Ethical Concerns Swirl Around D Block Spectrum Auction

By Carol Pinchefsky  |  Posted 2008-03-19

Ethical Concerns Swirl Around D Block Spectrum Auction

A portion of the wireless spectrum, for which bidding closed March 18, failed to meet the government's reserve price.

Now, public interest groups and members of Congress are urging the FCC, which has imposed a gag order on participants, to lift its veil of secrecy over the identity of bidders.

The failure of the spectrum block, reserved for use by emergency transmissions and private-public partnerships, came as a surprise, especially given that industry observers had already picked out a front-runner for the auction.

Now, accusations have been levied that a consulting firm hired to help the government hand over the spectrum may have acted improperly and discouraged potential bidders by suggesting that any winning bid would have to pay $50 million in annual fees, in addition to the auction price.

The 700 MHz spectrum auction, which ended after 50 days of bidding, took in $19.6 billion for the federal government. However, only the A, B, and C blocks of spectrum were sold; the D block, which will eventually go toward a "public-private partnership" for both health and safety officials and private enterprise, did not make its $1.3 billion reserve price.

According to the FCC, "If the license for the D Block is not sold in Auction 73, the Commission may re-offer the D Block license.... Only qualified bidders from Auction 73 will be permitted to participate in [a related auction,] Auction 76." The highest offer for the D block was $472 million.

Harold Feld, vice president of the Media Access Project, a law firm that represents the public interest in all aspects of telecommunications, wrote on his personal blog in January-Feld was on sabbatical from MAP at the time-that Morgan O'Brien, chairman of Cyren Call, an advisor to the PSST (Public Safety Spectrum Trust), may have played a part in the auction's failure.

Half of the public-private partnership of the D-block does indeed go to the public, represented by PSST. Cyren Call is PSST's advisor in the auction, and therefore any private company who wins the license for the D-block will have to negotiate terms with Cyren Call.

In a telephone call, Feld referred to his blog, in which he had written that O'Brien insisted on a number of conditions. These conditions may have included, Feld said, "a fee of $50 million a year for ten years to have access to the public safety spectrum; that Morgan O'Brien would be the only conduit for the public safety community; that he would act on behalf of the D block whether to resell services."

The situation is ludicrous, a source said.

Feld said, "When [potential participants] asked the FCC whether Cyren Call could demand such conditions again, I hasten to add not proven, but the FCC refused to say whether it would regard those conditions as unreasonable or not."

A person familiar with the situation described the scenario as ludicrous.

Cyren Call would not respond to any questions about its role in the auction process, due to anti-collusion rules imposed on the auction on Dec. 3, 2007, which prevents participants (and affiliated participants, like Cyren Call) from publicly discussing the auction.

That the reserve price was not met came as a surprise to auction-watchers, who believed that sharing spectrum with emergency aid workers in exchange for a reduced rate would entice bidders to make a play. Frontline Wireless, a startup company organized by industry heavyweights such as Reed Hundt (the former Chairman of the FCC), was the frontrunner for the D block, even before the auction began. In fact, Frontline helped craft the public-private partnership proposal.

But Stagg Newman, former CTO of the FCC and current chief technologist of Frontline, said Frontline did not bid in the auction. Did Frontline fail to bid because of concerns about the process? Newman, again, could not say, bound by the same anti-collusion rules that prevent Cyren Call from discussing the proceedings.

"Those of us who participated, and filed to participate, aren't allowed to say anything until the FCC makes public all the results," Newman said.

"With the principals all silenced by the FCC's anti-collusion rules, no one can prove anything," Feld said. "That's why we need the FCC to lift the veil and conduct a thorough examination. If my sources misrepresented what happened, I want to know it as well. But either way, truth will [win] out once the FCC lifts the anti-collusion rules."

But these rumors of interference carry so much weight that the Media Access Project, as well as Public Knowledge, a public interest group, are calling on the FCC to investigate the auction.

U.S. Rep. Cliff Stearns, R-Fla., a ranking member of the House Subcommittee on Telecommunications and the Internet, told eWEEK in an e-mail, "I have asked for a hearing and Chairman Markey has said one is forthcoming. The FCC should release all the bidding information and lift the gag rule for all blocks, including the public safety D block, so that we can examine what went wrong. In the meantime, the FCC should take no additional action regarding the licensing of the D block until Congress can consider next steps."

Public Knowledge says there are several significant questions that need to be examined. Perhaps one reason the auction did not succeed is because of the rules and regulations of the public-private partnership.

Then there is the question of when a company should cede its bandwidth to the local government? Or to the federal government? Art Brodsky, Public Knowledge's communications director, believes that "there's a lot of murkiness there, which has to be made clear."


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