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FCC approves some open wireless requirements

Some critics argue the commissioners should have gone further and others say they should have let market forces prevail.

WASHINGTON--The Federal Communications Commission ruled Tuesday that a valuable chunk of wireless spectrum will be open to whatever mobile devices Americans want to use, amounting to a political setback for traditional telephone companies and a partial win for Google.

As was hinted in recent weeks, the Federal Communications Commission approved that requirement as part of broader rules for auctioning licenses in the coveted 700MHz analog television band. The vote was technically 5-0, although one commissioner delivered a blistering critique of the so-called "open access" requirement.

Congress has mandated the airwaves in the 700MHz band be vacated in February 2009, forcing analog TV broadcasters off those channels as part of a long-anticipated switch to all-digital television. Current and would-be wireless broadband operators are eager to get their hands on the spectrum because of its inherent physical properties, which allow signals to travel farther and more easily penetrate walls.

FCC Chairman Kevin Martin said Tuesday's action indicates the agency's commitment "to ensuring that the fruits of wireless innovation swiftly pass into the hands of consumers."

"While I recognize the rules we are adopting today may not be the garment any one company wants, the public interest is not what any one company wants, it's about serving the people," Martin added.

But companies such as Google, along with several consumer activist groups, see the current rules as only a partial victory. While they praised the commission for taking a first step in offering consumers more choice in terms of devices and applications they will use on these new networks, they also criticized the commission for not going far enough.

They argue that without a comprehensive set of "open access" rules that also requires license winners to wholesale network capacity at affordable prices, there's no guarantee that well-entrenched wireless operators won't restrict consumer choices on the new spectrum.

Richard Whitt, Google's Washington telecommunications and media counsel, also said that without these provisions, it would be very difficult for a new entrant to go up against an incumbent to bid on the spectrum.

"Because (an incumbent) already has a nationwide network and a customer base with an active revenue stream they can go to almost any limit and bid above fair market value to protect their business," he said.

Google had said previously it would bid at least $4.6 billion in the auction if the FCC adopted rules based on four open-access principles, which included open access for devices and applications, as well as rules, for open wholesaling. Whitt clarified the company "didn't state we wouldn't bid if these conditions weren't met." But he said Google will need some time to study the FCC's rules before it can make a decision about participating in the auction.

Still, Whitt said Google is pleased that the rules for open device and application access also come with stronger enforcement provisions for dealing with license holders who don't comply with the rule, something he said Martin's original proposal did not include.

"Based on where we thought we were, we are in somewhat better shape," he said. "We are encouraged that the agency adopted something that is tougher in terms of enforcement, but it's too early to make a judgment about all the details of the rules."

The two Democratic commissioners--Michael Copps and Jonathan Adelstein--echoed Google's sentiments with gripes that the rules did not go farther.

"A wholesale requirement would have leveled the playing field for companies that want to get into the network business but cannot break through the defenses erected by the massive incumbents who dominate the industry," Copps said. "It is not hard to see why companies with extensive networks and millions of customers are generally able to outbid new entrants, even deep-pocketed ones."

A number of other companies, including Cisco Systems, eBay's Skype and Nokia, were quick to call the vote a positive development. Their representatives said in separate statements that the FCC's rules would help pave the way to more choices for consumers.

Dissenting views
Not everyone took such a rosy view of the rules. Republican Commissioner Robert McDowell stopped short of a complete endorsement of the rules, accusing his colleagues of "rushing headlong to regulate...without a sincere effort to broker a private sector solution to any perceived imperfections."

"In an effort to favor a specific business plan, the agency has fashioned a highly tailored garment that may fit no one," McDowell said just before the vote. He even went so far as to warn that "commission has received no assurances that any company is actually interested in bidding in incumbent spectrum."

His position drew support from Rep. Joe Barton (R-Texas), the ranking member of the House of Representatives Energy and Commerce Committee, who assailed what he called "the FCC's decision to rig the 700MHz auction at the suggestion of companies such as Google" as harmful to the wireless industry.

"Google and others are free to use the spectrum under their proposed business models if they pay fair market value in an honest auction," Barton said in a statement released after the vote. "Google alone has a market cap of approximately $160 billion, almost $40 billion more than Verizon."

The wireless industry's trade association, CTIA, also criticized the commission's rules on open device access.

