FCC Adopts 700 MHz Band Order

July 31, 2007. The Federal Communications Commission (FCC) adopted, but did not release, a Second Report and Order (2ndR&O) regarding the 700 MHz band

The FCC issued a release [5 pages in PDF] that describes this 2nd R&O, and a band plan chart [PDF]. Also, all five Commissioners issued separate statements.

The 700 MHz band (698-806 MHz) is television broadcast spectrum that will be made available for public safety and commercial wireless services as a result of the digital television (DTV) transition.

The just announced 2ndR&O revises the band plan and service rules for the 700 MHz band. The FCC will auction 62 MHz for commercial uses early next year.

The 2ndR&O contains open access requirements. In the Upper C Block, the FCC will auction 22 MHz of paired spectrum by 12 Regional Economic Area Groupings (REAGs) with both open devices and open applications requirements. However, the FCC's release does not define or explain the meaning of two requirements. Commissioner McDowell wrote a long statement dissenting from these open access mandates. There will also be a limited build out requirement (40% of the population within 4 years) for this spectrum.

The 2ndR&O also provides for a "Public/Private Partnership". The commercial licensee would build a nationwide broadband interoperable network for use by public safety entities. However, it would then have preemptible secondary access to the spectrum.

Chairman Kevin Martin (at right) wrote in his statement [MS Word] that "While I also would have supported a network exclusively for the use of public safety, the simple reality is that there currently is no way to fund such an enterprise. The use of a public safety-private partnership, however, creates an opportunity to provide state-of-the-art technologies to our Nation’s first responders in a timely and affordable manner."

The FCC will use anonymous bidding procedures. It will use package bidding procedures when auctioning the 12 licenses in the Upper C Block.

The 2ndR&O also sets auction reserve prices. If the Upper C Block does not elicit a $4.6 Billion bid, it will be auctioned a second time without the open access requirements.

The 2ndR&O imposes no wholesale obligations on licencees.

The Digital Television and Public Safety Act of 2005 requires the FCC to conduct an auction of the commercial spectrum in this band by January 28, 2007.

This 2ndR&O is FCC 07-132 in WT Docket Nos. 06-150, 01-309, 03-264, 06-169, and 96-86, CC Docket No. 94-102, and PS Docket No. 06-229.

Commercial Spectrum. The FCC's release states that under the new band plan the FCC will auction 62 MHz of spectrum for commercial uses, in five blocks, designated A through E.

The new band plan provides that the FCC will auction as A Block 12 MHz of paired spectrum (698-704 and 728-734 MHz). It will be auctioned by Economic Areas (EA) in 176 licenses. (757-758 and 787-788, also in the A Block, have already been auctioned, but are being relocated.)

The plan provides that the FCC will auction as B Block 12 MHz of paired spectrum (704-710 and 734-740 MHz). It will be auctioned by Cellular Market Areas (CMA) in 734 licenses. (775-776 and 805-806, also in the B Block, have already been auctioned, but are being relocated.)

The plan provides that the FCC will auction as C Block 22 MHz of paired spectrum (746-757 and 776-787). It will be auctioned by Regional Economic Area Groupings (REAGs) in 12 licenses. (710-716 and  740-746, also in the C Block, have already been auctioned.)

The plan provides that the FCC will auction as D Block 10 MHz of paired spectrum (758-763 and 788-793). It will be auctioned as one nationwide license, and will be associated with the Public/Private Partnership. (716-722, also in the D Block, has been auctioned.)

The plan provides that the FCC will auction as E Block 6 MHz of unpaired spectrum (722-728). It will be auctioned by Economic Areas (EA) in 176 licenses.

The FCC's release also states that the FCC imposes restrictions on the use of the commercial spectrum.

First, there is an open devices and applications requirement for the C Block spectrum to be auctioned. The FCC's release states that "licensees of the Upper 700 MHz Band C Block of spectrum will be required to provide a platform that is more open to devices and applications. This would allow consumers to use the handset of their choice and download and use the applications of their choice in this spectrum block, subject to certain reasonable network management conditions that allow the licensee to protect the network from harm."

However, the FCC has not yet released the text of its 2ndR&O, and the release provides little guidance as to the meaning of these mandates. Moreover, these requirements would be subject to revision over time by the FCC.

