**Written Statement**

**Of**

**The Honorable Kevin J. Martin**

**Chairman**

**Federal Communications Commission**

**Before the**

**Committee on Energy and Commerce**

**U.S. House of Representatives**

**April 15, 2008**

**Summary**

The 700 MHz spectrum auction closed almost one month ago. It achieved a
number of significant milestones, including:

-   the largest auction in FCC history, raising a record \$19.6 billion
    in bids;

-   advancing new open platform policies;

-   affirming aggressive build-out obligations;

-   creating what will be a new wireless broadband provider to compete
    with the incumbent telephone and cable companies in nearly every
    home in the U.S.; and

-   providing small businesses, new entrants, rural providers and
    existing nationwide wireless providers with access to additional
    spectrum needed to deploy the next generation of wireless networks.

All told, 101 bidders won 1090 licenses, over half of whom (56) were
small businesses taking advantage of the Commission's bidding credits
program. A total of 99 bidders other than the nationwide wireless
incumbents won 754 licenses -- representing approximately 69 percent of
the 1090 licenses sold in the 700 MHz auction. In the A and B blocks
alone, small and rural providers won spectrum that covered almost the
entire country.

The sheer size of this auction is a harbinger of the benefits to come.
The next generation of wireless networks to be deployed in the 700 MHz
Band will be faster than those available today, and will extend to both
urban and rural areas of the country. These networks will bring
increased competition to a broadband sector currently served primarily
by DSL and cable providers. And just like users of those *wired*
networks, *wireless* consumers will now be able to use the wireless
devices and applications of their choice. These developments will enable
the U.S. to promote broadband deployment and spread the benefits of
broadband to all consumers.

Of course, one important issue remains from the previous auction -- the
lack of a successful bidder for the D Block of spectrum that was a part
of the Public Safety/Private Partnership. Put simply, during a crisis
public safety has to be able to communicate, regardless of where they
are from or the uniform they wear. In the absence of the financial
resources for public safety to build out their own network, we should
continue to try to explore ways in which we can help facilitate using
the D Block as a tool to achieve a nationwide interoperable public
safety network. I believe that a Public/Private Partnership remains a
viable means for achieving a nationwide interoperable broadband public
safety network. More importantly, I believe it remains the only tool at
the Commission's disposal to solve the public safety interoperability
challenge. However, we will look at all options in considering the
appropriate path, and look forward to hearing from the members with
respect to their views.

Good morning Chairman Dingell, Chairman Markey, Ranking Member Barton,
Ranking Member Stearns, and Members of the Committee. Thank you for
inviting me to be here with you today.

**Introduction**

The 700 MHz spectrum auction closed almost one month ago. It achieved a
number of significant milestones, including:

-   the largest auction in FCC history, raising a record \$19.6 billion
    in bids;

-   advancing new open platform policies;

-   affirming aggressive build-out obligations;

-   creating what will be a new wireless broadband provider to compete
    with the incumbent telephone and cable companies in nearly every
    home in the U.S.; and

-   providing small businesses, new entrants, rural providers and
    existing nationwide wireless providers with access to additional
    spectrum needed to deploy the next generation of wireless networks.

All told, 101 bidders won 1,090 licenses, over half of whom (56) were
small businesses taking advantage of the Commission's bidding credits
program. A total of 99 bidders other than the nationwide wireless
incumbents won 754 licenses -- representing approximately 69 percent of
the 1,090 licenses sold in the 700 MHz auction. In the A and B blocks
alone, small and rural providers won spectrum that covered almost the
entire country.

The sheer size of this auction is a harbinger of the benefits to come.
The next generation of wireless networks to be deployed in the 700 MHz
Band will be faster than those available today, and will extend to both
urban and rural areas of the country. These networks will bring
increased competition to a broadband sector currently served primarily
by DSL and cable providers. And just like users of those *wired*
networks, *wireless* consumers will now be able to use the wireless
devices and applications of their choice. These developments will enable
the U.S. to promote broadband deployment and spread the benefits of
broadband to all consumers.