"We are disappointed that a significant portion of this valuable spectrum will be encumbered with mandates that could significantly reduce the number of interested bidders," CTIA President and CEO Steve Largent said in a statement. "We remain committed to the principle that wireless consumers and American taxpayers are best served when such a valuable commodity is auctioned in a fair and competitive manner with no strings attached."

Whether the open-access rules will truly transform the mobile industry as a whole is harder to predict. For one thing, they have no direct bearing on wireless spectrum already in use by consumers today.

What's more, the rules apply only to the 22MHz of spectrum that is being auctioned off. So, for example, if Verizon Wireless won these licenses, it would likely use this spectrum to augment its existing nationwide network. In theory, subscribers could bring their own phone to the new network, but the phone or third-party application that they've downloaded would work only in regions where Verizon has won and built out its network using the 700MHz licenses.

If these subscribers wanted to make calls or use a non-Verizon application on the rest of Verizon's nationwide network, they'd still need to use a Verizon-certified phone. Why? Verizon is not required to adhere to the open device and application access rule for any other spectrum licenses that have been used to build its existing network.

"The rules adopted today do nothing for the 250 million current cell phone subscribers," said Ben Scott, Washington policy director for the advocacy group Free Press. "In 2010, when these networks get built, the incumbents could freeze consumers out of their no-locking and blocking rights. We have a long way to go to truly realize these principles."

Devil in the details
As is typical, the text of FCC rules was not released at the meeting, which started nearly four hours later than its originally scheduled time due to last-minute negotiations among commissioners. But a press release (PDF) distributed afterward outlines the main provisions.

The order establishes that, of the spectrum being auctioned, 62MHz will be up for grabs by commercial operators. About one-third of those airwaves will be subject to the open-access rules and would allow bidders to purchase a single, regional license covering a large geographic footprint. The remaining portion, which will not be forced to comply with the unfettered devices mandate, will be divided into licenses of various sizes covering small and midsize geographic markets.

Another primary motive for the spectrum auction is improving communications among public safety workers. The adopted order sets aside 24MHz of spectrum to be dedicated to that purpose and licensed to a single noncommercial, nonprofit group that represents the public safety community.

It also sets up a framework for a public-private partnership to build a nationwide, interoperable public safety broadband network on a shared 10MHz of the spectrum. It would be up to the commercial licensee to build out the network for use by emergency workers, and the public safety licensees would also have priority access to the commercial spectrum in times of emergency.

The public-private partnership concept has been championed by a company called Frontline Wireless, headed by former FCC Chairman Reed Hundt. But in its proposal to the FCC, Frontline also wanted a wholesale provision added to the rules to help promote competition in the market, and it wanted the open device and application rules also added to this sliver of spectrum licenses.

But the public safety community, which is worried about network security and other issues, did not like the idea of an open network or allowing any type of device to connect to the network. The FCC also did not accept Frontline's request to offer discounted pricing to encourage smaller new entrants.

"The policy debate has come a long way in a short period toward open networks and a public-private partnership, and we commend the FCC for advancing these important public interests," Frontline Chairman Janice Obuchowski said in a statement. "But in areas where the commission did not go far enough, such as including wholesale in open-access requirements and in the scope of the designated entity definition, we will be reviewing the FCC's decision closely and considering petitioning for reconsideration."

The FCC also agreed to employ "anonymous" bidding procedures, which means the agency will withhold information about specific applicants' license selections and bidding activity until the auction ends.

Some commissioners also expressed misgivings about a decision in the rules to set "reserve" prices for each block up for sale in the auction. The idea behind that move, Martin said, is to "ensure that a fair price is paid." The projected $10 billion to $15 billion raised by the auction, according to Congressional Budget Office estimates, is scheduled to be deposited into the federal treasury to pay down the deficit.

McDowell said he believed the prices are best left to market forces, arguing that "reserve prices have the effect of skewing the auction and hindering the efficient allocation of spectrum."

Consumer advocacy groups were also troubled by the reserve pricing provision. Harold Feld, senior vice president of the Media Access Project, argued that reserve pricing could scare off new entrants from bidding. He said it could also encourage incumbent phone companies to hold back early in the auction and force the spectrum to be reauctioned without the rules.

No particular start date for the auction was set on Tuesday, but by congressional mandate, it must begin no later than January 28, 2008.

Speaking to reporters after the meeting, Martin predicted the auction would not occur until December or January so that potential bidders can have time to secure the capital to participate.