Wireless Spectrum Auctions

SAN FRANCISCO -- A senior FCC staffer indicated the outlook for unlicensed software-defined radio (SDR) using broadcast TV “white space” spectrum probably was closer to that seen by gung-ho Intel than by a highly skeptical broadcaster organization. Peter Pitsch, Intel communications policy dir., “says ‘no problem,'” said Bruce Franca, FCC Office of Engineering & Technology deputy chief, speaking at an Intel Developer Forum panel here late Wed. “Victor [Tawil, MSTV senior vp] says it can’t be done. I'm not going to tell you who’s right, because this is still an ongoing proceeding at the FCC.”

At our deadline Fri., Vodafone and Cingular Wireless were expected to submit bids for AT&T Wireless, with NTT DoCoMo reportedly bowing out of the competition for the carrier. It wasn’t immediately clear when the terms of any proposed offers would be made public, although AT&T Wireless’s board was expected to meet Sat. Legg Mason said in a research note last week that Cingular was the most likely winner. But Legg Mason said if Vodafone weighed in with a bid, Cingular could explore alternatives, such as pursuing T-Mobile USA if it didn’t win the auction for AT&T Wireless. “There have been preliminary discussions with Cingular and T-Mobile in the past so this option is not far- fetched, but the drawback is that T-Mobile has no interest in selling below its book value of approximately $22 billion,” Legg Mason said. It said that sum would be 10 times higher than the company’s projected earnings before interest, taxes, depreciation and amortization, which would be a significant premium to the 7 to 8 times multiple that AT&T Wireless might attain in its own bidding process. As for a Vodafone bid, Legg Mason said the biggest challenge would be the company unwinding its 45% stake in Verizon Wireless, its joint venture with Verizon. Another possibility stirring speculation Fri. was the emergence of Nextel as an AT&T Wireless bidder. Legg Mason said it didn’t expect a Nextel bid, but if it did, it probably would be based on concerns that “another company doesn’t obtain the wireless assets ‘on the cheap,'” it said. Meanwhile, UBS said in a research note Fri. that the sale of AT&T Wireless to either Cingular or Vodafone could affect the ownership of Venezuelan telco CANTV. If Vodafone won AT&T Wireless, Verizon would be likely to buy out Vodafone’s 45% minority stake in their joint venture. That could be financed in part by the sale of Verizon’s 28.5% ownership of CANTV, in which Verizon is the single largest shareholder, UBS said. Potential buyers could include Mexico’s Telmex or Spain’s Telefonica, it said. Medley Global Advisers said in a research note last week that regardless of whether Cingular or another carrier won the AT&T Wireless bidding, a “complicated and time-consuming merger review process” lay ahead at the FCC and Dept. of Justice. “The process will be cumbersome due to the range of technical and political issues that will need to be addressed,” it said, including questions on the appropriate ownership of spectrum in overlapping markets. In general, one scenario on which analysts were speculating last week was that a decision by AT&T Wireless could be announced as early as today (Tues.), although a bidder could still enter the fray beyond the 5 p.m. Feb. 13 deadline that the carrier had set for bids. As of late Fri., Vodafone reportedly was mulling a $34 billion bid for AT&T Wireless.

In its triennial report to Congress on entry barriers for entrepreneurs and small businesses, the FCC outlined 5 legislative proposals: (1) Create a new tax incentive program benefiting small businesses. (2) Establish a spectrum relocation fund for federal incumbents. (3) Clarify the FCC’s authority to conduct innovative spectrum auction designs and to ease the relocation of incumbent licensees. (4) Expand Commission authority to authorize operation of radio stations without individual station licenses. (5) Amend the Telecom Act to address potentially anticompetitive pricing practices used by incumbent cable operators that might impede market entry by competitors. The report also outlined each bureau’s work toward the goal of easing barriers. For example, the Media Bureau has developed procedures to allow small businesses to acquire existing radio and TV stations from other combinations that exceeded the new media ownership limits. The bureau also relaxed initial DTV build-out requirements for smaller-market broadcasters in view of financial concerns, the report said. The Wireless Bureau adopted rules to implement a framework for the development of secondary markets in spectrum usage rights. Comr. Copps dissented from the Commission’s 2003 Small Business Report, calling it a “slapdash catalog of miscellaneous Commission actions” rather than a serious effort to improve the communications climate for small business. He also said the Commission failed to address the challenges faced by small businesses as telecom consumers.” Comr. Martin, who approved in part and concurred in part, said that although the legislative proposals might have merit, he reserved judgment on them because the commissioners “were provided with only limited time to consider” them. Comr. Adelstein, who approved in part and dissented in part, said he supported most of the report but disagreed with suggestions that the Commission’s new broadcast ownership rules would promote diversity of media voices or eliminate entry barriers for newcomers. “Entrepreneurs and small businesses, as well as the general public, are in no way better served by slashing media ownership protections,” he said.

