Auction Isn’t Always a 4-Letter Word
Wednesday, April 21, 2010 | Comments
 
By Elizabeth R. Sachs
 
We may not be doing you a favor by telling you about the FCC auctions you should have entered. It’s too late to become a participant, so perhaps this cautionary tale will encourage you to be prepared if this type of opportunity turns up again.
 
But isn’t auction a dirty word? Didn’t auctions signal an end to that blissful era when spectrum was free and Part 90 licensees were top dogs in what we now call the wireless world? (And whatever happened to land mobile or mobile radio as a moniker for this part of the communications marketplace?) Isn’t auction just a code word for putting more spectrum in the hands of Verizon Wireless, AT&T and Sprint Nextel with crumbs trickling down to some small carriers such as Cellular South, Century and a few others? Won’t future auctions be populated by the likes of Google, Comcast and other behemoths capable of going toe-to-toe with major wireless operators?
 
Well, yes and no. There is no question that the majority of FCC auctions sell spectrum in chunks that are too large, both in bandwidth and geographic scope, to present a realistic opportunity for the typical Part 90 user. Unless you are a commercial service provider of some heft, you are not likely to need or have the deep pockets to pay for, say, 10 megahertz of clear 700 MHz spectrum in a major market — or even a minor market.
 
But the FCC managed to get it right in at least one case. Beginning with Auction 40 in 2001 and continuing with Auction 48 in 2003 and the upcoming Auction 87 that will begin this June, the FCC has sold mostly unencumbered Part 22 VHF and UHF paired frequencies, one channel at a time, in economic area (EA)-sized licenses that are an almost ideal fit for the dispatch user. (In each subsequent auction, the FCC has sold whatever licenses weren’t bought in the previous ones, plus any licenses that were recovered in the interim.) And the price has been right too. The commission set a minimum opening bid of only $500 per license, and that is the price at which the channels previously sold in a number of markets. On the other hand, some licenses sold for a thousand times that figure in markets such as New York and Los Angeles. Because many participants were small businesses that qualified for bidding credits, a significant percentage of these auction licenses were acquired for the discounted price of $375 or even $325.
 
And what did the buyer get for that amount? Well, they were overlay auctions, similar to those at 800/900 MHz, with the FCC selling the geographic rights to both one- and two-way Part 22 channels — including the old improved mobile telephone service (IMTS) channels for those who remember pre-cellular mobile telephone service — with the proviso that the winner must protect the operations of any co-channel site-based incumbents. Because the number of two-way paging and mobile telephone operators has shrunk considerably with the advent of cellular and other offerings, protected incumbents were few — particularly in major urban markets. For the most part, those that bought this spectrum found it entirely unencumbered. They bought the right to use an exclusive channel anywhere within the EA, the right to change or add locations without frequency coordination or FCC approval, the right to sell or lease the channel to just about anyone with a waiver required — and routinely granted — if the buyer/lessee wasn’t a commercial operator and the right not to convert to 12.5 kilohertz by 2013. These frequencies have been used by commercial operators as control channels in trunked systems, by business/industrial users who need channel exclusivity for mission-critical applications, and by public-safety entities unable to find assignable VHF or UHF channels from the Part 90 spectrum pool reserved for them.
 
So how did these auctions fly under the radar screen for so many Part 90 entities? Well, the FCC threw a number of potential entrants off the scent by labeling them “auction of lower and upper paging bands licenses.” Many people assumed that the frequencies being sold had utility only for one-way paging applications. But some didn’t investigate further because of a presumption that FCC auctions are designed for the big guys only and never present opportunities for those with limited requirements and pocketbooks. In fact, as these auctions have proven, if the FCC sizes the spectrum blocks and geographic areas appropriately, auctions can be an inexpensive way to get clear spectrum with minimal regulatory baggage attached.
 
Instead of arguing that auctions are a four-letter word for Part 90 users, we should be looking for other niche spectrum blocks that might present the same opportunity missed by those who sat out Auctions 40, 48 and 87.
 

 
Elizabeth R. Sachs is regulatory counsel for the Enterprise Wireless Alliance (EWA). She is a partner at Lukas, Nace, Gutierrez & Sachs in McLean, Va. E-mail comments to lsachs@fcclaw.org.
 
Editor’s Note: More information on the upcoming Auction 87 is available here


 
 
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