said in response to the report. "The Inspector General report resolves critical questions as to whether Cyren Call, PSST, or potential bidders violated the commission’s rules or acted with improper motives in the period before the auction. Happily, it appears no rules were broken. These facts could not have been established with certainty without the IG investigation."

The trust is managing a 10-megahertz block of former TV spectrum that is to be paired with a similar-sized block the Federal Communications Commission is trying to auction to a commercial entity that will agree to combine the two blocks to create a national broadband network that will be operated commercially but available to first responders for interoperable communications in an emergency.

Cyren Call, which is consulting on the project for the trust, has said that it never demanded any lease payments. In the report, the IG noted that Frontline Wireless executive and former FCC chairman Reed Hundt learned that the $50 million was a "quoted, not demanded, price." Hundt also said it was the way the auction was set up, not the possible lease payments, that did not fit with Frontline's plans.

The House Energy & Commerce Committee launched a separate investigation into the relationship of PSST and Cyren Call.

The IG concluded that Cyren Call met with Verizon Communications and Frontline Wireless and that the latter -- which planned to build the spectrum-sharing network but dropped out shortly before -- had the option "to discuss" annual payments of $50 million-$55 million for 10 years, but had done so prior to the "quiet period" between December and April, when FCC anti-collusion rules would have precluded such conversations. Free Press had not alleged any wrongdoing by Cyren Call, the FCC said.

The IG also concluded that in addition to the discussion of lease fees, factors keeping all but Qualcomm from bidding for the wireless spectrum -- and Qualcomm's bid was only about one-third of the $1.33 billion floor price -- included the potential for hefty default payments, which may have scared off investors, as well as the strict build-out requirements (to get the network up and running as fast as possible) and the actual cost of building out the network.

Cyren Call said the report should close the book on questions about the auction. "Importantly, the report stated that, ‘The OIG concluded that no FCC rules appear to have been violated and that no referral is warranted,’" the company said. "Regarding whether Cyren Call’s statements to potential bidders deterred bidding in the D Block," it added, "the report said: ‘This investigation has concluded that the lease payment estimates … were informational in nature, were not made in bad faith and by themselves had no deleterious effect on the auction.'"

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