**Largest Auction Ever**

The 700 MHz auction was the largest auction in FCC history, raising a
record \$19.6 billion in bids. Even in a difficult economic climate,
revenues raised in this auction well exceeded congressional estimates --
nearly doubling the ten billion dollars Congress had anticipated would
be raised. The \$19.1 billion in winning bids and \$19.0 billion in net
winning bids makes this the largest auction in FCC history even without
the sale of the D block. In comparison, the 2006 Advanced Wireless
Service (AWS-1) Auction sold approximately 50 percent more spectrum (90
MHz compared to 62 MHz in the 700 MHz auction), yet generated one-third
less revenue (approximately \$13.9 billion in winning bids and \$13.7
billion in net winning bids). Even with the open platform requirement
and aggressive build-out obligations, each of these blocks sold for more
than AWS-1 blocks with comparable bandwidth and license areas. *See
Exhibit 1*. All other 68 auctions conducted by the FCC in the past 15
years collectively produced a total of only \$19.1 billion in actual
receipts. *See Exhibit 2*.

The Commission made several changes to its rules that helped make this
auction a record success. We implemented anonymous bidding for the first
time in an auction of this size.  By foreclosing opportunities for
anti-competitive bidding behaviors, anonymous bidding increased the
efficiency of the auction and helped ensure a fair result. Without
anonymous bidding, auction revenue would likely have been substantially
lower, and bidders would have had an opportunity to retaliate against
smaller bidders and block new entrants.

We also changed the power limits for the A and B blocks, which were not
tailored to the provision of mobile broadband services.  With this
modification, those blocks became much more suited to the provision of
these mobile services.  This made a significant difference in the
attractiveness of these blocks to service providers wanting to provide
mobile broadband.

Finally, we provided for a new form of combinatorial bidding that
allowed bidders to bid on packages of licenses without the risk of
winning only some of the licenses needed to execute their business plan.
Several bidders took advantage of this new opportunity by bidding on
packages during the auction, with one successfully winning a package.

**An Open Platform Achieved**

While clearly a success in terms of dollars, this auction also attained
significant public interest objectives that benefit the consumer.
Perhaps the most significant achievement of this auction is our new open
platform policy. With the open platform requirements on one-third of the
spectrum offered in this auction, consumers will be able to use the
wireless device of their choice on those networks and download whatever
legal software or applications they choose onto it. A network that is
more open to devices and applications will help foster innovation on the
edge of the network, and give consumers greater freedom to use the
wireless devices and applications of their choice. Putting these choices
into the hands of consumers, rather than network operators, will spur
the next phase of wireless broadband innovation -- innovation that can
make us more productive, keep us entertained, and improve our quality of
life.

When adopting the open platform requirement in the 700 MHz band, we saw
it as a rare chance to promote innovation and consumer choice while
writing on a clean slate. We targeted only one block of the spectrum. We
did not propose to apply this requirement to the entire 700 MHz band or
other existing networks. And we did not apply mandatory unbundling or
wholesale requirements, which might undermine investment incentives. We
achieved a careful balance of spurring innovation and consumer choice
while encouraging infrastructure investment. I believe this minimal
regulatory touch had maximum impact.

The auction had an impact on innovation in the wireless industry even
before the bidding began. In less than a year, many wireless providers
evolved from vocal opponents to vocal proponents, embracing the open
platform concept. Verizon Wireless has committed to open its *entire*
network to devices and applications for consumers. More and more
wireless providers, including T-Mobile and Sprint through their
participation in the Open Handset Alliance, and AT&T, are also embracing
more openness in terms of devices and applications. Less than a month
after the auction concluded, this interest now appears to be shared
across the industry and has taken hold without the FCC imposing
retroactive rules on existing investments.

