Tales of the Sausage Factory

700 MHz Update: FCC Severs D Block, Refers Cyren Call Allegations To Inspector General.

The FCC can certainly move fast when it wants to — and when it has had a few weeks to get used to the idea. The FCC just released a public notice that it will “de-link” the D Block from Auction 73, and will release the names of the winners as soon as the Commission collects the payments (ten days after it issues the official notice that the auction is over and that parties now need to file “long forms” and pay up).

Also of importance, Chairman Martin has referred the question of whether Cyren Call made all manner of demands of Frontline, and did this break any rules to the Office of the Inspector General. This extremely important detail was buried in this somewhat less than stellar Washington Post article about our letter to the FCC calling for an investigation. I say “less than stellar” because, in addition to “burying the lead” big time, the reporters did not trouble themselves to contact me despite that fact that (a) I broke this story in the first place (only narrowly beating out Dow Jones’ Cory Boles); (b) I drafted the friggin’ letter. I therefore recommend this far superior article in eWeek (i.e., it mentions me and links to the relevant blog entry — a clear mark of superior journalistic skills).

A bit more analysis below . . .

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Tales of the Sausage Factory

Quick 700 MHz Updates

First, we at PISC have sent a letter to the FCC asking the FCC to sever the D Block issues, announce the winners of the rest of the auction, and thoroughly investigate the allegations around Cyren Call and its pre-auction discussion with Frontline. (Martin has apparently already circulated something that severs D Block, so they can announce results as soon as the other Commissioners vote and the wireless bureau finishes the necessary housekeeping.)

Perhaps more importantly for the long run, we ask that the FCC take a hard look at whether to try to fix the public/private partnership or possibly do something else. The FCC has a lot of options here. And with the auction clearing over $19 Billion and the statutory requirement to start an auction before January 28, 2008 fulfilled, the money pressure and time pressure are off. We have time to have a public process and do it right.

Second, here is Kevin Martin’s official statement explaining why the auction was a huge success (and, by implication, why he did a bang up job getting this done). Martin, sensitive to the grumblings from folks who say that different rules could have gotten more revenue, included this handy chart showing that, on a pure revenue basis, the 700 MHz auction is the most successful FCC auction ever.

(In the reading the tea leaves department, I note that the chart subtracts out the D Block bid. And indication the FCC won’t just pass off the D Block to the lone low bidder? Maybe, but no surprise if that turns out to be the case.)

You can find Tate’s statement here. I have not seen official statements from any of the other offices.

Stay tuned . . . .

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Tales of the Sausage Factory

Did Morgan OBrien and Cyren Call Kill Frontline?

I’m getting a number of folks from different walks of life coming forward with the same story: Morgan O’Brien was the direct cause of Frontline’s investors pulling out.

Of course, there is no way I can actually confirm this on the record because the people in the room either can’t talk about it (due to the anticollusion rules) or won’t. Nevertheless, having confirmed this with sources I find reliable and who could not have coordinated with each other, I feel I need to come forward here and put this on the table. D Block and the public safety partnership are far too important to end up falling victim to the combination of insider baseball, manipulation and greed that appears at play here.

I have absolutely not talked to anyone at the FCC about this. No one at the FCC can legally respond to any of this, and I would not ask them to do so. Similarly, in my discussions, I have been at pains to avoid any conflict with the anticollusion rules. Nevertheless, the sources I have are, I believe, reliable, and I have therefore made a decision to go forward with this story. I must also add that because I am on sabbatical, I have not had any discussions about this with my employer, Media Access Project, or with anyone at Media Access Project while developing this story.

Details below . . . .

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Tales of the Sausage Factory

700 MHz Auction: D Block Panic, Damping Expectations, And My Final Thoughts Before the Opening Bell.

After so much pre-game hype, it’s hard to believe we have actually gotten down to the 700 MHz Auction week. The fun and games will start January 24, although we won’t know (much) about the auction until it is all over sometime in late February or early March.

Not surprisingly, the news that Frontline Wireless , the company that did so much to shape the rulemaking around the “D Block” public/private partnership, went belly up before the auction even started has triggered a round of hand-wringing about the fate of D Block and finger-wagging by those who always thought it was a bad idea to impose any kind of conditions on licenses. As a result, we see a slew of stories questioning whether anyone will bid for D Block (or, at least, meet it’s $1.3 billion reserve price), with some spillover questioning about the future of the auction itself.

While I agree with GigaOm that wireless auctions aren’t for wimps, I do think the panic over Frontline’s failure to scrounge up capital to make the necessary up front payment (the “ante” required to buy “bidding credits” to participate in the auction) is exaggerated. Nor am I as pessimistic that the auction will produce some groundbreaking changes as others, although it could well happen that we get through this auction with no new “disruptive third-pipe providers.” I think we will certainly see the auction hit the $10 billion Congress estimated (and the FCC set as aggreagte reserve price), and we will see C Block meet its $4.6 billion reserve price.

On the other hand, if things start to go poorly in the auction, we may see some panic moves by the FCC, particularly with regard to D Block. The possibility that the FCC may retroactively drop the reserve price on D Block (possibly without holding a reauction) may introduce strategic behavior into the auction. Of course, since no one (including the FCC) can actually talk about this possibility makes the speculation even more insubstantial than usual. Still, since the possibility does exist, and because I think such a course would create real problems with the auction, I briefly discuss it below.

Analysis below . . . .

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Tales of the Sausage Factory

We Interrupt This CES Convention For A Breaking 700 MHz News Item

I’m out here at the Consumer electronic Show with actual blogger credentials (primarily so I can get the free back pack and use the blogger lounge). So, of course, we get major 700 MHz Auction news today before I can even start to do CES blogging.

