Wireless Spectrum Auctions

Northpoint has no clue on what FCC will rule Thurs. at agenda meeting on future of terrestrial broadband service that uses satellite spectrum, CEO Sophia Collier told us Fri. “The FCC has clammed up,” she said: “It’s very difficult to get information.” However, industry buzz continues to suggest FCC will make compromise decision that will include some kind of conditioned license with auction that Northpoint steadfastly has opposed. Collier said: “Regulators think they do well when both sides are unhappy, but they should look at win-win solutions rather than lose-lose.” She said Northpoint wasn’t sure what it would do “if the decision goes against us.” She said company would explore option of asking FCC for reconsideration, or appealing to U.S. Appeals Court, D.C.

Wireless industry is mulling options now that FCC Wireless Bureau decision has turned down CTIA request to delay 700 MHz auction set for June 19 (CD April 11 p1). Several sources said that because decision was by bureau, rather than FCC, door was left open for review by full Commission. Efforts on Capitol Hill to delay bid start date -- already under way before bureau decision -- also are expected to accelerate this week. “CTIA believes that the FCC was a little quick on the draw in their response and may have not looked at all the benefits that could be derived from a moderate delay of the auction,” said CTIA Vp-Govt. Relations Steve Berry: “We hope that the full Commission will have a much broader scope in its review.” Berry said CTIA hadn’t made any decision on whether to seek full FCC review of its request to delay start date, but said group was evaluating alternatives. Even before bureau decision last week to keep date, efforts were under way to have letters sent to FCC from key Senate and House appropriators and Commerce Committee members. One industry source said hope was that House Commerce Committee Chmn. Tauzin (R-La.) would lead Republicans in urging FCC to delay auction and that Rep. Dingell (D-Mich.) also would back delay. As early as end of this week, legislation is expected to be drafted that would delay auction, source said. White House Office of Management & Budget apparently is monitoring plan to retain auction date in light of language in Administration’s budget proposal that would push back dates of 700 MHz bidding, source said. Budget blueprint indicated that if upper band auction were moved to 2004 from 2001 and Ch. 52-59 bidding to 2006 from 2002, budget offset of $2.6 billion for fiscal 2002 would be realized. Before bureau decision, some Senate offices were close to including report language on fiscal 2003 budget that would direct FCC to delay auction date. Some in wireless industry also hope that NTIA might weigh in on auction timing with letter that would underscore language in Administration’s budget proposal, source said. Cingular Wireless last week had submitted ex parte filing to back CTIA request for delay, saying FCC had started proceeding to examine ways to eliminate interference for public safety users at 800 MHz. Cingular said one possibility would be to relocate existing 800 MHz public safety operations to 700 MHz to resolve interference, move that could finance relocation through auctioning vacated 800 MHz spectrum. “Delay of the 700 MHz auction is warranted to allow these issues to be fully addressed in the pending public safety rulemaking,” Cingular said. One industry source said Wireless Bureau letter to CTIA last week denying request for delay might have “raised bar” for signals FCC would need to receive from Hill to push back date of upper band auction for 6th time. FCC Wireless Bureau Chief Thomas Sugrue said bureau had adopted reserve price of $2.6 billion for upper band, meaning that if bidding didn’t reach that level, licenses wouldn’t be awarded.

