Tales of the Sausage Factory

FCC Authority In VZ/SpectrumCo, or “Real Lawyers Read The Footnotes.”

Many years ago, I taught a semester of law school as an adjunct. I assigned the students to read the FCC’s 2005 Internet Policy Statement. I was dismayed to discover that, after doing the reading, none of them had even heard of the concept of “reasonable network management.” How was that possible? Reasonable network management is not mentioned in the main text, but in footnote 15 which says that the principles are “subject to reasonable network management.” Given the centrality of the “reasonable network management” concept to the net neutrality debate, I was rather irritated. “Understand this before you graduate,” I warned them. “Real lawyers read the footnotes!”

I thought of that after reading Geoffery Manne’s and Berin Szoka’s piece about VZ/SpectrumCo over on CNET.

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Tales of the Sausage Factory

Proposed Wireless NN Rule “No Block, But Not No Lock?”

An interesting tidbit from Washington Post Reporter Celia Kang’s interview with Ruth Milkman, the FCC’s Wireless Bureau Chief. Of interest, Milkman states that the application of network neutrality to wireless would still allow cellular companies to lock cell phones to wireless providers.

How are the proposed rules different from conditions on the C block during the 700 MHZ auction? There, net neutrality rules were put in place that allow any device to attach to the network and prevent Verizon Wireless, who won the spectrum, from blocking Web content.

The difference between what we are thinking about in the general NPRM (notice of proposed rule-making) and the C Block is that we are not proposing a no-locking rule. So I guess it’s no block but not no-lock. If consumers can get an unlocked device and not harm the network, the consumer ought to be able to attach that device to a network. Does a service provider have to unlock the device it provides to the consumer? The draft doesn’t go that extra step.

This is an interesting twist on the application of the third principle of the 2005 Internet Policy Statement:

To encourage broadband deployment and preserve and promote the open and interconnected nature of the public Internet, consumers are entitled to connect their choice of legal devices that do not harm the network.

(emphasis in original). This is generally taken as the application of the “Carterfone” principle (and the Internet Policy Statement cites the Carterfone decision in case anyone misses this point). This is the decision that held that AT&T could not refuse to allow you to connect any device, like and answering machine or a phone you owned or a dial-up modem, to the phone network.

Milkman is right that the freedom to connect to a network is not necessarily the same thing as the freedom to move a device that comes locked from one network to another. In the old days, it wasn’t necessary to say it that way because there weren’t other networks to attach your device. The question was whether somebody other than Ma Bell could make something and attach it to the phone network. By the time we got to multiple wireline networks serving the same neighborhood, the consumer electronics market was so well developed that the idea of trying to lock particular laptops or wireless routers to specific network providers did not make much sense. Indeed, even in the never ending fight over set-top boxes and cablecard, the fight is over the ability to attach to an MVPD network, not the ability to unlock a device and move it from one MVPD network to another.

Most of us have always assumed that network neutrality applied to wireless would include both “no blocking” of content and applications and “no locking” devices to networks. But I suppose it doesn’t have to be that way. And, of course, this does not stop the FCC from dealing with handset exclusivity separately.

Still, it comes as a bit of a surprise. Nice to have the heads up, and tip ‘o the hat to Celia for doing this series of interviews with important folks at the FCC.

Stay tuned . . . .

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Econoklastic

700 MHz: Breaking the C Block Package

I apologise for the hiatus between this and my last 700 MHz Auction update, but with 36,419 bids over 261 rounds, analysing the data set is taking a bit of time.

Among the several controversies arising the from now-completed auction has been ATT’s claim that bidders were deterred from bidding on C Block because of the open access rules imposed on the block. I can say with confidence that this is a bald-faced lie.

Twenty-six companies bid on C Block spectrum: Alltel Corporation, AST Telecom, LLC, AT&T Mobility Spectrum, LLC, Bluewater Wireless, L.P., Cellco Partnership d/b/a Verizon Wireless, Cellular South Licenses, Inc., CHEVRON USA INC., Choice Phone LLC, Club 42 CM Limited Partnership, Copper Valley Wireless, Inc., Cox Wireless, Inc., Cricket Licensee 2007, LLC, Google Airwaves Inc., King Street Wireless, L.P., Thomas K. Kurian, MetroPCS 700 MHz, LLC, NatTel, LLC, PTI Pacifica, Inc., Pulse Mobile LLC, QUALCOMM Incorporated, SAL Spectrum, LLC, SeaBytes, L.L.C., Small Ventures USA, L.P., Triad 700, LLC, Vulcan Spectrum LLC, and Xanadoo 700 MHz DE, LLC.

Note that the lying buggers at ATT bid on REAGs 2 and 4. They were deterred, but only by Verizon’s deeper pockets.

