Failure of D-Block Spectrum Sale Partly Caused by Fees - FCC
WASHINGTON -(Dow Jones)- The requirement for lease payments of roughly $500 million helped contribute to the failure of a plan to have the private sector partner with public safety in building a national wireless broadband network for first responders, a report found.
The plan was a key part of the Federal Communications Commission's recent auction of airwaves spectrum. The conclusion came in a report released Friday by the FCC inspector general into why there were no serious bidders for the largest section of radio spectrum offered by the agency to the commercial wireless industry.
The winning bidder for the so-called D-Block of 10 megahertz would have been required to work with public safety to build a wireless network for primary use by the country's police, firefighters and other emergency services workers.
But in the auction that began in January, only one bid was made, and that was for far less than the minimum asking price attached to the valuable spectrum.
Days before the auction, a key potential bidder withdrew. That bidder, telecommunications startup Frontline Wireless, gave no reason for its decision. But potential investors were said to have balked at the demands for cash made by the public safety community, calling it one of several reasons why they wouldn't fund Frontline's bid.
The inspector's general report was based on interviews with FCC staffers, representatives from public safety and companies, like Frontline Wireless, who were mulling a bid for the spectrum. It concluded that the demands from the public safety community, through a privately run consultant appointed to manage negotiations, discouraged bidding. That consultant, Cyren Call, is headed by Nextel Communications Inc. co-founder Morgan O'Brien.
The report also said there were general concerns about the commercial viability of the plan, given the way the rules were structured for the D-Block.
The inspector general's office "concludes that Cyren Call's statements regarding a $50 million-per-year payment was not the deciding factor in Frontline's decision not to bid on the D-Block, but was merely one of many concerns it had regarding the auction," the report said.
Overall, the auction was deemed to be a considerable success, raising $19.5 billion for the Treasury, an amount nearly double that expected. But the failure of the D-Block sale, which had been seen as a key aspect of the auction, drew sharp criticism from lawmakers, public interest groups and other observers of the auction process.
On Thursday, FCC Chairman Kevin Martin, who has borne the brunt of the criticism, said he planned to launch yet another public consultation on what to do with the unsold section of spectrum. He said he remains committed to pursuing some form of a public-private partnership to solve public safety's communications problems.
The difficulties the public safety community has in communicating were perhaps best illustrated by the attacks on Sept. 11, 2001, and the aftermath of Hurricane Katrina in August 2005.
In the wake of both events, policymakers and lawmakers have pledged to improve the communication abilities of first responders, but little has been done to accomplish this.
But the Inspector General's report concludes that the potential bidders in the auction had serious concerns from the outset about whether it was a realistic business model.
Parts of the spectrum were highly sought after by commercial wireless companies like AT&T and Verizon Wireless, who saw it as an opportunity to shape the next generation of wireless services. The spectrum can carry signals over vast areas and through buildings, reducing the expense of erecting cellular towers and other infrastructure. The two companies ended up acquiring the lion's share of the spectrum being sold.
The spectrum came available because of the planned move to a digital signal from an analog broadcast by television stations next year.
-By Corey Boles, Dow Jones Newswires; 202-862-6601; corey.boles@dowjones.com
(END) Dow Jones Newswires
Posted to the site on 26th April 2008
