By David Hatch
(Friday, June 29) With the FCC drafting rules to govern the upcoming auction of spectrum to be relinquished by television broadcasters, Verizon Communications is increasing efforts to derail a proposal that it says favors one bidder.
The auction of the so-called 700-megahertz spectrum, which has exceptional propagation characteristics, must occur by Jan. 28.
At issue are plans by Frontline Wireless to construct a $15 billion to $20 billion nationwide, high-speed Internet network with public-safety and commercial applications. Frontline would secure at least 10 megahertz of 60 MHz to be made available for commercial purposes. It also would control half of an additional 24 MHz reserved for public safety.
But a Verizon-funded report, released Thursday by Criterion Economics, warns that if the plan is approved, it might be difficult to unravel. "The FCC's history of recovering spectrum from private licenses who fail to meet build-out requirements is discouraging, as evidenced by the infamous NextWave episode," the report says.
That was a reference to Frontline Chairwoman Janice Obuchowski, co-founder of the defunct NextWave, which won more than $4 billion of spectrum at auction in 1996 but defaulted on the payments and went bankrupt. Obuchowski, now president of Freedom Technologies, a telecom consulting firm, ran the National Telecommunications and Information Administration under President George H.W. Bush.
"You would think that [the FCC] would be so stung by that episode that they would do everything they could to prevent the agency from being taken again," Criterion President Hal Singer said. Criterion receives funding from another Frontline critic, the wireless association CTIA.
"That was an entirely different business model and an entirely different regulatory model," Frontline spokeswoman Mary Greczyn responded. While NextWave made installment payments, "Frontline is putting all its money on the table," she said.
Frontline's backers also include former Democratic FCC Chairman Reed Hundt, now a senior adviser with the McKinsey & Company management consulting firm, and venture capitalists James Barksdale, John Doerr and Ram Shriram.
The report emphasizes that for the past decade, the FCC has let market forces determine auction winners. "Frontline asks both U.S. taxpayers and public-safety agencies to become its business partners, its first and largest investors," the document asserts.
Given the magnitude of Frontline's proposal, Criterion argues that taxpayers and public-safety groups should be asking tough questions about the number of towers required, the technologies to be used and financing of the construction, among other matters. But with the FCC expected to issue auction rules in July or August, "none of those questions, or dozens more like them, has been systematically asked, let alone answered," Criterion says.
On Friday, Frontline countered with its own analysis, concluding that its proposal would improve "social welfare" and boost auction revenues.
It noted that Verizon and other dominant telecom firms critical of Frontline's plan initially received cellular spectrum for free, providing them with "operational" advantages not afforded to others. Frontline emphasized that auctions provide a rare opportunity for competitors to emerge.
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