Google and others had asked the FCC to mandate that licensees in this block provide "1) open applications, (2) open devices, (3) open services, and (4) open access". See, for example, July 9, 2007, comment [9 pages in PDF] to the FCC. Google had committed to bid, if its conditions were adopted by the FCC. However, Google only obtained part of its request. Hence, it is under no obligation to bid.

Second, there are build out requirements for commercial licensees. The release states that for spectrum auctioned by CMAs and EAs, "licensees are required to provide service sufficient to cover at least 35 percent of the geographic area of their license within four years, and 70 percent of this area by the end of the license term."

For REAGs (that is, the Upper C Block), "licensees must provide service sufficient to cover at least 40 percent of the population of their license area within four years, and 75 percent of the population of the license area by the end of the license term."

Public Safety and Public/Private Partnership. The FCC's release states that the 2ndR&O "establishes a framework for a 700 MHz Public Safety/Private Partnership between the licensee for one of the commercial spectrum blocks and the licensee for the public safety broadband spectrum."

It continues that "As part of the Partnership, the commercial licensee will build out a nationwide, interoperable broadband network for the use of public safety. This network will facilitate effective communications among first responders not just in emergencies, but as part of cooperative communications plans that will enable first responders from different disciplines, such as police and fire departments, and jurisdictions to work together in emergency preparedness and response."

It adds that "Under the Partnership, the Public Safety Broadband Licensee will have priority access to the commercial spectrum in times of emergency, and the commercial licensee will have preemptible, secondary access to the public safety broadband spectrum."

763-775 and 793-805 are public safety broadband spectrum. (This reflects a downward shift of one MHz, from 764-776 and 794-806 to protect public safety narrowband operations in the Canadian border areas.)

The FCC's release states that "The 10-megahertz Upper D Block", which is 758-763 and 788-793, "will be licensed on a nationwide basis and will become part of a 700 MHz Public Safety/Private Partnership."

It adds that "There will be a single, nationwide license for the public safety broadband spectrum, assigned to a Public Safety Broadband Licensee, which will work with the adjacent commercial D Block licensee as part of the 700 MHz Public Safety/Private Partnership."

Commissioners' Statements. Chairman Martin defended the open access mandates in his statement. He wrote that "I am committed to ensuring that the fruits of wireless innovation swiftly pass into the hand of consumers.  Currently, American consumers are too often asked to throw away their old phones and buy new ones if they want to switch cell phone carriers. And when they buy that new phone, it is the wireless provider, not the consumer, who chooses what applications the consumer will be allowed to use on that new handset."

Commissioner Robert McDowell dissented from the open access requirements for the Upper C Block commercial spectrum. He wrote in his separate statement [7 pages in PDF] that "Large wealthy corporations interested in a particular business plan do not need the government's help in this auction". He wrote that he favors "a market-based pro-competition solution to the challenges raised in this proceeding over a prescriptive regulatory approach".

McDowell (at left) predicted that "the encumbered spectrum structure supported by the majority will force large wealthy bidders away from the Upper Band and into the smaller, unencumbered blocks in the Lower Band. Smaller players, especially rural companies, will be unable to match the higher bids of the well-funded giants. Depriving the nascent 700 MHz market place of smaller new entrants will result in less innovation and competition, not more. Consumers could be short-changed as a result."

He added that the FCC "has received no assurances that any company is actually interested in bidding on the encumbered spectrum." As a result, he suggested, perhaps no company will bid on it.

He also stated that he has "not heard a convincing argument refuting why wealthy Silicon Valley new entrants are not as capable of bidding on unencumbered spectrum as other wealthy companies".

Commissioner Deborah Tate wrote in her statement [PDF] that she supports the open access mandates, but that "I interpret our decision to pertain to ``unlocking and unblocking´´ legal devices and applications as used by the consumer, while also recognizing and specifically allowing for protection of the network, and nothing more."

Commissioner Jonathan Adelstein wrote in his statement that the open access requirements are a modest step in the right direction.

Commissioner Michael Copps wrote in his statement [PDF] that the FCC should have also imposed a "wholesale requirement on the 22 MHz C-block". He argued that "requiring licensees to offer network capacity on non-discriminatory terms would have been an enormous shot in the arm for smaller companies". He added that it would have "leveled the playing field for companies that want to get into the network business but cannot break through the defenses erected by the massive incumbents who dominate the industry."