Finally, some have argued that the C block should have been divided into
smaller areas to ensure that smaller and rural providers could win
additional spectrum. Breaking up the C block could have prevented the
emergence of a nationwide open platform. The economies of scope and
scale enabled by this near nationwide open platform will provide
significantly greater benefits to small businesses and entrepreneurs
that design wireless handsets and applications than would multiple
networks with differing open platform specifications. This was a key
advantage to making the C block available in large regional license
areas with nationwide package bidding.

**Most Aggressive Build-Out Policies Ever**

To help ensure that rural and underserved areas of the country benefit
from the new services that this spectrum will facilitate, the Commission
adopted the most aggressive build-out requirements ever applied to
wireless spectrum. These rules will ensure that the spectrum is quickly
put to use by all auction winners -- no matter who they are -- to deploy
new technologies and offer new services in both urban and rural areas of
the country. If auction winners do not put their spectrum to use serving
consumers, the Commission will reclaim it and make it available to
someone else who will.

**Small Business Success**

Small businesses eligible for bidding credits were very successful in
the auction that ended last month. In this auction, 56 (55%) of 101
total winning bidders claimed designated entity bidding credits as small
businesses, 49 of whom are also new entrants. This is very similar to
past auctions. *See Exhibit 3.* Small businesses eligible for bidding
credits won 379 (35%) of 1,090 licenses -- which again is similar to
past auctions. *See Exhibit 4.* These licenses covered a large portion
of the country primarily in rural areas. *See Exhibit 5*.

Bidding credits made a significant difference for these bidders, with
designated entities winning over half of their licenses by outbidding a
non-designated entity that placed the second highest bid without a
bidding credit. In all, small businesses claiming bidding credits won
licenses valued at over half a billion dollars, and had success in this
auction similar to the success they had in comparable PCS and AWS
auctions. *See Exhibit 6*.

**Opportunities for New Entrants, Small and Rural Providers**

The structure of the auction also provided significant opportunities for
new entrants, rural providers and non-nationwide incumbents. The auction
drew wide-ranging interest from a number of new players. A bidder other
than a nationwide incumbent won a license in every market. A total of 99
bidders other than the nationwide wireless incumbents won 754 licenses
-- representing approximately 69 percent of the 1,090 licenses sold in
the 700 MHz auction.

In fact, most auction winners are new entrants. Of the 101 winning
bidders, 72 are new entrants who won 675 licenses. In the unpaired E
block, new entrant Frontier Wireless LLC (Dish Network) won 168 licenses
to establish a near nationwide footprint. *See Exhibit 7*.

Some have argued that small and rural providers were unable to win any
spectrum. One recent analyst claimed, "Firms that would willingly set up
shop in rural America were priced out of the market because so few
frequencies were made available in licenses that only covered smaller
communities."[^1] This is simply not true. In fact, new entrants, small
and rural providers did especially well in rural areas. In the A and B
blocks alone, small and rural providers won spectrum that covered almost
the entire country. *See Exhibit 8*. Where they were unsuccessful was
not in rural America or even in medium size markets but in twenty large
metropolitan areas such as New York, Los Angeles, Dallas, Chicago and
Atlanta.

In fact, a large portion of the money spent by Verizon and AT&T --
approximately \$8 billion -- was used to obtain spectrum in only the top
15 markets in the A and B blocks. The small and rural providers won 500
licenses covering almost 60 percent of MHz/pops available outside the
top 15 markets in the A and B blocks.[^2] These 500 licenses outside the
top 15 markets sold for an average price of only \$0.66 per MHz-pop,
which is significantly lower than the average price of \$1.92 per
MHz-pop for all licenses in these blocks. Winners in these smaller and
rural markets will provide increased access to broadband and greater
choice in wireless service for consumers living in rural areas.

Some have argued we should have provided more smaller geographic areas,
as we did in AWS-1. However, the percentage of spectrum available in
smaller geographic areas was very comparable. *See Exhibit 9*. The band
plan makes nearly half of the spectrum available over smaller and
medium-sized geographic areas, about one-third of the spectrum available
over larger regional areas, and about one sixth of the spectrum
available on a nationwide basis that will be used exclusively as part of
a public/partnership with a national public safety licensee. This
distribution is very similar to the geographic distribution in the AWS-1
Auction from 2006.

