**STATEMENT OF**

**COMMISSIONER ROBERT M. McDOWELL**

**DISSENTING IN PART**

RE: Service Rules for the 698-746, 747-762 and 777-792 MHz Bands, WT
Docket No. 06-150, Revision of the Commission's Rules to Ensure
Compatibility with Enhanced 911 Emergency Calling Systems, CC Docket No.
94-102, Section 68.4(a) of the Commission's Rules Governing Hearing
Aid-Compatible Telephones, WT Docket No. 01-309, Biennial Regulatory
Review -- Amendment of Parts 1, 22, 24, 27 and 90 to Streamline and
Harmonize Various Rules Affecting Wireless Radio Services, WT Docket No.
03-264, Former Nextel Communications, Inc. Upper 700 MHz Guard Band
Licenses and Revisions to Part 27 of the Commission's Rules, WT Docket
No. 06-169, Implementing a Nationwide, Broadband, Interoperable Public
Safety Network in the 700 MHz Band, PS Docket No. 06-229; Development of
Operational, Technical and Spectrum Requirements for Meeting Federal,
State and Local Public Safety Communications Requirements Through the
Year 2010, WT Docket No. 96-86, *Second Report and Order*, FCC 07-132

First, I would like to thank my colleagues, the dozens of bureau
professionals, the scores of representatives from the tech community,
the investment community, consumer, public safety, public interest
groups, and potential bidders - both large and small - with whom I have
met and who have worked so hard on what is being dubbed the "auction of
the century." Thank you for your suggestions and insight regarding what
is the best way to use this spectrum to meet the demands of American
consumers. This is an historic day for the Commission and for America.

The Order before us has certain positive attributes. Among them is the
plan to spark a public/private partnership for public safety by
allocating an additional 10 megahertz of spectrum to aid in the
construction of a nationwide, interoperable network. This plan has been
assembled as the result of close coordination with the public safety
community, and I am pleased to support it. We all owe many thanks to my
distinguished colleague, Commissioner Copps, for his passion, vision,
leadership, and toil on this matter that is so vital to our country. Of
course, the next step is to ensure that a bidder willing to accommodate
public safety's specifications buys this slice of spectrum at auction
and builds it out in a timely manner with state-of-the-art technology.
With today's action, public safety will have about 107 megahertz of
spectrum at its disposal.[^1] So it appears to me that ongoing efforts
should more closely focus on attaining the quickest and most efficient
use of this spectrum. Protection of America's security can't wait any
longer.

Another positive attribute of today's Order is the band plan for the
commercial blocks of the 700 MHz spectrum, which I am supporting. This
band plan has been advocated by a wide variety of interested parties,
including possible new entrants, Silicon Valley companies, as well as
existing wireless license holders. The band plan, minus the open access
condition, could provide new opportunities for a wide variety of
technologies and business plans.

With respect to performance requirements for the commercial spectrum, I
have listened to parties discuss the merits of various requirements with
an open mind. On the one hand, it is important that the Commission not
set the bar too high, which may cause licensees to deploy less robust
technologies. On the other hand, this spectrum has excellent propagation
characteristics, so network construction should be more economically
efficient. Certainly we want to ensure that all Americans, no matter
where they live or work, have prompt access to advanced wireless
services. I support the requirements set forth in the Order, and am
pleased that the new rules will allow interested entities access to any
un-built spectrum sooner rather than later.

After careful deliberation, my conclusions regarding some of the other
more-publicized issues are as follows:

1)  While we can agree on the destination \-- consumers should be able
    to enjoy device and application portability if they want \-- we may
    respectfully disagree about the best path to get there;

2)  In an unencumbered auction, any winning bidder is free to offer
    those features without restrictions;

3)  Large wealthy corporations interested in a particular business plan
    do not need the government's help in this auction; and

4)  In the absence of market failure, I favor a market-based
    pro-competition solution to the challenges raised in this proceeding
    over a prescriptive regulatory approach.

In other words, I am disappointed that the majority didn't try to work
with industry to forge a consensus solution rather than rushing to
regulate without thinking through possible unintended consequences.