Despite 3G bid prices in Germany that spiraled to $46.1 billion in 2000, Matthias Kurth, pres. of Germany’s Regulatory Authority for Telecom Posts, defended auctions Thurs. as tool for distributing spectrum. He addressed Transatlantic Telecom Trade Seminar in Washington on European marketplace, sponsored by Commerce Dept., CompTel, European Competitive Telecom Assn. (ECTA), TIA. “I still believe the auction system is good, even if people overbid,” Kurth said in luncheon speech shortly before meeting with FCC Chmn. Powell: “I can’t help that.” Of high bid prices for licenses, which were highest in European 3G auction, he said: “It was surprising even to us.” Auctions still are better alternative than traditional European “beauty contest” method in which licensees were judged on merit-based factors rather than bids. “It’s a question of timing,” Kurth said, noting that at time of 3G auction, telecom market was at peak of its cycle. If bidding were held in today’s depressed economic environment, “I'm pretty sure we wouldn’t get the same results,” he said. Kurth said that in aftermath of auction, Germany had allowed operators to explore alternative solutions such as network sharing to help defray costs and keep rollout of services on track. He said another issue German regulators were beginning to encounter in wireless industry was calls by competitors to step up regulation of sector. In some cases, competitors argue that individual wireless networks in themselves embody monopolies and should be regulated as such based on factors such as prices to terminate calls. But Kurth said he advocated light touch in such areas. “We always step back when we have a feeling that the market is competitive,” he said. But he added: “We have a lot of forces who want to push us in this [other] direction and it’s a very crucial debate.” As for broadband access, Kurth said that as in U.S., regulators in Europe were struggling with how to ensure that incumbents provided network access to competitors for starting services. He said Deutsche Telekom recently lowered DSL prices for residential customers in what was seen as step closer to creating “mass market” for DSL services. In separate speech Thurs., ECTA Pres. Phil Evins said factors such as diminished availability of venture capital were pointing to another wave of company consolidations in Europe. He cited $8 billion merger last month of Sweden’s Telia and Finland’s Sonera. Trend of former national monopolies’ pairing up across border will continue, Evins said. Europe is likely to end up with 5 or 6 former national monopolies after consolidations are completed, he said: “There is still a lot of consolidation. There is still a lot of fallout.”

FCC Wireless Bureau Wed. turned down CTIA request for delay of 700 MHz auction that’s scheduled for June 19. In denying petition, Wireless Bureau Chief Thomas Sugrue cited steps that agency already had taken to alleviate uncertainties involving that spectrum through policies such as voluntary clearing alternatives. “The current statutory scheme, which directs the Commission to conduct these auctions a number of years in advance of the end of the digital television transition period, ensures that uncertainties about the availability of certain portions of these bands may continue for some time,” Sugrue said. FCC faces statutory deadline of Sept. 30, 2002, for depositing proceeds from Chs. 52-59 auction in U.S. Treasury, and earlier statutory deadline for Chs. 60-69 already has been missed in postponements. “Although Congress is aware of this situation, it has not acted to address it by, for example, moving the auction deadlines back or moving the DTV transition forward,” Sugrue said. Congress also hasn’t acted on Administration budget proposal that would delay auctions, he said.

National Telecom Co-op Assn. (NTCA) members will be “fanning out across the Hill” today (Thurs.) seeking support for rural wireless bill introduced this week by Sen. Baucus (R-Mont.), NTCA CEO Michael Brunner said. Bill, which would require FCC to offer spectrum in blocks covering smaller geographic areas than currently covered, “isn’t perfect legislation, [but] it’s a piece of the puzzle,” Baucus’ Legislative Asst. Jay Driscoll said Wed. at NTCA policy conference press luncheon in Washington. He said Baucus was reaching out to other associations such as CTIA to get backing from members “both big and small,” emphasizing to CTIA-affiliated companies that bill wouldn’t pick winners or losers or show preference for particular technology platforms: “If the bill can be written better, we invite them to work with us.” NTCA Pres. John Metts said bill not only addressed difficulties of deploying wireless telephony service in rural areas, but also would assist in provision of broadband and data services. Since legislation would require FCC to auction smaller spectrum blocks, small-to-midsized providers could afford to buy spectrum that otherwise could be purchased only by industry behemoths, he said. Subsequent decrease in infrastructure and service start-up costs for competitive wireless carriers would encourage such companies to participate in auctions, he said. Recent NTCA member survey indicated many providers were dissuaded from participating in auctions since FCC offers spectrum blocks exceeding needs of rural carriers. Metts cited example of company wanting to buy spectrum covering rural area outside of El Paso that would have been required to bid for block that included entire El Paso metropolitan area: “Rational, smaller license areas that relate to our smaller geographic areas is what we need.”

