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If the D block is not sold, it will go back to the FCC and Congress and things will get messy, really messy.

Attention Auction Bidders!

Friday, February 08, 2008

That is probably not a good title for this week's commentary since bidding companies are not permitted to discuss anything about the auction. Even people within the bidding companies who are not involved in the strategy are forbidden by FCC Rules from discussing it. They all seem to understand this and take it seriously. Just walk up to any Sprint, AT&T or Verizon employee and ask, "What do you think is going to happen with the 700-MHz auction?" and they will politely tell you they cannot discuss any aspect of it.


But that doesn't preclude me from writing about the auction and what is happening. Going into the auction, my premise was that the C block bidding would be the fiercest and that once the winner was determined (yes, I thought the entire United States would go to one bidder), attention would then turn to the D block. I have not been worried about the fact that at the moment the D block is sitting with a single bid of $472,042. Since this block covers a population of 285,620,445, that comes out to a total of only $0.17 per Megahertz per pop. (Many thanks to my friends at RBC Capital Markets who are keeping running totals on a number of different metrics for this auction and are kind enough to share their information with me.)


Meanwhile, the C block appears to be moving toward being split up by region and the dollar per Megahertz per pop today runs from a high of $2.36 to a low of $0.13 for Alaska. In comparison, the high for the A block stands at $3.55 per MHz/pop and the B block high is at $9.19. There is some question as to why the B block is going for higher prices than the A block. One reason I have heard is the concern about the potential of interference to the A block by whoever wins the adjacent E block, but I think there might be something more to it.


Back to the C and D blocks


With it now looking as though the C block will not be won by a single bidder for the entire United States, I am becoming concerned about the D block and the lack of activity. I know there are many reasons that companies are hesitant to bid on it, the first being that the public safety community will have priority and the network could be very expensive to build given the fact that coverage and a number of other details have to be agreed upon with the Public Safety Spectrum Trust (PSST) and its consultant, Cyren Call.


These are valid reasons to lower the value of the spectrum, but I think there is some misunderstanding about how much of the combined public safety and D block would be used on a day-to-day basis by the first responder community. Let's look into this. It won't be used for dispatch, which will remain primarily a voice function that needs to be delivered one-to-many. The data portion of the network might be used for secondary dispatch to computers in the field, but primary dispatch and the following operational activities will be over existing locally owned and run first responder systems for a long time to come. Once again, it should be pointed out that, for the most part, on-scene communications use simplex one-to-many voice channels (peer-to-multi-peer for computer folks) and data plays a secondary role.


Yes, data can and will be used to send hazmat information or building layouts to responders, and it will be used to keep track of vehicles and resources for events large and small, but it won't be the first responders' primary communications. The system may be used for video, which would certainly take some bandwidth, but there is enough bandwidth with the combined D and first responder blocks using new technologies such as LTE or UMB that I don't think video will present a problem. It may be used for push-to-talk (PTT) during major events to coordinate federal, state and local resources, but only as a super command and control system, probably not on a local, daily basis, or down in the field level.


All of this could change over time, however, my assessment of the traffic situation for this combined spectrum is that the commercial side of the partnership will have access to 80% of the spectrum almost 99% of the time. Not bad―I could certainly plan a system around that.


If the D block is not sold, it will go back to the FCC and Congress and things will get messy, really messy. I would expect Frontline to come back to life with other ideas on how to "fix" the problem, perhaps Cyren Call will weigh in, the PSST certainly will, and I am sure others would come out of the woodwork with their own ideas.


It is a shame that the FCC decided to run such a tightly closed bid system for this spectrum. Otherwise, some companies could perhaps have been permitted to get together and go after the D block as a joint block of spectrum, jointly built out and available to all who bought in. The cost of the network could be defrayed across several networks and a wholesale model could be used. This would also permit participation from rural carriers and cooperatives to help build out this system and, for the first time, bring broadband to much of rural America.


