For almost three years now, the FCC has been struggling mightily to devise rules to govern both the auctioning and regulatory framework for the 700 MHz D Block. This spectrum block has the unique distinction of being a Public Private Partnership — a concept never before tried by the FCC and one which has proved elusive to nail down. As most folks in this galaxy are aware, the FCC earlier this year auctioned off most of the 700 MHz band which had been freed up by the relocation of UHF broadcast stations. It netted a tidy $20 billion or so, but failed to get any takers for the D Block at the reserve price which had been set. The problem, the industry said, was that there were too many uncertainties surrounding the Public Private Partnership. Not only would the winning bidder have had to pay at least $1.33 billion for the license, but then it would have had to negotiate a sharing agreement with the public safety licensee. An auction bidder who failed to successfully negotiate a deal — a negotiation in which it had limited leverage — would then have been faced with a massive default payment. If the negotiations were successful, the winner would have the privilege of building out a vast nationwide public safety radio system at its own expense. It is no wonder that bidders were skittish about racing to place their bids.
To its credit, the FCC recognized that its plan had been seriously flawed. Rather than proceeding with a new auction last summer as originally planned, the FCC opted to go back to the drawing board on the whole thing. After soliciting an original round of comments, it has now proffered yet another Further Notice of Proposed Rulemaking, a 212- page tome that revisits virtually every aspect of the D Block scheme. The result, on which comment is sought on a much abbreviated 30 day schedule, tentatively retains a good deal of the original plan but also proposes some novel new approaches to issuing the licenses. Here are a few of the highlights:
- The Public Private Partnership concept is maintained, but with changes. . The two entities must work together closely on the deployment plan, equipment, sharing protocols, and virtually every other element of sharing a huge nationwide telecommunications network but with radically different incentives and perspectives. Like a marriage counselor always on call, the FCC proposes to hover about resolving arguments and smoothing over differences as they arise. Testing such a novel mode of operation in a system critical to public safety on a nationwide scale using perhaps the most desirable spectrum likely to be available for decades to come is a risky proposition indeed, but the FCC seems committed to going forward.
- To be sure, the FCC has tried to eliminate from the equation some of the uncertainties which doomed the first auction by clarifying the rights and responsibilities of the public safety licensee (PSL) vis a vis the commercial licensee (CL): a Draft Network Sharing Agreement has been prepared which contains the "baseline" elements which the FCC expects the CL and PSL to agree on. The CL will only be liable for a default payment after the auction if it fails to reach agreement with the PSL on the remaining issues and the FCC deems the CL’s position to be unreasonable. This still entails some risk to the CL since the default penalty will be between 3% and 20% of the amount bid. The Commission also clarified under what circumstances the PSL would have access to the CL’s commercial spectrum, how much spectrum the PSL would be entitled to, and the circumstances in which such priority access would have to be offered. These proposals eliminate a number of the most contentious issues which previously were left open to negotiation.
- The FCC provided much clearer guidance on the governing structure of the PSL and its relationship with outside advisors –something which had been a subject of much discord in the first go-round. It also clarified eligible users of the public safety network, allowable fees, and funding possibilities.
- The FCC proposed a unique method of auctioning the D Block in which the spectrum will be awarded either on a single-licensee nationwide basis or a multiple-licensee regional basis depending on the auction results. If a nationwide licensee is selected, the 4G protocol is unrestricted, but if multiple licensees are selected, the operating protocol must be either Wi-Max or LTE depending on who bids the most for the licenses overall. This interesting proposal somewhat follows the proposal by NTCH, Inc. to let the governing protocol of the national D Block system be set by auction bidders who essentially "vote" with their dollars. Theproposal makes for an auction with many moving parts and innumerable permutations, but also conceivably has the effect of letting the market decide which configuration for the D block makes the most sense. At the same time, a single, consistent protocol will be established whether the licensee is nationwide or regional. The "regions" for this purpose are "Public Safety Regions" — the 55 areas (plus three others) into which the US is divided for purposes of public safety planning. The Commission also clarified that the CL and PSL will both have access to the full 20 MHz of spectrum but their rights of priority usage to amounts of the spectrum will be set by the final order. Fifty percent of the capacity of the combined public safety/D Block network is subject to unrestricted public safety use and available for commercial use only on a secondary, preemptible basis. Public safety access to additional capacity on the network would be very limited and subject to narrowly defined “emergency” situations.
- The FCC revised its proposed build-out rules. The original rules called for strict build-out of substantial portion of the geographic area of the license within 4 years. Under the new proposal, the license term has been extended to 15 years, with construction benchmarks at the 4th, 10th and 15th years. (40% of the population of each Public Safety Region by the 4th year, 75% by the 10th year, and 90-95% by the15th year, depending on the population density of the Public Safety Region involved. The build-out obligation is therefore not only considerably spread out but also is less restrictive in terms of picking up the miniscule population pockets necessary to achieve 99% coverage.
- The FCC significantly lowered the minimum price from $1.33 billion to $750 million.
- The FCC retained the elimination of the prohibition on "impermissible material relationships" between the auction winner and other parties. This means that auction winners who are Designated Entities may freely resell or lease portions of the spectrum to others without the usual restrictions.
The FCC clearly listened to the industry in devising a new structure for the D Block. All parties at the table, including the public safety community, recognized that the Public Private Partnership could not work unless the structure made commercial sense. The resulting proposal does make the spectrum more attractive by significantly clarifying the rights and obligations of the CL, reducing the minimum payment, easing the build-out burdens, and making the spectrum available to regional entities. Whether the complex and untested structure proposed here can work in the real world is something we will have to wait to find out. Comments may be filed on or before November 3.