Moreover, in these largest markets the geographic size of the license
did not seem to matter. The nationwide incumbents' need for wireless
broadband spectrum in major markets drove them to bid substantial
amounts for even the smallest urban licenses in the B block, where they
often were bidding only against one another. Unless the Commission had
banned the nationwide incumbents -- an idea few advocated -- smaller and
rural providers would likely not have succeeded in the largest markets.

**A Wireless "Third Pipe"**

Significantly, because this spectrum is well-suited for the provision of
wireless broadband, the auction represents a critical opportunity to
continue deploying wireless broadband services. All Americans should
enjoy the benefits of broadband competition -- availability, high speeds
and low prices. In much of the country, consumers have a choice of only
two broadband services: cable or DSL. Wireless service is fast becoming
critically important as another platform to provide broadband. Last
summer, I testified that one of the most important steps we could take
to provide affordable broadband to all Americans is to facilitate the
deployment of a third "pipe" into the home.

Although the Commission adopted a plan urged by a coalition supporting a
new national wireless broadband alternative (*i.e.*, 11 MHz paired,
large geographic areas and combinatorial bidding) the auction did not
result in a single, nationwide new entrant. While it might have been
better if a new nationwide provider had emerged, that does not mean that
this auction did not ensure that a third provider will be able to use a
wireless broadband platform to compete against the incumbent telephone
and cable companies. For example, Verizon, which is not the incumbent
DSL or cable provider in Chicago, won licenses in that area. As a result
of the auction then, Verizon will be able to provide a more robust
wireless broadband service to compete with the incumbent telephone and
cable companies. The same can be said of Metro PCS winning licenses in
Boston and AT&T winning licenses in New York City. In those areas these
companies will be providing an alternative wireless broadband service in
competition with the broadband services currently provided by the
incumbent telephone and cable companies.[^3]

A bidder other than the incumbent DSL or cable provider won a 700 MHz
spectrum license in the paired A, B, or C blocks in nearly every area in
the country. *See Exhibit 10.* In most areas, these non-wired bidders
include rural and smaller providers (including new entrants). As a
result, we have greatly enhanced the potential for an additional
wireless "third-pipe" in nearly every home across the country. In fact,
both nationwide incumbents that participated in the 700 MHz auction have
announced they will deploy the very latest generation of wireless
broadband services using this spectrum, which will operate at speeds
competitive with the latest DSL and cable modem services.

**Competitive Impact Going Forward**

The impact of this auction on the emerging wireless broadband market
cannot be measured in isolation. During my time as Chairman, the
Commission has made vast amounts of spectrum available for the next
generation of innovative wireless services, including 90 MHz of spectrum
in the Advanced Wireless Service and the 62 MHz of spectrum in the 700
MHz band being discussed today. With this additional spectrum, the four
nationwide incumbent wireless providers are more equal competitors in
terms of spectrum ownership in the top 100 markets. *See Exhibit 11.*

Including Auction 73, AT&T holds an average of 83 MHz of spectrum in the
top 100 markets post auction, and Verizon Wireless holds an average of
79 MHz of spectrum in those markets. Although Sprint and T-Mobile did
not participate in the 700 MHz auction, they hold significant amounts of
spectrum in other bands, including the Broadband Radio Service and
Advanced Wireless Services bands. Sprint currently holds an average of
100 MHz of commercial spectrum in the top 100 markets, and T-Mobile
holds and average of 48 MHz of spectrum in those markets. Other
providers, including rural carriers, new entrants, and small businesses,
hold significantly more spectrum in the top 100 markets than any one of
the nationwide incumbents alone and hold even more spectrum on average
in rural areas.

**Solving the Public Safety Interoperability Crisis**

Of course, one important issue remains from the previous auction -- the
lack of a successful bidder for the D Block of spectrum that was a part
of the Public Safety/Private Partnership.

