Wireless Spectrum Auctions

Public broadcasters charged the wireless industry with failing to respond to their offer to free up the analog spectrum early in return for the govt. setting up a trust fund from proceeds of the spectrum auction. “We are open- minded to working with the wireless service providers, but I have to say that the outreach by the industry to public television has been virtually nonexistent,” said Assn. of Public TV Stations (APTS) Pres. John Lawson in an interview. With their commercial counterparts all but refusing to play along, public TV was banking on support from the wireless industry and public safety industry to push its concept on the Hill and at the FCC for a trust fund for public broadcasters in return for embracing a “hard date” for analog switch off.

Officials representing high-tech and wireless companies Wed. called on the FCC to allocate to promoters of wireless broadband services more low-frequency spectrum. The companies also said during an all-day FCC forum on the topic that resolving standardization issues will prove critical in coming months.

House members expressed concern over the Nextel Consensus Plan in a letter to FCC Chmn. Powell. Led by Rep. Wynn (D-Md.), a bi-partisan group of members said they worried there wouldn’t be enough money to adequately pay for public safety groups to relocate. The May 5 letter listed 4 concerns: (1) No guaranteed funding for public safety groups. (2) The plan caps relocation funding at $700 million for public safety agencies. (3) The plan will be tied up in litigation for years. (4) Several public safety organizations have expressed similar concerns. The letter raises the concern that public safety groups wouldn’t be able to afford the up-front costs. “This scheme is irresponsible because in order to front the costs, these agencies would initially be required to obtain appropriations from their local government,” the letter said, adding that public safety agencies would then apply for reimbursement from private entities such as a “fund administrator” and a “relocation coordination committee.” “Since neither of these private entities is associated with the United States government, they would not be held accountable for paying the reimbursements.” The letter also said Motorola estimates that Nextel’s projection of $850 million for handset replacement is low. Motorola has estimated that handset replacement could be as high as $2 billion. “If the FCC allows a cap on the already undependable funds for relocation costs, then the public safety agencies would risk imposing significant costs on local governments that could otherwise be avoided by dedicating spectrum auction funds,” the letter said. The members also questioned if the plan would hold muster in court. Noting that several wireless companies have already promised to sue, the members said the plan’s “centerpiece is a transfer of spectrum without the auction required by section 309(j)” of the Telecom Act. Members also doubted Nextel’s claim that the public safety community was behind the plan. The letter noted that the Fraternal Order of Police, the Federal Law Enforcement Officers Assn. and the National Volunteer Fire Council have raised concerns about the plan. Reps. Shimkus (R-Ill.), Strickland (D-O.), English (R-Pa.), Wexler (D-Fla.), Bachus (R-Ala.), Engel (D-N.Y.), Brady (R-Tex.), Green (D-Tex.), Forbes (R-Va.) and Barrett (R-S.C.) also signed the letter.

NTIA acting Dir. Michael Gallagher said Fri. he still gives the spectrum transition fund bill, which has by most accounts stalled in the Senate, a good chance of passing in the remaining months of the Congress. At an FCBA lunch, Gallagher called the bill NTIA’s “top legislative priority.” Gallagher also said he was hopeful an amendment to the Senate version by Northpoint has a good chance of being removed from the bill. Inclusion of a Northpoint provision when the bill was marked up last year has been viewed as a stumbling block. “There is very active discussion about how that bill needs to be crafted to get it across the finish line today in the Senate,” Gallagher said: “There is very strong senatorial support. The challenge is what is being hung on it.” Gallagher noted that, as one of a few bills that has a chance of passage, it’s a target for amendment. But Gallagher said he has heard Northpoint amendment may be withdrawn. “The political weight of Northpoint and the Northpoint amendment is lessening day by day,” he said: “The fact is the Commission auctioned that spectrum. Over $100 million was garnered in auction by the Commission for auctioning that spectrum. That is well known and is sinking into the debate.” Gallagher said wireless carriers have been actively promoting the legislation on the Hill: “They're talking to staff. They're talking to members. They're working all the different circuits so that they know it’s a priority. I'm sensing plenty of support. We can always use more.” Gallagher also said the report of the Administration’s Spectrum Policy Initiative is on track for release the next few weeks. He said it has not yet been submitted to other agencies, including the Office of Management & Budget, for vetting before release. “The clearance process can move quickly,” he said.

