FCC Sets Rules for Spectrum Sale

Open-access conditions fall short of Google’s lobbying efforts

The FCC last week made it easier for Google and others to compete with AT&T and Verizon for increasingly mobile video and broadband wireless customers.

The commission opened the door to what one legislator likened to a world of Dick Tracy-like wrist-radio-TVs with broadband access. But the FCC did not make it as easy as search-engine giant Google, or many others, would have liked.

Google had lobbied hard to get the FCC to put open-access conditions on the large block of reclaimed spectrum that is big enough to create a nationwide wireless network and to require the winning bidder to lease broadcast spectrum at wholesale prices to competitors and allow them to connect with the network.

Google had support from Democrats, including Sen. Byron Dorgan (D-N.D.), House Telecommunications & Internet Subcommittee Chairman Ed Markey (D-Mass.) and even presidential candidate John Edwards. They backed the wholesaling requirement, saying it would allow for more broadband competition to the entrenched wireless networks.

In a 4-1 vote to approve auction rules for spectrum in the 700 MHz band being reclaimed from analog TV broadcasters, the FCC agreed to the open-access conditions, which will require the winning bidder to open its network, with some restrictions, to outside devices and software applications. But it did not approve the wholesaling requirement.

Google had offered to bid the FCC-set floor price of $4.6 billion if the conditions were met. While FCC Chairman Kevin Martin backed open access, he was mindful of Republican critics of the plan—including legislators and Commissioner Robert McDowell, who argued that those conditions could discourage large bidders and lower the auction revenue. Thus the $4.6 billion minimum. If that bid is not met, however, the spectrum would have to be re-auctioned, without the open-access conditions.

Google has said it would be less likely to bid without wholesaling requirements but did not rule a bid out.

The decision was clearly a compromise, with both sides finding something to criticize.

Republicans and free-marketers decried the access condition as an unnecessary government thumb on the scale. Among the most vocal was former Energy & Commerce Committee Chairman Joe Barton, who said, “The FCC’s decision to rig the 700 MHz auction at the suggestion of companies such as Google will harm wireless service and rob taxpayers.”

Commissioner McDowell, the lone dissenting vote, echoed concerns of some Republican legislators that the access conditions on the national block of spectrum could actually hurt bidders for the smaller blocks created by the FCC to give minorities and small-business owners a seat at the table.

“Unfortunately, the encumbered spectrum structure supported by the majority will force large, wealthy bidders away from the Upper Band and into the smaller, unencumbered blocks in the Lower Band,” he said in explaining his vote. “Smaller players, especially rural companies, will be unable to match the higher bids of the well-funded giants.”

Democrats and media activist groups saw open access as a step in the right direction, though not a big enough one. Arguably most enthusiastic was Markey, who hailed the decision as historic and talked of a “21st century equivalent of Dick Tracy’s two-way wrist radios of comic-book fame: broadband-savvy devices capable of full-motion video, enhanced applications and other information services.” But he called the lack of a wholesaling provision a missed opportunity to inject “even more competition” into the marketplace.

Media-consolidation critic Free Press was less sanguine about the decision. “The FCC’s failure to place a wholesale condition on licenses in this auction means the chance for truly robust wireless-broadband competition has been squandered,” said Policy Director Ben Scott. “History will record today as an opportunity lost.”

Joining Google in the half-a-loaf department was Frontline Wireless. Fronted by, among others, former FCC Chairman Reed Hundt, it had pushed the FCC to create a swath of spectrum to be used only for a public-private interoperable communications network. The FCC did that but did not put wholesaling conditions on it, as Frontline had wanted. Though praising open access and saying it would likely bid for spectrum, Frontline said it may appeal the decision.

The FCC is unlikely to change its mind, however. Congress has required the agency to auction the spectrum by next January so that the money—about $12 billion by Congressional Budget Office estimates, as much as $15 billion-$20 billion by others—can be deposited in the treasury by midyear.

The money is going to deficit-reduction and emergency communications and also to pay for the digital-to-analog converter boxes that are meant to keep analog-only TV customers from losing their signals, and potentially their tempers with lawmakers, come the Feb. 17, 2009, switch to digital.

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