AT&T’s appeal of the FCC’s grant of 8 licenses in the 2 GHz band should be dismissed because the Commission’s decisions were “entirely proper,” 8 satellite companies said in intervening in the case on behalf of the FCC. The agency told the court AT&T lacked standing to claim the FCC should have held an auction for the licenses instead of simply giving authorizations. AT&T suggested that the Commission had violated the Communications Act when it decided not to hold extensive fact-finding proceedings on the viability of mobile satellite service (MSS). ICO was the only one that suggested MSS wouldn’t be viable without an ancillary terrestrial component (ATC), it said, while “other applicants disagreed with ICO about the economic viability of satellite- only MSS.” Five applicants, including ICO, later “sent the Commission a joint letter stating that nothing in the ICO letter seeking authority to provide ancillary terrestrial services ‘reflects a diminished need for MSS spectrum.’ On the contrary, most applicants believe that a terrestrial component is not necessary for the success of the MSS systems.” AT&T also said the agency had attempted to evade an auction by granting the 2 GHz licenses before deciding whether to allow ATC, implying that additional companies would have applied for 2 GHz licenses and an auction would have been required, an argument the intervenors said was wrong: “The Commission routinely accepts spectrum applications first, and then -- based on its review of the applications -- crafts rules on how the spectrum may be used. Even if the Commission had allowed the filing of additional applications… it is not likely that many (if any) additional companies would applied for 2 GHz MSS license. Significantly, the wireless carriers do not allege that… they would have filed applications to construct satellite systems.” The ORBIT Act would have precluded an auction for the 2 GHz spectrum, contrary to AT&T’s claim, they said.

Despite evoking scant interest in their commercial counterparts, public broadcasters are pressing ahead with their proposal for TV stations to embrace a hard date for analog switch-off. The Assn. of Public TV Stations (APTS) will submit a draft plan for stations to adopt a hard date for moving into digital-only operations to its board at public TV’s annual Capitol Hill Day in Washington Feb. 24-25, APTS Pres. John Lawson told us. The public broadcasters are planning to use the offer of an early return of analog spectrum to achieve a long-standing demand for a trust fund for public TV. PTV officials wouldn’t provide estimates of the size of the proposed trust fund, or the cost of set-top boxes.

The Network for Instructional TV (NITV) asked the FCC to consider another option to address whether Instructional TV Fixed Service (ITFS) licensees should be able to sell spectrum to commercial operators. NITV told the FCC in a filing last week that it was caught in a “triangle of unmanageable conflicts” involving the FCC’s interest in encouraging the fullest use of ITFS spectrum, a proposal by EarthLink to open parts of the band for broadband uses and educators who argue ITFS spectrum should be kept intact. NITV proposed a 4th alternative that would: (1) Let educators keep full use of the spectrum or lease options, as is the case under current rules. (2) Give educators the option of selling ITFS spectrum to commercial interests if they could demonstrate to the FCC they would use acquired funds to meet “their educational mission.” (3) Provide that 5% of any spectrum sold to the commercial sector be set aside for the continued use of the educator who held the original ITFS spectrum. “Leaving educators with only midband spectrum, as EarthLink suggests, and leaving educators potentially saddled with the entire cost of operating that spectrum, will not encourage auction participation because this approach is likely to diminish interest by educators fearful that no commercial party will provide operational support if ITFS is left only with the midband,” NITV said. The FCC adopted a proposal last year that asked a wide range of questions on how ITFS spectrum should be regulated. It sought comments on possible changes that would move away from a broadcast-style regulatory approach for ITFS and MMDS spectrum to one that would hasten the rollout of next- generation systems for wireless broadband.

Public safety groups called on President Bush Thurs. to push the FCC to finish the 800 MHz proceeding. They backed a proposal, supported by Nextel, for reducing interference to their systems in that band. Harlin McEwen, retired chief of police of Ithaca, N.Y., and chmn. of the communications & technology committee of the International Assn. of Chiefs of Police, said pending proposals were stalled at the FCC and the issue had become mired in a “corporate battle.”