As background, my original vision for the 700 MHz auction was for our
rules to maximize investment, innovation, and consumer choice by
promoting competition through the crafting of a wide variety of
unencumbered market and spectrum block sizes. We had the opportunity to
help foster the development of a fourth, fifth or sixth new broadband
pipe offered perhaps by small town entrepreneurs or new regional
players. In fact, we've heard from a broad array of companies, and an
overwhelming number of Members of Congress on this important point.
Unfortunately, the encumbered spectrum structure supported by the
majority will force large wealthy bidders away from the Upper Band and
into the smaller, unencumbered blocks in the Lower Band. Smaller
players, especially rural companies, will be unable to match the higher
bids of the well-funded giants.

Depriving the nascent 700 MHz market place of smaller new entrants will
result in less innovation and competition, not more. Consumers could be
short-changed as a result. And it is small new entrants that should be
as important to this equation as large new entrants. Pinning our hopes
on a single national "white knight" to offer only one new pipe is risky
at best. And keep in mind that the Commission's rules do not prevent any
bidder from offering any kind of new application or functionality,
including device portability, or from aggregating smaller market sizes
to forge a national footprint, as we witnessed with last summer's
Advanced Wireless Services auction. Throughout this proceeding, I have
not heard a convincing argument refuting why wealthy Silicon Valley new
entrants are not as capable of bidding on unencumbered spectrum as other
wealthy companies. More importantly, I remain unconvinced that the
Commission must favor large companies over smaller entrepreneurs. Why
not give both an equally fair shot with *one* open, condition-free
auction that offers varied market and spectrum block sizes?

Curiously, however, in an effort to favor a specific business plan, the
majority has fashioned a highly-tailored garment that may fit no one.
It's not what Silicon Valley wants; it's not what smaller players have
told me they want; and it's not what rural companies want. To date, the
Commission has received no assurances that any company is actually
interested in bidding on the encumbered spectrum. Not one. The majority
recognizes the risk that the encumbrances pose by taking the
unprecedented step of designing a fall-back "Plan B" auction in the
event the first auction fails. Perhaps the majority has only little more
confidence in its plan than I do.

If this new regulatory regime is all in the name of fostering device and
application portability, I want consumers to know that the seeds of
these offerings are already germinating. The wireless market is starting
to deliver device and application portability because it has been
allowed to function freely and has been responsive to consumer demand.
For example, over the past couple of years, wireless carriers have
offered at least ten different phones that are compatible with *any*
Wi-Fi network. This capability allows consumers to navigate the Internet
just as they can on their home computer, and download software such as
voice over Internet protocol applications, or popular search engines.

Savvy consumers may be the only ones who are "in-the-know" today, but
they are the early adopters who are paving the way for the rest of us
laggards. Further, these business developments are by no means the end
of the innovation that is rising above the horizon, but the beginning of
a brighter revolution that is already dissolving walled gardens across
all platforms. Just ask America Online about the long-term viability of
a walled garden strategy. So, I'm not sure it makes sense for the
majority to take credit today for spurring device and application
portability when it's sprouting on its own.

The new regime adopted today is being imposed against the backdrop of a
vibrant wireless market. Just last fall, in our *2006 Wireless
Competition Report*,[^2] all five of us concluded that it was healthy,
open and competitive. There, we noted that, over the last 13 years,
wireless subscriber growth has grown exponentially and competition among
numerous providers has flourished. Ninety-eight percent of the total
U.S. population continues to live in counties where three or more
different operators compete to offer wireless service, while nearly 94
percent of the U.S. population continues to live in counties with four
or more different operators competing to offer service.[^3] At the same
time, prices are decreasing. Our report estimates that revenue per
minute (RPM) declined 22 percent in 2005 alone.[^4] RPM currently stands
at \$0.07, as compared with \$0.47 in December 1994 -- a decline of 86
percent.[^5]