As reported by my fellow PISC-ER Gregory Rose and elsewhere, Frontline Wireless has dropped out of the bidding. That’s kind of a surprise, given how Frontline fought to get a designated entity credit and still pursue wholesale as a real business model. It’s also impossible to say (at the moment at least) why Frontline self-destructed at the last minute.

Leaving aside the Frontline specifics, the big question is “how will this impact the auction” and “will we see wholesale emerge at all as a model.” Unsurprisingly, most analysts are going conventional and saying (a) D block (which Frontline had targeted) may not attract bids to meet the reserve price, and (c) This makes it even less likely we will see a new entrant, let alone a wholesale new entrant.

Also as usual, I will play the contrarian here. D Block is still very attractive to the conventional carriers looking to get national footprint or others looking for national footprint and willing to work with public safety. If AT&T and Verizon are both serious about this auction (and indications are that they are), both may push hard for D Block — especially if C Block is competitive.

On the new entrant side, it still remains to be seen what Vulcan and Google will do. Even if — as I suspect — Google wants to win the network but not build out, it may find D Block attractive. As holder of D Block, Google could still negotiate with third pary carriers (such as Alltel, US Cellular or even Sprint or T-Mobile) to build the network on its terms and to the satisfaction of public safety. The much lower price of D Block would offset the the aggravation of working with public safety and ensuring that their needs come first.

Finally, there’s Towerstream and the other wild cards like Qualcom. Who knows what they intend, especially given the likely competitiveness for C Block.

So while I’m sorry to see Frontline go, I don’t think it hurts the odds for a very competitive auction or a new entrant. It does potentially make a wholesale network more of a stretch, because Frontline was really the only bidder gung-ho on the model (Google being traditionally in favor of wholesale but making no promises at this point beyond “open”). That’s a shame, but not devestating or fatal to a new entrant.

Stay tuned . . . .

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Tales of the Sausage Factory

700 MHz Final Tweaks: Limited Relief for Frontline, Google Looks to Bid

So with the December 3 date for the filing of short forms to participate in the 700 MHz auction looming ever closer, we see some last minute shifting about and settling of a few lingering details. First, in the I called it category (as did my friend and fellow Wetmachiner Greg Rose, various news outlets report that Google seems increasingly likely to bid in the 700 MHz auction. Further support for the idea that Google really intends to bid comes from their filing a request for clarification from the FCC that when the FCC said “no discrimination,” they meant the usual statutory version that allows discounts for volume customers and such what (the usual statutory language prohibits “unreasonable discrimination,” which allows for things like bulk discounts provided everyone that meets the criteria gets the same deal).

Mind, it isn’t a sure thing Google will bid until it files a short form, and folks can file to bid without being willing to put up the money. But given the number of folks who said Greg and I were on crack for expecting Google to actually put up its own money to go against the likes of Verizon, we can perhaps be forgiven for patting ourselves on the back for being so far out ahead of the curve on this.

More importantly, perhaps, is the FCC’s decision last week to provide limited help to Frontline Wireless by allowing a designated entity (DE) that wins the D Block auction to wholesale its spectrum without losing its DE credit. (You can read the FCC Press release here and the full text of the Order here.) Now how does this help? And why limit it to D Block? And what the heck is a “DE” anyway?

Answers and speculations below . . . .

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Tales of the Sausage Factory

700 MHz Endgame: Martin Antes. AT&T Raises. Google Calls. Does AT&T Fold or Call?

So yesterday, AT&T was extolling the virtues of the Martin plan. Among its virtues, Jim Ciconni included:

In effect, Chairman Martin’s plan faces Google and others with a “put up or shut up” opportunity. If they are serious, they will be able to bid and test their model in the marketplace against the business models of companies already enjoying widespread consumer acceptance.

Critically, Ciconni was referring to the “reserve price” feature of the Martin plan. To protect himself against the threat that even his device only open access would depress auction revenues, if the 22 MHz “C” block did not fetch at least $4.6 billion in bids, the FCC would cancel that part of the auction, split the 22 MHz int two 11 MHz blocks, and reauction without conditions. (Reserve prices are not uncommon in spectrum auctions, although as far as I know they have never been tied to a specific condition.)

So today, Google’s Eric Schmidt called Ciconni’s raise. In a letter to Chairman Martin, Schmidt committed to bidding a minimum of $4.6 for the “C” Block — but only if the Commission adopts all “four opens” that Google demanded in its letter last week and endorsed by the public interest coalition, Frontline, and a bunch of others. That means not just real device attachment and open application rules, but also real wholesale obligations at non-discriminatory prices. (You can find Google’s blog post explaining their letter here.)

The fear that Google would not bid no matter what, or that only one or two companies would bid on a license with wholesale open access conditions, has been one of the central features of the debate. Even ardent believers in real open access like Commissioner Adelstein have expressed real concerns over this. And, as I have noted previously, AT&T and its various sock puppets and Republican subsidiaries have used the threat of messing with the revenues as a major weapon against wholesale open access.

In a stroke, the Google letter changes the nature of the game. Google has now guaranteed that the feds will make their auction projections — but only if they include real open access. Meanwhile, rumors swirl that it may be AT&T, rather than Google, that sits this auction out. Suddenly, we switch from “will including wholesale open access keep out bidders and lower the revenue” to “will not including wholesale open access keep out needed bidders and drive down revenue.”

Meanwhile, the clocks ticks toward deadline. What does it mean? What happens next? And will I ever get a vacation this summer?

See below . . . .

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Tales of the Sausage Factory

My guest spot on Esme Vos' Muniwireless site

If you don’t already read Esme Vos’ amazing Muniwireless.com website, you will miss the fact that she published a guest editorial of mine on the 700 MHz auction and how the open access proposals (PISC’s and Frontline’s) can help muni operators.

Stay tuned . . . .

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