Frontline Wireless Claims 700 MHz Auction 'in Jeopardy,' May Not Bid

The maverick network service provider run by former Netscape CEO Jim Barksdale, and that was largely responsible for convincing the US Federal Communications Commission to impose new and innovative rules for bidders on certain blocks of the 700 MHz UHF spectrum, is now saying it may not be able to bid after all. In a formal complaint to the FCC filed Monday, lawyers for Frontline Wireless accused the FCC of "getting it wrong" by having set the asking price of the choicest blocks in the auction too high.

"The Commission established soaring objectives for the newly freed-up, prime 700 MHz spectrum," Frontline's attorneys wrote. "It properly understood that the availability of this spectrum has presented a once-in-a-generation opportunity to address nation-critical communications issues, the resolution of which is long overdue and pressing. In its August 10, 2007 Order the Commission saw that these ambitious goals were realizable and envisioned largely appropriate paths to their attainment. But then, unaccountably, the Commission made implementation decisions in its Order that put these goals in jeopardy. On reconsideration the Commission should expeditiously bring the means, which the Order at times got very wrong, into alignment with its ends, which the Order largely got right."

Frontline's case appears to call into question certain last-minute decisions made by a majority of the five-member Commission that, at least for a short time, silenced criticisms by some of the larger potential bidders, most notably AT&T and Verizon. The FCC had considered many suggested rules by Frontline, Google, and others, including a mandate that winning bidders make certain parts of their spectrum available for resale to smaller companies, and that they promise to let customers using that spectrum bring the equipment of their choice.

When the Order to which Frontline refers was adopted, Chairman Kevin Martin and three others agreed to adopt the "cart-a-phone" rule, but not the open access resale rule. Commissioner Robert McDowell dissented in part, warning his colleagues that another rule enabling the auction to go forward without any restrictions at all if no bidders come forth, may likely come to pass as a result of the compromise they reached.

Frontline's complaint contends that by setting aside the resale provision and other proposed rules, the FCC may have failed to meet the terms of the congressional mandate that gave it the authority to conduct the auction in the first place.

Incumbents such as Verizon and AT&T, which enjoy all of the advantages of high and escalating market consolidation - such as the power to limit the devices that can be used on their networks, block other manufacturers' device capabilities, and restrict third party applications on their handsets - could pay blocking premiums of approximately $1.3 billion in order to prevent the entry of new competitors.

New entrants, in contrast, have incentives to create alternatives to the incumbents. They would seek to do so by developing innovative technologies, partnering with other innovators, and offering choices for wireless customers that are not presently available. In short, Congress required the Commission to create opportunities for new entrants not merely for the sake of those entities, but to advance its policy goals of competition and innovation in the provision of communications services.

By failing to offer bidding credits to small companies and failing to enable spectrum to be purchased wholesale (i.e., for resale), Frontline contends, the FCC arbitrarily and even capriciously set up the auction so that only larger players could participate.

At about the same time, AT&T - certainly one of those larger players - filed its own complaint with the FCC, charging the commission with stacking the deck against larger players by mandating that the winning bidder must cooperate with public agencies in the construction of a public service communications network for first responders. With Verizon also having come out against the auction rules two weeks ago, it looks like Chairman Martin may have been wrong when he indicated the compromise he reached in late July was at the behest of everyone involved.