It is interesting that today's Order does not cross reference or
otherwise discuss the Federal Trade Commission's recent unanimous and
bipartisan finding that there is no need for net neutrality regulations
like the ones imposed today.[^6] Only one month ago, the FTC's Internet
Task Force recommended that policymakers proceed "with caution before
enacting broad, *ex ante* restrictions in \[the\] unsettled, dynamic
environment" of broadband Internet access.[^7] Specifically, the report
concludes that the effect of potential conduct by broadband providers on
consumer welfare is "indeterminate."[^8] The report adds, "No
regulation, however well-intended, is cost-free, and it may be
particularly difficult to avoid unintended consequences here, where the
conduct at which regulation would be directed largely has not yet
occurred,"[^9] and cites growing consumer demand, increasing access
speeds, falling prices, and new market entrants as evidence that
competitiveness in the broadband Internet access industry is moving in
the right direction.[^10] Today's Order offers no evidence to refute the
FTC's findings and conclusions. Furthermore, the FCC should heed the
FTC's warning about the unintended consequences of unnecessary
regulation.

Perhaps most surprisingly, today's Order acknowledges that the
Commission need not decide whether competition is sufficient enough to
refrain from imposing open access requirements in this proceeding
because these questions are being considered more broadly elsewhere.
Despite this express acknowledgement, however, the majority seeks to
"encourage additional innovation and consumer choice" and "spur the
development of innovative products and services" by encumbering the C
Block license. At the same time, the Order does not dismiss or otherwise
dispose of the pending *Skype Petition*.[^11]

Moreover, the majority's decision to impose "open access" requirements
on the C Block licensee represents a sharp departure from well-settled
FCC precedent. First, the decision runs contrary to the market-driven
framework established by Congress. Starting at least as early as 1994,
the Commission established as a principal objective the goal of ensuring
that unwarranted regulatory burdens are not imposed upon any wireless
providers.[^12] Just this year, I was pleased to support the
Commission's action to classify wireless broadband Internet access
service as an information service because our determination will
maximize innovation and consumer benefits as wireless services continue
to flourish and evolve. By dictating how spectrum must be used, the
majority is locking the Commission into a particular approach that is
not guaranteed to work but is guaranteed to be nearly impossible to
change.

Some say that *Carterfone*-style regulations are appropriate for
application to today's wireless marketplace because application of that
policy revolutionized the wireline marketplace.[^13] Before arriving at
the Commission, I spent my entire career counseling wireline
entrepreneurs. There is a world of difference between the wireline
industry of the 1960's and today's wireless market.

First, the AT&T of the 1960's was a nearly 100-year-old government
protected and subsidized monopoly. By any measure, today's U.S. wireless
service providers lack market or monopoly power, as this Commission
concluded just 10 months ago.[^14] Second, unlike wireline voice
services offered in the 1960's, today's U.S. wireless service providers
have never integrated into the applications or equipment markets. Third,
under common antitrust analysis, today's wireless providers lack the
ability to exercise buying power over upstream handset suppliers, of
which there are many competitors, which wield significant countervailing
selling power. Fourth, wireless service providers are not subject to
price regulation in the market in which they are alleged to have market
power, which otherwise might encourage them to seek profits in
complementary markets.[^15]

Others cite the European wireless marketplace as the one the U.S. should
emulate. A closer look reveals that the European scenario isn't so rosy.
First, as noted earlier, in our *2006 Wireless Competition Report*, the
Commission found that, in addition to the four nationwide mobile
telephone operators in the U.S., several large regional operators and a
significant number of mobile telephone operators with smaller footprints
compete in many regional and local U.S. markets.[^16] In contrast, in
Western Europe, national mobile operators do not face competition from
smaller facilities-based carriers like they do in the U.S.[^17] The top
two competitors in Germany and Italy, for instance, have a combined
market share of 74 percent.[^18] In Finland, the combined share is 85
percent.[^19] Whereas the FCC has consistently resisted broadly imposing
technology mandates, European regulators mandated the use of a single
technology: GSM. Given the dearth of choice among carriers and
technologies, European per minute rates are high -- approaching 22 cents
per minute. Roaming rates from country-to-country are even worse --
sometimes \$1.50 per minute. Additionally, up front costs to consumers
are much higher there than here.