CTIA floated a compromise plan at the FCC Fri. in the contentious 800 MHz proceeding, seeking what it called a “legally sustainable” outcome to a rebanding plan for mitigating public safety interference. CTIA Pres. Steve Largent outlined the proposal in a letter to FCC Chmn. Powell. It would entail Nextel’s paying $3 billion in a trust fund for relocating public safety and other incumbents. The plan, which Nextel called “astonishing,” allocated it 10 MHz at 2.1 GHz, instead of the replacement spectrum at 1.9 GHz it has sought.

N.Y. State Attorney Gen. Eliot Spitzer urged FCC Chmn. Powell Mon. not to give Nextel a “windfall” in reducing public safety interference at 800 MHz. The FCC is considering a proposal that would entail Nextel’s paying the costs of incumbent retuning while the company would receive replacement spectrum at 1.9 GHz or 2.1 GHz. Verizon Wireless and other carriers have argued that spectrum at 1.9 GHz should be auctioned if it’s part of an 800 MHz rebanding plan, with Verizon pledging $5 billion as an opening bid if an auction were held. Spitzer applauded the proposal on the table requiring Nextel to assume relocation costs for public safety. “The current proposal, however, addresses the critical needs of public safety at a tremendous cost to the American taxpayer,” he wrote Powell. Public safety groups and Nextel have backed a “consensus plan” for solving interference problems, in which Nextel would pay $850 million for public safety and private wireless relocation costs and would receive spectrum at 1.9 GHz in exchange for bands it would give up elsewhere. “While Nextel clearly should be compensated for its net loss of spectrum, as well as for its commitment to assume the costs of public safety’s equipment, it should not receive a windfall [from] the American taxpayers in exchange for its cooperation,” Spitzer said. “Nextel must be required to compensate the [Treasury] for the spectrum it receives in the amount that would have been received at an auction of that spectrum. That payment, of course, would be offset by the value of the spectrum the company would give up in the 800 MHz band, as well as by the amount it spends on the costs of public safety’s equipment,” he said. Spitzer cautioned that Nextel doesn’t need to be compensated in the form of $5 billion of “free spectrum” for complying with federal requirements [on] interference.

Nextel accused Verizon Wireless of trying to “derail” FCC consideration of Nextel’s consensus plan aimed at resolving concerns about 800 MHz interference. In an April 22 ex parte letter, Nextel told the FCC that 2 Verizon Wireless suggestions -- “that the Commission assign Nextel replacement spectrum at 2.1 GHz rather than 1.9 GHz and its purported offer to bid $5 billion in an auction of the 1.9 GHz spectrum” -- are attempts to derail and delay the proceeding. “Verizon’s actions will cause our nation’s first responders to continue to face interrupted, garbled and unintelligible radio communications in life-threatening situations, unless the Commission sees through Verizon’s transparent tactics and acts now to adopt the consensus plan,” Nextel wrote in the letter. Nextel said there’s “almost nothing in the record” on the use of the 2.1 GHz band as replacement spectrum for Nextel so the FCC would have to develop such a record before even considering Verizon’s proposal. A Verizon Wireless spokesman said the company hasn’t advocated 2.1 GHz and discussed it in a recent ex parte only because the FCC asked about it. In a related filing, the Assn. of Public-Safety Communications Officials International (APCO) urged the FCC to “move quickly to resolve any lingering issues” so it can adopt the consensus plan. The issue has been pending for more than 2 years “during which time interference problems have continued to threaten the safety of first responders and the public they serve,” APCO said.

