FCC Airwaves Auction: Good for Consumers?

In February 2009 television broadcasters will be required by law to go all digital, freeing up some 700 megahertz of much-coveted public airwaves. On Tuesday the Federal Communications Commission approved rules for the auction of those airwaves—which could fetch between $10 billion and $15 billion in an anticipated bidding war between the likes of Verizon, AT&T and even potentially Google. In a win for consumers, the FCC approved a provision that will allow customers to use whatever combination of phone and service provider they want on about a third of the spectrum. And in response to communications problems that plagued 9/11 first responders, the rules also allow for the creation of a shared public-safety network. "The big picture message is that the FCC did something this week the average consumer will benefit from three years from now," explains Carol Mattey, head of the technology, media and telecommunications regulatory consulting practice at Deloitte and a 10-year veteran of the FCC. Mattey told NEWSWEEK's Brian Braiker why wireless customers should care about the decision. Excerpts:

NEWSWEEK: With this auction, the FCC wanted to clear the path for a third broadband service provider that can compete with cable and telephone companies which control 96 percent of residential broadband lines in the United States. Did it?
Carol Mattey:
The point of vacating the spectrum was to create additional wireless services and opportunities, but that doesn't necessarily mean that there had to be a third provider. Did they create a path for a third broadband provider? Absolutely. Whoever wins that spectrum will be subject to the unique constraints of sharing that spectrum with public safety, though.

What will the so-called "open access" provision allow for?
If someone comes up with some innovative handset, you can buy that handset and use that handset to get service from whichever provider gets that slot of spectrum. To reverse it, whoever owns that spectrum is not going to be able to limit consumers to only using their approved handset. Consumers will be able to use other devices, access other content, other Web sites outside the control of the service provider that has that band of spectrum. The average consumer will have greater flexibility in the devices they use and the content that they can access once this spectrum is built out and available on the open marketplace.

So it's a win for consumers.

Could it have been a bigger win for the consumers? A more ambitious provision favored by Google, for example, would have required the auction winner to sell access to its network on a wholesale basis to other companies, which could loosen the carriers' grip on service offerings.
There are two points of view on that question. Potentially consumers would win. At the same time, consumers also potentially could be harmed if those conditions in essence made it difficult for any company to make an investment in the network in order to provide additional service. If you create a condition that torpedoes the business plans of the companies that have the capital and the desire to utilize the spectrum, consumers are not benefited at all. If you have a situation in which one entity requires the spectrum and for whatever reason doesn't use the spectrum, you've basically wasted the opportunity to create new services, new applications that may benefit consumers.

Talk a bit more about the new public-safety network. This is something that would have been useful on 9/11?
Exactly. There's no doubt in my mind that this is a win-win for consumers. Public policy makers are acutely aware of the inadequacies of the current public-safety network and in particular the fact that public-safety officials cannot communicate with each other due to the fact that firemen are on one frequency and the police are on another frequency and the emergency alert people are on another. The goal for a number of years has been to figure out a way to get all of our emergency services on one single band so they can all talk to each other and be able to communicate in an emergency. The fact that the spectrum will be cleared by the broadcasters available for that kind of national public-safety network clearly is a benefit for consumers.

Google surprisingly emerged as a player in the discussion over these rules. What did Google want?
Google was arguing for what you described as the wholesale model, a requirement that whoever won the spectrum would be required to lease that spectrum to companies like it.

And what did it get?
It did not get that. Last week Google said if certain conditions were imposed, it would bid $4.6 billion for the spectrum. The question remains whether Google long-run really wants to be an infrastructure owner or does it want to be in the position of delivering applications over a network that has been built and financed by other companies. It's truly impossible to say today based on a press release put out by the FCC if Google moves ahead or not. The devil's always in the details of how rules are written and how they're interpreted and how they're enforced. The jury's still out. This is just basically establishing the rules about how the pieces are going to move around the chessboard, but we haven't gotten to the point of people actually making moves. You won't know who the winner is until you get to the end of the bidding process and even then you don't know what they're going to do with the spectrum.

When does the bidding actually begin?
Various officials at the FCC have said they wanted to give the parties six months to digest he rules, develop their business plans and line up financing before they start the bidding. I don't expect the auction will start until January.

Did we learn anything about Google's political clout?
I certainly think they have considerably more political clout than they did a year or two ago. They still have a ways to go in terms of navigating the federal policy arena. They have been actively beefing up their lobbying staff here in DC and have hired a number of notable individuals with experience with both the Hill and the regulatory arena. I fully expect that they're going to be active players if the game continues in the future.

These are television airwaves now. How is it that they are ideal for carrying wireless signals?
Different radio waves have different propagation characteristics. The spectrum that the broadcasters will vacate has very strong characteristics so they can penetrate buildings and other objects that in some cases prove a barrier for other cell-phone signals. For example, I'm sitting in an interior office of a Washington, DC, office building and I can't get a cell-phone signal in this office. The spectrum that's being vacated has very good carrying capabilities. What that means is companies can build networks and augment the network without having to build as many cell towers and without having to put as much power in the signals, which makes it more efficient for them to deliver wireless service.

Where does the money raised in this auction go?
The agency actually covers its own administrative costs through auction proceeds, but the vast, vast majority of it goes into the federal budget and indeed has already been earmarked for other purposes. When the broadcasters vacate the spectrum, they'll only be broadcasting in digital. Quite a few consumers still have televisions that only receive analog signals. The law that requires the broadcasters to vacate the spectrum also requires a subsidy program that will subsidize the cost to purchase a converter box. The legislation earmarks up to $1.5 billion of the auction proceeds to cover the cost of that program. A billion dollars of the auction proceeds are earmarked for public safety and interoperability grants. So that would subsidize the costs of grants to public-safety officials to develop the network, buy the equipment they need—the radios or whatever—to actually use that interoperable broadband network.

If the TV networks have to go digital by 2009, when can we expect to see the winning bidders start to build out on these airwaves?
I can't tell you a precise date because it really depends on who wins the spectrum and what they're going to do with it. But realistically I would tend to think it's going to be a year after before it actually is commercially used.