FCC Airwaves Auction Sets Record

After 261 rounds of bidding, a government auction of airwaves ended yesterday, raising almost $20 billion from companies hoping to build new broadband wireless networks for next-generation phones and other devices.

It was a record haul but not a complete success for the Federal Communications Commission, which drew some criticism about conditions attached to some blocks of airwaves that might have resulted in lower revenue. One block to be shared with public-safety groups didn’t sell and will have to be re-auctioned. Another block, which requires the winner to open its new network to devices or software supplied by any manufacturer, sold for little more than the minimum price.

A look at the winning bids suggests that the agency might have raised more money without those conditions. One block of airwaves, sold in small licenses, brought in a combined $9.1 billion, far more than the minimum $1.4 billion reserve price. The block of airwaves with open-access conditions sold for $4.75 billion, just slightly more than its $4.6 billion reserve.

The total raised was $19.6 billion.

Google Inc.’s participation had raised hopes by some that the search giant might win enough licenses to build a competitive national wireless network. However, it is unclear if Google won any airwaves, or if the company is contemplating its own network.

The FCC hasn’t released names of the winners, and identities may not be released for several days. Companies involved in the auction are barred from commenting on it for several weeks.

This auction could have a major impact on how consumers use wireless services. The FCC’s decision requiring winners of one block of airwaves to offer open access — allow consumers to use any phone or device — has already prompted AT&T Inc. and Verizon Communications Inc. to announce that they will allow outside phones on their existing networks. Google had persuaded the FCC to add that condition.

Congress expected $10 billion from the auction but was hoping for $15 billion when it directed the agency two years ago to sell airwaves that will be freed up next February, when the U.S. transitions to digital-only television broadcasts. The airwaves are some of the most valuable the agency has auctioned because signals can travel significant distances on them, and go around trees or other obstructions.

FCC Chairman Kevin Martin hailed the amount of money raised and said the open-network conditions will help consumers by giving them freedom to use whatever devices or software they want on some airwaves. “This auction not only doubled the amount of money Congress anticipated we’d raise, exceeding expectations,” he said. But also, “we were able to have open access, which I think will be a real win for consumers.”

Still, the auction wasn’t an unqualified success. One objective was to attract new competition, but AT&T, Verizon and other carriers are believed to have dominated the bidding. The block to be shared with public-safety groups attracted just one bid, and didn’t sell.

Trying to address concerns in Congress that police and firefighters still don’t have interoperable radios and devices that can share information in a crisis, the FCC designed the auction so that the winner would be required to build a new national broadband wireless network that could be shared by public-safety groups. Extra capacity could be used by commercial services.

Investors balked at some of the rules for the new wireless network, including a timetable for when it would have to be built and reliability requirements significantly higher than commercial services. There were also concerns about some conditions required by public-safety groups that the winner would have to meet, or forfeit its initial investment.

Failure to sell the block leaves the FCC with several options, none particularly palatable. The FCC could get the highest value in the re-auction by eliminating the requirement that the airwaves be shared with police and firefighters. But that option isn’t likely to play well in Congress. The agency could also slash the minimum price for the airwaves or jettison some of the conditions that require working with public-safety groups.

– By Amy Schatz

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