NextWave comes out well in the settlement it reached with the FCC for use of its spectrum (CD April 21 p1), said Legg Mason in a research report issued Wed. “While the government will gain a large quantity of spectrum that it can auction off, NextWave will be able to keep more quality frequencies in the key markets, most notably New York,” Legg Mason analysts said. In addition, the report said: “By returning some spectrum to the government instead of trying to sell it all to the industry, we believe NextWave not only reduces market and regulatory uncertainty, but also cuts its auction debt, potential capital gains and tax obligations to the government.” Legg Mason said it would be surprised if NextWave didn’t seek to sell or lease most or all of the spectrum it kept under the FCC agreement. That means carriers would be able to acquire spectrum from either the government, through auction, or NextWave, through sale or lease, the report said. Although generally good for the industry by providing more supply, this “bifurcated approach could create some complexity for the industry,” the analysts said. Legg Mason said NextWave also made out fairly well financially under the agreement. The $1.6 billion it’s slated to pay the U.S. Treasury includes a $500 million down payment it made in 1996 when it won the spectrum at auction, plus the $714 million it agreed to pay the govt. in auction debt for spectrum sold to Cingular last year. “So, in effect, there’s only $386 million in new payments required” for the spectrum it retained under the latest deal, Legg Mason said. CTIA said the agreement was “great news” because the wireless industry “can now put this extremely valuable 1.9 GHz spectrum to use in delivering innovative, competitive services to urban and rural areas.” NextWave said the agreement “resolves all claims and disputes” between it and the FCC and will enable the company to complete its reorganization and emerge from bankruptcy “sometime after September 30.” The Federal Bankruptcy Court, White Plains, N.Y., scheduled a May 25 hearing to consider NextWave’s request for approval of the agreement.

The “vast majority” of the spectrum tied up in litigation since NextWave went bankrupt in 1998, could be “immediately” made available for other uses, the FCC said late Tues. It said the govt. had reached an agreement to that effect with NextWave on the company’s broadband PCS licenses, which have been in dispute since 1996. The deal is subject to approval of the U.S. Bankruptcy Court, Manhattan.

Nextel, in an FCC filing last week, raised “significant issues and concerns regarding the potential assignment to Nextel of replacement spectrum in the 2.1 GHz band.” The FCC has been nearing completion on an item for resolving public safety interference at 800 MHz. A staff item forwarded to the 8th floor would have Nextel pay the costs of relocating incumbents at 800 MHz and then pay the difference between that and spectrum it would receive at 1.9 GHz. In a “consensus plan” backed by Nextel and numerous public safety groups, a spectrum swap would entail Nextel giving up spectrum in some bands in return for spectrum it would receive elsewhere, including 10 MHz at 1.9 GHz. Verizon Wireless, which has been arguing the FCC should auction off spectrum at 1.9 GHz that’s part of an interference solution for 800 MHz, told the FCC earlier this month it would place an opening bid of $5 billion if the agency were to hold a 1.9 GHz auction for PCS spectrum. In a research note last week, UBS said Nextel could pay $2-$3 billion as part of any plan ultimately adopted by the Commission. The consensus plan would have Nextel pay $850 million for retuning public safety and private wireless incumbents at 800 MHz. “We don’t believe ‘cash is king’ in this situation,” UBS said. “Despite Verizon Wireless’s announced intention to bid at least $5 billion for the 1.9 GHz spectrum that is part of the consensus plan, should it be put up for auction, we believe that Nextel will prevail in obtaining the 1.9 GHz spectrum as part of the proposed spectrum swap.” As other analysts have noted, UBS said it expected Nextel would have to pay more than $850 million. “Given the sell off in Nextel’s stock price over the past 2 months, we believe this extra outlay (of potentially about $1-$2 per share above what was originally expected) had already been more than reflected in Nextel’s trading value,” it said: “The downside from announcement on this issue is limited.”