The interesting dynamic in C Block is the effect of combinatorial bidding on the outcome. Under the combinatorial bidding rules three packages of REAGs were available (the 50 state package, the Atlantic package, and the Pacific package) as well as the individual REAGs. The rules provided that so long as the bid on a package exceeded the total amount of the bids on all the individual REAGs in that package, the package bidder would win (assuming that the package bid reached the reserve price). If the total amount bid on the individual REAGs exceeded the package bid in a round, then the package was “broken” and the package bidder wouldn’t be required to take any REAGs if it couldn’t have the whole package (this was to prevent a bidder who wanted a national footprint from getting stuck with less if another bidder outbid on one or two crucial components of the package).

Echostar was a strong proponent of combinatorial bidding, insisting that they wouldn’t show up and bid if the C Block did have a combinatorial bidding rule. Oddly enough, they got the rule and then their bidding entity, Frontier Wireless, didn’t even show in C Block bidding (they bid mainly in E Block without combinatorial bidding). But what they inadvertently did was screw at least one major bidder with the combinatorial bidding rules they insisted on.

More below…

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Econoklastic

Part IIb — Who's Who in 700 MHz: the Experienced Actors

Now we turn our attention to the more experienced potential bidders in Auction 73 for the 700 MHz Band. All have participated in either one or more of the three Lower 700 MHz auctions (44, 49, or 60) or the AWS-1 auction (66).

The Big Guys

Cellco Partnership, Verizon Wireless’ bidding entity, spent a whopping $2,808,599,000 in the AWS-1 auction for 13 licenses and comes to Auction 73 well positioned to bid for the C Block REAGs and possibly the D Block nationwide license.

MetroPCS 700 MHz, LLC, is the bidding entity for cellular telco MetroPCS, which spent $1,391,410,000 in the AWS-1 auction for 8 licenses. MetroPCS appears to be looking to establish national footprint and will be a strong contender in C Block, and likely using A and B Blocks to fill in coverage gaps.

Cricket Licensee 2007, LLC, spent $710,214,000 for 99 licenses in AWS-1; Denali Spectrum License, LLC, spent $274,083,750 for one license in AWS-1. Both are owned by LEAP Wireless; if their AWS-1 pattern holds, expect them to be mainly active in A and B Blocks, pushing to achieve national footprint, although Cricket may be a C Block contender.

The incredulity expressed by some of the trade press over the application of tech company QUALCOMM,Inc., to participate in the 700 MHz auction seems odd given the fact that QUALCOMM achieved nearly-national footprint in a Lower 700 MHz auction by spending $38,036,000 for five EA licenses. QUALCOMM is positioned to flesh out national footprint in the A and B Blocks or to become a C Block contender.

Cincinnati Bell Wireless, LLC, is the wireless subsidiary of a regional CLEC which spent $37,071,000 for 9 licenses in AWS-1. Expect Cincinnati Bell Wireless to concentrate in the B Block CMAs to reinforce regional coverage.

Bluewater Wireless, L.P., is Aloha Partners’ Charles Townsend’s new stalking horse. Townsend and Aloha Partners spent $34,853,070 in the three Lower 700 MHz auctions amassing the largest bundle of spectrum in the auctions, which they have sold to AT&T for $2.5 billion. Bet on Townsend trying to recapitulate that coup, probably in the A and B Blocks, but Aloha Partners got completely frozen out in the AWS-1 auction, partly by blocking bidding by incumbents, partly because Townsend was unwilling to bid high enough where he wasn’t facing concerted blocking. Auction 73 is shaping up to be more costly than AWS-1, and I doubt that Bluewater Wireless is going to be able to pick up nearly as much spectrum on the cheap as it did in the Lower 700 MHz auctions.

Cellular South Licenses, Inc., the bidding entity for cellular telco Cellular South, spent $33,025,000 for 12 licenses in AWS-1. Look for Cellular South to continue to cover gaps in footprint in the A and B Bocks, although it may compete for some C Block REAGs.

Cavalier Wireless, LLC, spent $23,572,350 amassing 51 licenses in the Lower 700 MHz auctions and 30 licenses in AWS-1. Cavalier may try to establish national footprint or concentrate on firming up its regional dominance.

Vulcan Spectrum, LLC, spent $15,075,000 gaining 24 Lower 700 MHz licenses; Bend Cable Communications, LLC, spent $528,000 on 2 AWS-1 licenses. Both are investments of Microsoft co-founder Paul Allen. They concentrated on obtaining spectrum in the Washington-Oregon region of the Northwest in Lower 700 MHz and AWS-1, but Allen’s deep pockets make Vulcan in particular a potential C Block contender as well as aspiring for regional coverage consolidation in the A and B Blocks.

Cox Wireless, Inc., was part of the SpectrumCo coalition which gained 137 licenses for $2,377,609,000 in AWS-1, as was part of the Advance/Newhouse Partnership. However, the real powerhouses in SpectrumCo — Comcast, Time Warner, and Sprint/Nextel — decided to sit the 700 MHz auction out. However, Cox’s cable TV operations and Advance/Newhouse’s resources as a newspaper, magazine, and cable TV conglomerate position both of them to be significant bidders for the A, B, and C Blocks.

