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700 MHz Auction Rules Wide Open
spectrum already allocated to public safety. The technical and operational challenges and costs of meeting the FCC mandated pre-emption and priority access obligations, however, remain daunting. These mandatory obligations threaten long-term commercial viability, particularly since Frontline positioned itself as a broadband wholesaler but the FCC failed to adopt wholesale platform obligations for any of the 700 MHz Blocks to be auctioned.
Finally, the FCC adopted strict build-out requirements with very tight milestones and penalties. Because no provider has yet deployed on such an accelerated schedule, it would not be surprising to see a flood of waiver requests at the FCC as the first three year deadline approaches in 2011.
Investment Implications: Because the FCC adopted significant new restrictions on the use of spectrum and imposed new obligations on winning bidders of some bands within the 700 MHz band, the details are particularly important but will not be known for several weeks when the FCC releases the final Second R&O. Nevertheless, the cumulative effect of the multiple new rules (as outlined in the press release and Commissioners’ statements) will likely depress auction proceeds from my preliminary estimate of ~$30 billion—had the old rules applied—to near that estimated by the Congressional Budget Office of between $10-15 billion. This is good news for the winning bidders who can plan for lower spectrum acquisition costs to complement the lower deployment costs as a result of the inherent excellent propagation and penetration characteristics of 700 MHz spectrum.
This downward pressure on startup costs may increase the likelihood of auction participation by well-funded new entrants, such as satellite companies, who dropped out in the early rounds of the previous AWS auction. Cablecos are similarly likely to be aggressive bidders. In contrast, because Google only received two of the four “open platform” obligations that it publicly stated were all necessary for Google to bid in the auction, such non-traditional communications content or application providers(as opposed to incumbent predominantly transmission providers) are now less likely to bid.
Moreover, the FCC imposed minimum bid (reserve price) rules for the first time in any spectrum auction. The FCC adopted as a minimum bid, the $4.6 billion price that Google had said it was willing to bid if all four open platform conditions were adopted. The FCC, however, provided a road map to removing the new device