While the results of the last auction will help inform our decision with
respect to the D Block, our decision must also be informed by the
continuing need for a truly nationwide interoperable broadband network
for public safety agencies to use during times of emergency. Put simply,
during a crisis public safety has to be able to communicate, regardless
of where they are from or the uniform they wear.

I remain committed to finding a solution that will facilitate a
nationwide interoperable broadband network for public safety. It has
been more than six years since brave police and fire fighters ran into
the Twin Towers and the Pentagon without an effective emergency
communications system. The Public Safety/Private Partnership was
intended to ensure that public safety keeps pace with the advances in
communications, and gives first responders the interoperable broadband
communications capabilities they need to protect the life and property
of the American public. The Commission could not have afforded to let
the opportunity that the 700 MHz band offers for public safety pass us
by.

My Republican and Democratic colleagues all agreed. The Commission
unanimously adopted the Public Safety/Private Partnership approach for
the D Block as an innovative means to address the critical need for
nationwide public safety interoperability. Many national and local
public safety organizations also expressed support for a public-private
partnership approach as their last, best chance to make this network a
reality.

While I and some of my colleagues would have preferred for public safety
to have their own funding to build a network, the simple reality is that
funding remains a significant challenge with respect to public safety
interoperability. The Public/Private Partnership was designed to address
this crucial issue, as the only tool reasonably available to the
Commission. In the absence of the financial resources for public safety
to build out their own network, I believe we should continue to try to
explore ways in which we can help facilitate using the D Block as a tool
to achieve a nationwide interoperable public safety network.

The Commission will, however, also need to take into account why the D
Block did not attract a successful bidder. For example, the Commission
needs to consider whether the demands that were being placed on the
prospective D Block winner were too great. Were the network expectations
reasonable? Was the build-out requirement imposed on the D block winner
too ambitious?

I am aware of allegations made with respect to the Public Safety
Spectrum Trust and their advisor, and I have asked the Inspector General
to look into these claims. We await the results of the Inspector
General's investigation, which will inform our actions going forward.

I also believe that we will need to revisit the obligations of the D
Block within the partnership, and ensure that there is sufficient
certainty in the process. We will need to evaluate ways to restructure
the Public Safety/Private Partnership. With respect to the Public Safety
Broadband Licensee, we need to be clearer about the role that the public
safety licensee will play in the day-to-day operations of the network.
For example, I do not believe the Commission envisioned that the Public
Safety Broadband Licensee would function as a commercial reseller of the
D Block licensee's services, nor did the Commission envision large-scale
network operations being undertaken by the public safety licensee.

I believe that a Public/Private Partnership remains a viable means for
achieving a nationwide interoperable broadband public safety network.
More importantly, I believe it remains the only tool at the Commission's
disposal to solve the public safety interoperability challenge. However,
we will look at all options in considering the appropriate path, and
look forward to hearing from the members with respect to their views.

**Conclusion**

This auction stands as the most successful FCC auction ever conducted,
but there is still more to be done. We must still find a way to help
public safety build a nationwide interoperable broadband network, and we
must license the D block so that it can be put to use as soon as
possible after the end of the digital television transition. I look
forward to working with this Committee and my colleagues on these
difficult issues in the months to come.

**[Exhibits]{.smallcaps}**

[^1]: Coleman Bazelon, The Brattle Group, *Broadcasting and Cable*
    4/7/2008.

[^2]: These providers include all bidders with fewer than one million
    mobile telephony subscribers, including those with no such
    subscribers (new entrants).

[^3]: Even where the nationwide incumbents do have wires, any incentives
    to limit their nationwide wireless networks to protect their
    regional wired revenues appear to have been outweighed by the need
    to compete with other wireless providers and the greater nationwide
    growth opportunities available in the wireless broadband market. For
    example, even though Verizon has an extensive wired broadband
    network, Verizon Wireless has historically been the most aggressive
    nationwide wireless incumbent in rolling out wireless broadband
    service in *both* Verizon's wired and un-wired territories.