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Tales of the Sausage Factory

700 MHz PreGame Show: Reading the Tea Leaves on Verizon and AT&T's Last Moves

Well the short forms are in, and a surprising number of companies are keeping mum about whether they even filed or not. But a few more interesting tidbits have turned up — notably that Echostar will come to the ball without its dance partner from the AWS auction, fellow satellite TV provider DIRECTV. And Clearwire, an anticipated participant, will sit this one out.

But of course, all eyes turn to the expected big boys of the auction, the largest incumbents, the returning champions, those winners of wireless, the masters of mobility, AT&T and Verizon! These are the guys to beat, the multi-billion wireless guerrillas that should be unstoppable and able to dictate to the market whatever they want. With the cable guys eliminated, they should be on easy street. But with Google making its play, and Frontline getting a 25% “designated entity” discount if it bids on D Block, even the mighty incumbents need to tread warily and brace for battle, lest they end up playing the French to Google’s Henry V at the spectrum equivalent of Agincourt.

With the necessary paperwork in to the FCC on December 3 triggering the anti-collusion rules and ending the last chance to say or do anything related to the auction, every last minute twitch and adjustment of the incumbent will be under intense scrutiny. Professional prognosticators, armchair analysts, and even random bloggers like yr hmbl obdn’t will try to read the tea leaves and predict the outcome of the upcomming spectrum steel cage smackdown.

So with this in mind, it is interesting to note the unusual a last minute wireless asset swap between AT&T and Verizon. Traditionally, wireless carriers have avoided these sort of mutually beneficial deals, preferring to duke it out directly with rivals. But AT&T Wireless and Verizon Wireless are now fully assimilated into the ILEC Borg Collective. Is this last minute swap a sign that the major wireless players will act more like wireline incumbents and work to defend their common interests — such as resisting the intrusion of newcomers Google and Frontline? Or is it merely that there are so few players to whom the companies can divest these assets (in both cases, the swaps are for licenses the FCC ordered divested as conditions on acquisitions) profitably before the Dec 3 short form deadline that this trade was inevitable?

And what should we make of Verizon’s announcement it will embrace Google’s “android” open platform for wireless? Is it just another move by Verizon to adjust to the T. Googlii lifestyle needs and turn a challenge to its business model into an opportunity to make huge profits? Or is this a final effort by Verizon to ward off my Apocalyptic Google Prophecy by persuading Google it doesn’t need to win licenses to get what it wants?

Finally, there is Verizon’s Petition for Reconsideration asking the FCC to reverse its decision to allow Frontline to keep its “Designated Entity” bidding credit while still doing 100% wholesale, but only for D Block. Is this just yet-another-round of the non-stop sniping between Frontline and Verizon? A signal that Verizon is interested in D Block? Or even a possible feint to disguise it’s intention to go for C Block and leave D Block to others?

More below . . . .

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Tales of the Sausage Factory

700 MHz Auction Update — FCC Republicans Interested In Public Interest Proposals While Senate Democrats Take a Pass.

Welcome once again to the topsy-turvy land of spectrum politics. Although Republican FCC Chair Kevin Martin shattered expectations by seeking comment on the Public Interest Spectrum Coalition (PISC) proposals for the 700 MHz auction, the Senate Democrats have decided to avoid having anyone from the public interest discuss the auction at next Thursday’s (June 14) hearing. In other words, despite my hope to the contrary, the Democratic Senate Commerce Committee is still playing spectrum politics under the old rules (treating this as an industry food fight and a chance to raise revenue), rather than using this as a chance to promote a robust public debate on how to ensure that wireless auctions promote competition and serve the public interest.

As a result, when the Senate Commerce Committee gathers to ask how the 700 MHz wireless auction can introduce new competitors for broadband and facilitate the open networks critical for civic engagement and innovation, they will hear from Mr. Dick Lynch of Verizon Wireless, Mr. Michael Small of Centennial Communications Corporation, and Dr. Amol R. Sarva of the Wireless Founders Coalition For Innovation. While Verizon has supported anonymous bidding, and the Wireless Founders Coalition supports open access, that hardly takes the place of having actual public interest representatives up there to press for real spectrum reform regardless of the impact on business models or bottom lines. As I say all too often (everyone repeat together) citizen movements must be citizen driven, and that includes giving us folks pushing the public interest an opportunity to speak rather than relegating us to the side-lines because corporate interests overlap with ours.

More below . . . .

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Tales of the Sausage Factory

Tales of the Sausage Facotry: Will WiFi Phones Displace Cell Phones?

Esme Vos comments on a WSJ article suggesting that WiFi and cell phones are mortal enemies. Sorry, but such a simplistic view of the world doesn’t hold water for me. Sadly, I think the cell phone companies believe it.

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