AT&T Wireless hasn’t proved it suffered from the issuance of 2 GHz licenses to mobile satellite service (MSS) providers, and thus lacks standing to appeal the decision, the FCC said in a brief to the U.S. Appeals Court, D.C. AT&T, in a petition for review in July, asked the court to look at whether assigning the 2 GHz band to MSS was the best use of the spectrum and asserting that the Commission should have auctioned it off under the Communications Act (CD July 10 p5). But the FCC said AT&T was asking the wrong question, saying the more appropriate question was whether the FCC properly had granted the authorizations under established rules: “This case is a licensing case, and its resolution does not turn on questions of spectrum use policy. With respect to the licensing issue presented here, the appellants have failed to show that the Commission’s issuance of the 2 GHz MSS authorizations was improper.” The company’s most relevant argument for an auction actually was one it already had presented to the court, the FCC said. AT&T had contended that “the Commission improperly ‘evaded’ the auction requirement by resolving the licensing issue before the [ancillary terrestrial component (ATC)] issue” while legally the Commission was obligated to create mutually exclusive license applications, triggering an auction. The argument wasn’t one of the issues AT&T presented before the FCC, the agency said. In fact, while the company had asked only that it defer a decision on licensing before deciding whether to reallocate the 2 GHz spectrum, the FCC said, now “appellants ask that the licenses be rescinded,” making the mutual exclusivity argument more relevant: “In any event, the argument is wrong on the merits. Appellants do not cite anything in the statute that remotely suggests a requirement that the Commission must seek to produce mutual exclusivity.” A separate statute even directs the FCC to use other methods to avoid mutual exclusivity, it said. AT&T has argued it has standing as a competitor, but the FCC said AT&T had said in the past that MSS was “so unviable that the spectrum should be devoted to another use entirely… It makes no sense to allow appellants to appear before the court as ‘competitors’ when their own theory of the case is that the MSS licensees will not provide a competitive service.” As for whether AT&T’s question whether the 2 GHz licensing order was consistent with FCC’s authorizing the use of ATCs, the Commission said the question wasn’t appropriate for this challenge and should be handled in a challenge of the ATC order. The “appropriate remedy would be reversal of the ATC Order and not the licensing decision,” the FCC said, saying the orders were consistent.

With suitors lining up for AT&T Wireless, industry attention has turned to how the FCC is likely to review the first major wireless merger since it lifted the spectrum cap a year ago. As a legal matter, the Commission is expected to view transactions in the context of a national wireless market, sources said. How the FCC handles the first proposed combination among the 6 national providers is being watched closely for signs of how the agency will examine what could be a flurry of consolidation in the sector, industry observers said.

The FCC Wireless Bureau announced last week the shifts in responsibilities among its staff members as part of its recent reorganization into 6 new divisions. A bureau spokeswoman said the legal advisers and deputy bureau chiefs generally had shifted the divisions they supported. The bureau chief’s office added Aaron Goldberger as a legal adviser to provide support to the Public Safety & Critical Infrastructure Div. (PSCID) and to coordinate with the FCC Office of Engineering & Technology. The bureau named Lauren Patrich as special counsel for media and outreach. It announced 2 reassignments in the chief’s office: (1) Chief Engineer Thomas Stanley will be responsible for wireless technology and engineering policy on licensing or sharing wireless services. (2) Chief Economist Walter Strack will be policy and technical adviser on economic issues concerning regulatory policy, spectrum policy and auctions. In other areas, the Bureau said: (1) Deputy Bureau Chief Catherine Seidel is supporting the bureau’s new Broadband Div. and the PSCID. (2) Deputy Bureau Chief Gerald Vaughan is supporting the Spectrum & Competition Policy Div. and the Spectrum Management Resources & Technology Div. (SMART). (3) Acting Deputy Bureau Chief Peter Tenhula provides support to the Mobility Div. and the Auctions & Spectrum Access Div. Tenhula also directs the agency’s Spectrum Policy Task Force. Margaret Wiener, chief of the bureau’s Auctions & Industry Analysis Div., becomes chief of the new Auctions & Spectrum Access Div. The new Broadband Div., which has taken on some policy areas that had been in other divisions, is headed by Joel Taubenblatt, who was deputy chief of the former Policy Div. and a legal adviser to the bureau chief. The Div.’s policy areas include Multipoint Distribution Service/ITFS, advanced wireless services, 70-80-90 GHz, Local Multipoint Distribution Service, 24 GHz and 18 GHz issues. D'wana Terry, who headed the previous iteration of the Public Safety Div., becomes chief of the new Public Safety & Critical Infrastructure Div. William Kunze is heading the Spectrum & Competition Policy Div., responsible for Spectrum Policy Task Force implementation, secondary markets. His division also will include competitive reviews of proposed transactions. Elsewhere, John Chudovan is heading the SMART Div., which covers all the bureau’s information technology, licensing support, auctions support and outreach functions.