FCC Chairman Slides 700 MHz Auction Date, Won't Budge on Rules

When the US Federal Communications Commission last week published its official rules for bidders in the 700 MHz spectrum auction, it postponed the official date of the auction by eight days to January 24, 2008, reportedly as a small concession to companies deciding whether they still wanted to bid. The move led analysts to speculate, would the FCC be willing to budge on other matters, such as mandating all bidders resell portions of their purchased spectrum to wholesale buyers?

The answer that came yesterday was a firm "no" from FCC Chairman Kevin Martin. Reuters quotes Martin as having told a gathering of reporters yesterday, "I don't have any plans to try to revise our open-platform rule the way Verizon wants us to."

Martin was referring to Verizon's lawsuit against the FCC, filed four weeks ago, accusing the Commission of essentially making up the rules it wanted to spite potential bidders. Although the company chose boilerplate language to make those accusations, calling the FCC's rules "arbitrary, capricious, unsupported by substantial evidence and otherwise contrary to law," the boiler it chose to copy from was noteworthy.

It's almost word-for-word taken from the language attorneys use in appealing cash award levied against their clients, especially when calling into question the professional conduct of the judge.

Verizon opposes those rules suggestions made in August by Frontline Wireless and Google to which the FCC agreed, applying to winning bidders for a certain portion of the 700 MHz spectrum called the "C-block." One such rule mandates that winning bidders open up their services to their customers' choice of equipment. Meanwhile, Frontline made it clear earlier it opposes the FCC's rejection of two other proposed rules, including the wholesale mandate - though at least thus far, that company has not sued.

Feeling the tug from both sides, Martin made clear to a meeting of the House Small Business Committee yesterday that the customer choice requirement isn't going anywhere.

"The license winners for about one-third of the spectrum will be required to provide a platform that is more open to devices and applications," reads a transcript of Martin's prepared remarks to the Committee. "The companies that operate on this spectrum will not be allowed to prevent consumers from using the wireless device or software of their choice on the licensees' networks. It is our goal that this open platform requirement will allow smaller businesses - namely, nascent wireless device manufacturers and smaller application software developers - to put their products directly into the hands of consumers without having to seek prior permission from the wireless providers, as they do today."

While Martin was advocating this provision in discussions with fellow commissioners, he dubbed it the "cart-a-phone" rule, after an earlier FCC ruling decades ago that first allowed telephone service customers to purchase phones from the manufacturer of choice, rather than always Western Electric. In his remarks yesterday, Chairman Martin once again harkened back to that game-changing ruling:

"This open platform requirement is designed to foster innovation on the edge of the network," he said. "When the same requirement was applied decades ago to the wireline network, we saw an explosion of innovation and choice. AT&T subscribers went from renting expensive black rotary phones to purchasing inexpensive cordless phones with voice mail and caller ID. Investment in the market increased, new phones and calling features were developed, and consumers benefited."

What Martin did not tell Congress yesterday was that an escape clause was written into the auction rules, enabling C-block licenses to be granted without the open platform mandate in subsequent auction rounds if there happen to be no winning bidders in the earlier rounds. This doesn't mean there would have to be no bidders at all; the clause would take effect if the FCC's conditions were not met, one of them being whether the total amount of money collected from the auction meets a minimum amount.

As the FCC's official filing requirements notice reads, "The Commission decided that, if licenses initially offered for the A, B, C, or E Blocks are not assigned because the auction results do not satisfy the applicable aggregate reserve price(s) for those licenses, the Commission promptly will offer alternative licenses for those blocks.

More specifically, the Commission will offer licenses for the A, B, and E Blocks subject to alternative performance requirements. With respect to the C Block, the Commission will offer alternative licenses without the open platform conditions and based on different geographic areas and spectrum bandwidth."

A ray of hope did shine on Martin's plan on Tuesday, when Frontline Wireless announced it had assembled a panel of three telecommunications industry experts "to help guide implementation of the open access vision laid out by the FCC in its recently adopted rules for the upcoming 700 MHz spectrum auction." The wording was very careful not to say Frontline would necessarily be a bidder or, if so, a winning one.