But since the FCC won't allow these types of conversations, the only options I see are the following:


1)   Qualcomm, which is already a bidder, goes after and wins the D block for the good of the industry and the nation. I know this could be construed as trying to compete with its customer's customers, but if done with the proper motivation and a deal structured among network operators and the PSST, we could end up with the network I suggested above. And, by the way, it would be built faster because more companies would be building smaller sections, and the first responders would be able to use it sooner. The business model for Qualcomm could be to manage all of the back-end services (which it already does for a number of customers) and lease the spectrum to the commercial operators, or it could elect to sell the spectrum, form a company that would have shared ownership, or any number of possibilities. We would end up with a world-class network for both the first responders and rural America, added capacity for existing commercial operators and perhaps even reseller agreements for smaller ISPs that want to resell broadband as part of their service offerings.


2)    Repeat number one above and replace Qualcomm with Google. In this case, the 80% of available commercial bandwidth becomes available for wholesale using a model NextWave planned to use many years ago for its PCS holdings.


3)   One of the major networks steps up and sets up a similar arrangement. I think the issues with the D block at the moment are based on the fact that a single network operator is expected to take all of the risks but is unsure how much time it will have access to how much spectrum. I also believe the PSST and Cyren Call put too many demands on the table prior to the auction and might have scared away some potential bidders.


The D block public/private venture is an experiment proposed by the FCC with Frontline, Cyren Call and, of course, Congress pushing hard. Rather than see it fail and delay first responders' access to this spectrum, I think either the FCC should permit companies to get together and talk about the spectrum prior to the final bidding round or one of the three scenarios I have outlined be used as a starting point for moving forward.


The D block is meant to be a public/private joint venture and it is a great opportunity for the two communities to work together. However, that shouldn't mean a single company would have to assume all of the risk. It is not too late to review and perhaps change the course of the auctions to save the D block and get moving on this project.


All wireless operators should be willing to step up and take responsibility for a part of the build-out and part of the spectrum and get this network up and operating for the benefit of the public safety community and rural America. There are people waiting in the wings who want to help take broadband into rural America quickly, and they want to be a part of what happens with the D block.


It is not too late to modify the bidding rules or for one of the players to step up to the plate. Who wants to make the first move?


Andrew M. Seybold


COMMENTS: This is an archived post. Commenting is no longer available.

Joe Nordgaard - 02/08/2008 17:21:53

Hey Andy

Great insights as always.

I had made a similar assumption about the D block serving as a possible retreat position after all efforts were exhausted to run the upper C block through its valuation paces. I would not rule out someone trumping the upper C block with an all or nothing shot at the package before the auction ends.

Some other observations:

Given that AT&T has invested in the lower C band, it has been my assumption that they will need at a minimum the corresponding lower B licenses in order to move clear of the powered application in the lower D block. This would allow better carrier packing. In this scenario it would follow that choice lower A band properties would be targeted as well.

If true, this would more or less allow AT&T to impose a technical direction for the lower "island" which would difficult for smaller players not to follow due issues of economies of scale.

One last point - if a newcomer is pursuing the upper C block as may be is the would follow that any vested interest might want to buy one or two licenses (out of the 6 for the Continental US) negating the newcomer form getting a nationwide footprint , thus forcing the newcomer to deal with the embedded industry in order to flesh out its footprint. This would appear to require the newcomer to follow the technical lead of the imbedded operators. It could come down to capitulate or pay through the nose for your footprint. This has implications for wanna-be technologies as well.

We will see.

One of the greatest spectator sports - enjoy your ring-side seat,

Andrew Seybold - 02/08/2008 17:45:20

Joe--thanks for the nice comment and also for your own views on what could be happening, I think you might be on the right track here for sure, and I believe we might also find that AT&T is trying to purchase all of the lower A that they did not get from Aloha in the first deal, I know that they have approached at least three owners already--

I like you premise about the C block, so even if Google or someone else wanted a nationwide foot print but taking away one or two of the 6 licenses, it would, as you say, have some far reaching implciations, I always enjoy your point of view and your logic, thanks again.

Joe Nordgaard - 02/08/2008 18:10:28

Thanks Andy... For all the smaller investors on the "lower MEGAHURTS island of ABC" - they should have one of those reality shows for who gets thrown off first. ;-)

Joe Nordgaard - 02/08/2008 18:21:40

BTW I think the D block application uses on the order of 25,000W of broadcast power...AT&T will need a huge guardband if true. (Thus my belief that they will be buying at least as much B as they have C. They will need to stay clear of their shouting neighbor to hold a conversation of their own. That will crowd them up against the B band...)

We may not see an allocation of this size and importance for at least another decade. Great stuff!