FCC Wireless Bureau is seeking comments on petition by Progeny LMS requesting Commission to provide flexibility to licensees in Location & Monitoring Service (LMS) band and to alter certain restrictions at 902-928 MHz. Progeny asked that FCC consider eliminating or doing away with: (1) LMS spectrum cap to let single licensee hold all LMS licenses in given economic area. (2) Restriction on real-time interconnection with public switched telephone network. (3) Restriction on types of communications or services that LMS operators can offer. (4) Safe harbor provision that contains presumption of noninterference for secondary users of band. Comments are due May 10, replies May 28. Progeny won LMS licenses in 1999 FCC auction and has asked agency to relax restrictions on type and content of messages and spectrum aggregation. It urged agency to apply to LMS band “its market-oriented policy of allowing licensees flexibility to offer whatever services the market can support and demand, so long as those operations do not hinder or interfere with the operations of primary users in the band.”

Verizon Wireless is suing govt. to obtain remaining deposit from Jan. 2001 NextWave re-auction and is seeking ruling from U.S. Court of Federal Claims that auction “contract” for disputed licenses is void. Lawsuit came after FCC returned 85% of deposits from re-auction late last month but concluded winning bidders should continue for now to be held to nearly $16 billion in auction obligations (CD March 28 p1) until Supreme Court review plays out. Commission’s order described decision at that time as balancing act to preserve auction results pending Supreme Court review in NextWave case while returning most of deposits to bidders. In lawsuit filed Fri., Verizon Wireless also sought unspecified damages that it charged had been caused by “the FCC’s breach of the auction contract.” Litigation centers on $8.4 billion in auction prices for which Verizon Wireless successfully bid in Jan. 2001 re-auction and for which it technically still is liable. Verizon Wireless’s suit argued that it had suffered “substantial economic injury” as result of FCC’s contract “breach,” including effects on its credit rating and ability to borrow.

Industry and govt. spectrum users agreed on need for more regulatory certainty and flexibility in govt. spectrum policy at NTIA Spectrum Management & Policy Summit Thurs. But at start of 2-day summit, panels struggled with how to define spectrum property rights, incumbent relocation, global harmonization, incentives for efficient spectrum use, accurate forecasts of future demand. FCC Chmn. Powell and NTIA Dir. Nancy Victory stressed renewed commitment of both agencies to engage in regular spectrum planning meetings. While overarching govt. goal is to develop national spectrum policy and improve spectrum management policy, Victory said NTIA was in “listening mode” to assess what was and wasn’t working under current policies. “This is clearly a significant moment in spectrum management,” she said, noting spectrum review outcome could involve changing “slightly or drastically” way bands are managed. Much of day-long discussion focused on thorny transitional issues that face govt. policymakers in areas such as how incumbents are treated when more flexible spectrum policies like sharing and leasing are introduced. “Our challenge is this: How do we fit new world-leading technologies into the U.S.’s own cramped spectrum allocation,” Commerce Secy. Donald Evans said.

