700 MHz Auction: Whither The D Block?

With even Chairman Martin publically agreeing that D Block is unlikely to attract any new bids, the question logically arises — what now? Needless to say, folks have not been shy about voicing their suggestions — especially those who think we ought to focus on maximizing revenue. Instead, I have a novel suggestion. Why don’t we actually investigate what the heck happened first?

More below . . . .

Two things need to guide the FCC and Congress in thinking about D Block. First, as folks like Commissioner Copps, Representative Harman, and others have pointed out, just allocating spectrum to public safety is not enough. If we want a national interoperable wireless broadband network for public safety, as recommended by the 9/11 Commission and just about everyone else, then someone has to bloody build and pay for the thing. From where I sit, I see four ways to do that:

1) Tell the public safety community to go build it themselves, possibly by breaking up the national public safety block that was supposed to partner with D Block into local licenses so that local and regional groups can manage it in chunks. Based on the history of the public safety community, this solution runs into serious problems because (a) lots of local and regional groups can’t afford to build out a new network, and (b) getting the necessary standardization across the balkanized public safety community to ensure interoperability will take a lot of time and effort — if it even happens at all.

2) Have the federal government fund the construction of the network. After all, the auction will gross about twice what the Congressional Budget Office (CBO) estimated, and a reauction of a chopped up D block would probably fetch a few billion more. This would, however, require Congressional action, which would also require taking a serious look at how much it would cost to build the new network. Still, it is quite doable and a good solution — if Congress so chooses. I have serious doubts, however, that Congress would be willing to commit public funds (even if offset by auction revenues) for this project. Remember, Congress finally pushed the broadcasters off this spectrum by setting a hard date for the transition because of our massive budget deficit.

3) Let the existing low bidder (whoever it is) have it. Remember, even if the D Block does not hit its reserve, the FCC is under no obligation to reauction. If the Mystery Bidder is a carrier with a proven track record, the FCC may decide “well, the auction made so much money already, and we really need to get this public safety network built. Lets just close the books and move on.” Indeed, it is a matter of great curiosity to me why the mysterious anonymous bidder did not withdraw its bid earlier in the auction instead of tying up so much bidding eligibility for the entire auction. Is this a large entity taking a chance on getting a bargain?

Personally, I think it is extremely unlikely that the FCC would let the D Block go this cheaply, particularly given the possibility that it could fetch ten times its current value chopped up into B Block sized licenses. Particularly if the winning bidder is either AT&T or Verizon, such a move by Martin would reek of corrupt bargain and would have folks like Waxman and Dingell sending letters, holding hearings, and generally making life unpleasant. Nor, given the desire by the Republicans to maximize revenue, is this likely to get support either from Congressional Rs or FCC Rs. So I don’t seriously expect this to happen.

4) Hold a reauction with the D Block structured as a public/private partnership, but try to figure out how to make it more attractive while still protecting the public safety community.

This last is the most obvious course of action. But before just going ahead and launching into a second auction, it is imperative that the FCC investigate what the heck happened so that they can come up with a proper remedy. To begin with, I hope they (and Congress) will investigate the allegations surrounding Morgan O’Brien and the collapse of Frontline. Mind you, it may well turn out that nothing underhanded took place — even if O’Brien’s initial negotiating stance sent Frontline’s backers to the hills. But if the FCC wants to fix the problem and get bidders for D Block, this is clearly a great mucking cloud that must be resolved and — if necessary — some kind of action taken to reassure private sector bidders that the public safety obligations will not be a bottomless money pit.

What else should the FCC consider. One possibility is to have similar rules, but divide the license up into smaller blocks (REAGs or perhaps even smaller sizes) so no single carrier needs to swallow the entire build out responsibility in one gulp. Yes, they carriers would all have to agree to abide by common technical standards and a common service contract. But it would break the associated costs of the license, build out, and support into more manageable pieces.

Yes, I was one of those who supported a national license to encourage the emergence of a new entrant. But that may not actually work. While I am not prepared to give up on the idea entirely given how enormously complex is the issue of what worked and what didn’t in the auction (that’s why the FCC and Congress need to carefully study what happened before revising the rules for a reauction), we need to be open to the possibility that the costs and risks associated with the public/private partnership idea are just too much for anyone to swallow on a national level at the price the FCC wants to get for this spectrum. Remember, this is about actually achieving a policy goal. There is no shame in having been wrong about a highly complex problem that required a determination based on theory well in advance of the event. But there is considerable shame in refusing to recognize reality when it actually unfolds.

Finally, the FCC may wish to lower the reserve price, or give up on the reserve price altogether. This is not about maximizing revenue (or at least, it shouldn’t be). This is about what’s best for the public interest. It may be that, at the end of the day, it may be impossible to achieve both the goal of getting a national public safety band built and the goal of making $1.3 billion from this block of spectrum. It may come down as a choice between one or the other. In which case, the FCC needs to remember — despite the constant harping to the contrary by Republican members of Congress and others — that the auction statute (47 U.S.C. 309(j)) explicitly instructs the FCC to place the public interest over maximizing revenue. Indeed, it tells the FCC to ignore the potential revenue in its public interest analysis.

And more importantly, for those of us that care, it’s the right thing to do.

Stay tuned . . . .

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