Congressional Reaction. Rep. John Dingell (D-MI), the Chairman of the House Commerce Committee (HCC), stated in a release that "the FCC voted to provide consumers with more choices when selecting a wireless carrier, a wireless device, and the applications that run on that device. I am pleased that the Commission chose to empower consumers in this fashion, and I will be vigilant to make sure that consumers reap the benefits."

"I am also pleased that the Commission adopted a creative mechanism to fund the construction of a wireless network for use by public safety entities nationwide. The Commission must exercise active oversight of the public/private partnership to help make this venture a success."

Rep. Joe Barton (R-TX), the ranking Republican on the HCC, stated in a release that "I commend Commissioner McDowell for sticking to free-market principles and dissenting from Chairman Martin's wireless network neutrality mandate. Unencumbered auctions have raised tens of billions of dollars and resulted in the vigorously competitive and innovative wireless industry we have today. The FCC's decision to rig the 700 MHz auction at the suggestion of companies such as Google will harm wireless service and rob taxpayers."

Rep. Barton continued that "This is not your grandparents' (or Ma Bell's) communications market. When the FCC imposed Carterfone regulations on the old wireline network in 1968, AT&T was a vertically integrated monopoly with the ability and incentive to control both phone service and phone equipment. By contrast, 98 percent of Americans now live in counties served by at least three wireless providers".

Furthermore, wrote Rep. Barton, "an array of independent, competitive manufacturers make and market wireless devices. Google and others are free to use the spectrum under their proposed business models if they pay fair market value in an honest auction. Google alone has a market cap of approximately $160 billion, almost $40 billion more than Verizon. There is no reason to give anyone a leg up or create a convoluted scheme that requires reserve prices and a potential re-auction."

Industry Reaction. Steve Largent, head of the CTIA/Wireless Association, stated in a release that "The FCC's considerable deliberation over the 700 MHz auction rules has left us pleased in a number of respects and still concerned in others. Specifically, we believe the Commission has taken the appropriate approach by recognizing the importance of not restricting the number of auction entrants, nor requiring them to fulfill wholesale licensing requirements or requiring geographic build-out on all the licenses. In these regards the FCC has replicated past auctions".

However, Largent continued that "we are disappointed that a significant portion of this valuable spectrum will be encumbered with mandates that could significantly reduce the number of interested bidders. We remain committed to the principle that wireless consumers and American taxpayers are best served when such a valuable commodity is auctioned in a fair and competitive manner with no strings attached, and we commend Commissioner Robert McDowell for his belief in flexible auction rules and the free-market system."

He lamented that the FCC deviated from its "market-oriented flexible-use policies".

Frontline Wireless (FW) praised the FCC's order. CEO Haynes Griffin stated in a release [PDF] that "we can roll up our sleeves and get to work building the business of our dreams".

FW Chairman Janice Obuchowski praised the "open networks and a public private partnership" aspects of the order. However, she added that "in areas where the Commission did not go far enough, such as including wholesale in open access requirements and in the scope of the designated entity definition, we will be reviewing the FCC’s decision closely and considering petitioning for reconsideration."

FW's Jim Barksdale stated that without wholesale obligations, "The risk is that this spectrum will simply be warehoused by the largest carriers rather than turned loose to meet public safety’s needs."

Gary Shapiro, head of the Consumer Electronics Association (CEA), stated in a release that the CEA supports "consumers' right to connect their choice of devices to networks so long as these devices cause no harm".

He continued that "With today's decision, consumers will soon enjoy the right to attach devices and download applications of their choosing to a portion of this spectrum. We urge the Commission to ensure that the auction of this spectrum remains on track so that consumers can quickly begin enjoying the benefits realized by the timely conclusion of the DTV transition."

Gigi Sohn, head of the Public Knowledge, stated in a release that "Consumers should be pleased with part of the FCC’s decision today. In the new wireless services created as a result of this decision, they won’t be forced to abandon cell phones or other devices they have purchased when they change service providers. It will be up to the FCC to make certain these rules are enforced and that consumers don’t fall victim to the smallest of print in service contracts. We are disappointed, however, that the FCC will lift those requirements if their reserve price is not met. This condition leaves a broad opening for the industry to avoid these pro-consumer policies."

However, Sohn argued that the FCC should have pursued a "full `open access´ policy".