I have also heard that today's action is just like the Commission's
adoption of Wireless Local Number Portability (LNP) requirements in
2003. I disagree. First, the Commission mandated LNP only after years of
attempts to broker negotiations between industry and consumers ended in
failure. No such effort at negotiation has been attempted here. On a
substantive level, LNP does not involve complicated network management
issues like device and application portability does. Instead, LNP is
completed through a simple computer dip, which has nothing to do with
the complexities of a carrier's network. Finally, without knowing what
standard(s) the C Block licensee will adopt, it is unclear in today's
Order whether its customers will be able to port to other networks. I
wonder whether this will lead the Commission down the path of imposing a
European-style technical standard.

With respect to auction reserve prices, I believe these are best left to
market forces. Like artificial conditions, reserve prices have the
effect of skewing the auction and hindering the efficient allocation of
spectrum. The problem with setting reserve prices is that it puts the
Commission, rather than the market, in the precarious position of
identifying the right value for the spectrum.

Finally, I am disappointed that the majority has rushed headlong to
regulate with scant evidence in the record and without undertaking a
sincere effort to try to bring together consumer groups, industry and
all interested parties to broker a private sector solution to any
perceived imperfections. The Commission has a long and proud history of
meeting similar challenges in such a positive and constructive way. I
wish we had done so here.

For these reasons, I respectfully cast my very first dissent in part.
Specifically, I dissent from Sections III.A.2.a.iii. (Open Access) and
III.A.3.d. (Reserve Prices) of today's Order.

[^1]: *See* Report to Congress on the Study to Assess Short-Term and
    Long-Term Needs for Allocations of Additional Portions of the
    Electromagnetic Spectrum for Federal, State and Local Emergency
    Providers, Federal Communications Commission ¶ 5 (rel. Dec. 21,
    2005).

[^2]: Implementation of Section 6002(b) of the Omnibus Budget
    Reconciliation Act of 1993; Annual Report and Analysis of
    Competitive Market Conditions with Respect to Commercial Mobile
    Services, WT Docket No. 06-17, *Eleventh Report*, 21 FCC Rcd 10, 947
    ¶ 2 (2006).

[^3]: *Id*. at 10,964 ¶ 41 (2006).

[^4]: *Id.* at 11,008 ¶ 154.

[^5]: *Id.*

[^6]: Federal Trade Commission, Internet Access Task Force, Broadband
    Connectivity Competition Policy FTC Staff Report (rel. June 27,
    2007).

[^7]: *Id*. at 9.

[^8]: *Id*. at 157.

[^9]: *Id*. at 155.

[^10]: *Id*.

[^11]: *See* Skype Communications S.A.R.L.; Petition to Confirm A
    Consumer's Right to Use Internet Communications Software and Attach
    Devices to Wireless Networks, RM-11361 (filed Feb. 20, 2007).

[^12]: *See* Implementation of Sections 3(N) and 332 of the
    Communications Act Regulatory Treatment of Mobile Services, *Second
    Report and Order*, 9 FCC Rcd 1411, 1418 ¶15 (1994).

[^13]: *See, e.g.*, *Skype Petition*.

[^14]: As of Dec. 2005, the market power of Cingular Wireless (now AT&T)
    is 26.8 percent and that for Verizon Wireless is 25.4 percent. *See
    2006 Wireless Competition Report* at Table 4. *See also*
    Interconnection and Resale Obligations Pertaining to Commercial
    Mobile Radio Services, *Fourth Report & Order*, 15 FCC Rcd 13523,
    13528 ¶ 12 (2000) (explaining that "*Carterfone* involved AT&T, the
    dominant provider of telecommunications at that time .... \[t\]hus,
    the Commission has not applied principles established there to
    interconnection to carriers without significant market power, such
    as CMRS providers").

[^15]: *See* [Robert W. Hahn *et al*., The Economics of "Wireless Net
    Neutrality]{.smallcaps}" (AEI-Brookings Joint Center for Regulatory
    Studies 2007).

[^16]: *See 2006 Wireless Competition Report*, 21 FCC Rcd at 10,967 ¶
    50.

[^17]: *Id*.

[^18]: *Id.* at 10,967 ¶ 51.

[^19]: *Id*.