CTIA asked FCC to again delay 700 MHz auction now scheduled for June 19, citing “numerous contradictions and many uncertainties” that surround process. “While a June auction might be called an ‘auction,’ in reality it would be the U.S. government opening a casino and collecting the ante for a much bigger private auction to enrich broadcasters at the expense of rational spectrum policy and the welfare of American taxpayers,” CTIA Pres. Tom Wheeler wrote to FCC Chmn. Powell. Last year, FCC Wireless Bureau postponed planned Sept. 12, 2001, auction of TV Ch. 60-69 spectrum now occupied by analog broadcasters for 5th time. CTIA’s request for delay came one day after Pax TV Chmn. Lowell Paxson told reporters that if there were another delay in 700 MHz auction, there would be no voluntary clearing of that spectrum by analog TV stations to make way for nonbroadcast users (CD April 3 p5). Request also came as Cingular Wireless was floating plan to ameliorate interference issues faced by public safety users at 800 MHZ that would move those licensees to 700 MHz, necessitate delay in auction and require congressionally mandated certainty as to when broadcasters would move. FCC officials have emphasized in recent weeks that Commission is preparing for auction of Chs. 52-59 and Chs. 60-69 at 700 MHz. FCC faces Sept. 2002 statutory deadline for depositing proceeds from Ch. 52-59 auction into U.S. Treasury. In 2000, congressional leaders signaled their support for Ch. 60-69 auction’s slipping beyond statutory deadline of Sept. 30, 2000, for depositing proceeds from auction of that band. CTIA argued in its petition that Congress had given agency conflicting instructions. It has directed FCC to auction Ch. 52-59 spectrum by Sept. 30, but that deadline conflicts with Sec. 309 of Communications Act, which directs Commission to ensure parties have time to develop business plans, assess market conditions and evaluate availability of equipment for relevant services, CTIA argued. “The uncertainty of the band-clearing process does not allow carriers to properly assess market conditions and make rational business decisions,” group argued. “In situations where there is a statutory conflict such as the one that is present here, the conflict may be reconciled through reasonable statutory interpretation,” Wheeler wrote. “A reasonable interpretation of these conflicting statutes should lead the Commission to postpone both of the 700 MHz auctions to further its statutory and public interest spectrum management responsibilities.” CTIA also noted Administration’s budget proposal earlier this year would postpone 700 MHz auctions. Budget blueprint said that if upper band auction were moved to 2004 from 2001 and Ch. 52-59 bidding to 2006 from 2002, budget offset of $2.6 billion for fiscal 2002 would be provided. “The uncertainties surrounding both of the 700 MHz auctions increases the risk that the auctions will be skewed so that licenses are not awarded to the parties who value them most highly, and who will provide the services consumers most desire,” Wheeler said. Responding to Paxson’s “media alert” on possibility of another FCC postponement of auctions, Wheeler said: “Paxson’s hell-bent-for-auction attitude is so strong he objects to our filing even before it is submitted” to FCC. Broadcasters, he said, now want to use spectrum they promised to turn back “for personal enrichment by exploiting a carefully crafted legislative loophole.” Meanwhile, Cingular is proposing plan that would offer alternative to Nextel’s band reconfiguration scheme that would swap spectrum at 700 MHz, 800 MHz and 900 MHz for new capacity at 800 MHz and 2.1 GHz. Private wireless users have raised concerns about disruption to their services under Nextel plan. Cingular plan, which hasn’t been formally unveiled and is still under development, would move public safety operators to 700 MHz and put 800 MHz spectrum now occupied by public safety users up for bid, said Brian Fontes, Cingular vp-federal relations. “This plan is just a draft,” he stressed: “We are circulating it to a number of different people or groups seeking their comment.” Fontes called plan “realistic approach” to interference public safety users are experiencing at 800 MHz, saying it has benefits for commercial, public safety and private wireless users. Proposal also would require reallocation of affected spectrum for public safety and homeland security uses, he said.

Northpoint filed FCC application late Wed. to construct 2 DBS satellites and operate as satellite-terrestrial system that would make it “stronger competitor” to merged EchoStar- DirecTV DBS companies, CEO Sophia Collier said Thurs. “With a terrestrial system, we were a good competitor,” but with merged DBS companies it would be “hard for us to compete.” Despite industry speculation that Northpoint decided to integrate system because of concerns about auction, Collier said it wasn’t “a legal reason, but a business reason” that caused Northpoint to alter its business model. She said major system upgrade would allow Northpoint to increase capacity significantly, provide faster broadband service and incorporate modular set-top box architecture that would allow outside developers to offer new services once FCC approved license. Northpoint made public no details about satellites or financing, but said it would be financed by affiliates and founders.