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TESTIMONY OF
JONATHAN S. ADELSTEIN
COMMISSIONER
FEDERAL COMMUNICATIONS COMMISSION
BEFORE THE
SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET
COMMITTEE ON ENERGY AND COMMERCE
UNITED STATES HOUSE OF REPRESENTATIVES
OVERSIGHT OF THE FEDERAL COMMUNICATIONS COMMISSION - THE
700 MHz AUCTION
April 15, 2008
Mr. Chairman, Congressman Stearns, and members of the Subcommittee, thank
you for calling this hearing to address the outcome of the Commissions most significant
spectrum auction to date.  The distinguished members of this Subcommittee fully
recognize that broadband infrastructure is one of the best tools for promoting
communications and the entrepreneurial spirit that we have seen in our time.   The results
of this auction must be measured with an eye to its impact on broadband, whose
deployment is the central infrastructure challenge of this Information Age.  Broadband
infrastructure, and in particular, ultra-high speed broadband is critical to promote the
economic, cultural, and social well-being of our country, particularly for small businesses
and entrepreneurs, who drive so much innovation and economic growth.  Broadband
networks also offer unprecedented opportunities for improving and harmonizing the
capabilities of our public safety community.
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All of us were keenly aware going into the 700 MHz auction that its outcome
would profoundly impact the future role of wireless broadband services, potentially
offering needed competition to existing wireline broadband providers, facilitating
deployment to rural areas, and creating opportunities for enhanced public safety
communications.  With such a significant block of spectrum up for auction, there was
rightly a great deal of diverging pressures on the Commission to construct a 700 MHz
band plan and service rules that would meet a wide-range of interests.
In responding, we could have stuck to whats tried and true.  We could have
declined to adopt any controversial conditions to open the market.   We could have stuck
with our traditional substantial service constructions standard.  We could have allowed
public safety agencies to fend for themselves in trying to develop a long-awaited
interoperable network.  But because our job is to promote the public interest, the status
quo was not an option. We heard from a chorus of voices expressing concern about the
lack of broadband competition, and the need to promote advanced services in rural and
other underserved areas, and the unmet needs of public safety.  We obviously fell short of
delivering everything consumers, innovators, public safety and carriers wanted.  But we
have to some extent accelerated the next generation of wireless broadband services and
have begun to change the way U.S. consumers receive their wireless services.
In particular, Im pleased that the auction results triggered the open access
requirements on the C Block, offering consumers a new paradigm that they have longed
for and certainly deserve.  Our decision to include these conditions, though modest in its
application to a 22 MHz swath of spectrum, has redirected our future approach to
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spectrum policy in allowing for an open access regime for devices and applications.
Despite technological advances like Wi-Fi, WiMax and more advance mobile services,
consumers have been frustrated by arbitrary limitations on the types of devices and
functions they can access.  Our approach is leading to benefits for the many consumers
who so desperately want the unfettered ability to use any wireless handset and download
any application they want on their wireless network.  And while some tout the U.S.
handset market as competitive and robust, still under 9 percent of wireless devices are
unlocked.1 Indeed, in contrast to the handset market in Europe and Asia where handset
portability is only a matter of switching out a SIM card, here in the U.S., while the
variety of handsets may be increasing and the market evolving, the consumer is still
largely constrained by the handset choices offered by its wireless provider. The open
access requirements on the C Block will, without a doubt, improve the consumer
experience.
It appears the impact of this singular condition goes beyond those consumers
using the C Block spectrum.  It also means progress for wireless innovators  application
developers, manufacturers, and carriers alike who will now be unleashed to bring new
multi-media products to market for use on this and potentially other spectrum.  The
Internet has been a source of remarkable innovation and an engine for economic growth
and productivity. It is critical that we bring the benefits of the Internet to the wireless
world.  I believe our decision to open the C block spectrum takes us in that direction.
1  See Letter from Christopher Guttman-McCabe, Vice President, Regulatory Affairs, CTIA  The
Wireless Association, to Marlene H. Dortch, Secretary, FCC WT Docket No. 08-27; RM-11361 at 1, 7
(filed March 20, 2008) (noting that of 620 wireless devices identified by CTIA, 54 handsets are offered
on an unlocked basis.)
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Its telling that just a few months after adopting the 700 MHz rules and prior to
the start of the auction, several carriers announced plans to voluntarily open their
networks.  We now see industry leaders joining forces to form a broad alliance of leading
technology and wireless companies through the Open Handset Alliance.  This
multinational alliance of technology and mobile industry leaders has developed the first
open and comprehensive platform for mobile devices, Android.  And in the interest of
supporting the developer community and sparking innovation on the Android platform,
Google announced the Android Developer Challenge, which will provide $10 million to
developers who build mobile applications for Android.  This type of innovation and open
collaboration can only give consumers a richer, more worthwhile experience than what
they have today.  We have also seen the two largest carriers following suit.  Prior to
successfully bidding on the C Block spectrum, Verizon Wireless pledged to provide
customers with the option to use, on their nationwide wireless network, wireless devices,
software and applications not offered by the company.  CEO Lowell McAdam has
characterized this move as the next level of innovation and growth.2 Similarly, AT&T
has indicated that it, too, will allow customers the option to use compatible handsets not
offered by the company on its nationwide wireless network.  These are significant
outgrowths of the open access condition that should prove to be a clear win for
consumers.  But our job is far from complete.  It will be critically important for us to
continue to assess the implementation of our open access requirements on the C Block as
well as the extent to which open access actually develops on other spectrum.  As we
move forward, we must do so with cautious optimism.
2  See http://news.vzw.com/news/2007/11/pr2007-11-27.html, Verizon Wireless To Introduce Any
Apps, Any Device Option For Customers In 2008 -  New Open Development Initiative Will Accelerate
Innovation and Growth, Released Nov. 27, 2008 (last visited April 14, 2008).
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Ideally, this auction would have facilitated the emergence of a third broadband
channel to provide consumers everywhere the benefits of a competitive, high-quality
wireless broadband network.  Unfortunately, the fear I expressed at our July open
meeting adopting these rules came true:  we missed a golden opportunity to open that
elusive third channel into the home.  This will be viewed in the long-run as one of the
greatest failings of this auction and of recent Commission policy.  I advocated then and
continue to believe that a truly open wholesale model could stand as a breeding ground
for innovation, for allowing new and diverse competitors to flourish, and for spurring
unparalleled levels of competition into the broadband marketplace.  I believe such a
model could facilitate opportunities for small and rural carriers as well.  While the
auction outcome represents progress for consumers in terms of new openness for devices
and applications, we should have done more to promote open markets by adopting a
wholesale model to attract vigorous competitive alternatives.
It is also appalling that women and minorities were virtually shut out of this
monumental auction.  Indeed, the data shows that women-owned bidders failed to win
any licenses, and minority-owned bidders won less than one percent of licenses (7 of
1,090 licenses, or .64%), despite the fact that women constitute over half the U.S.
population and minorities around one-third of the U.S. population.  It is unfortunate that
we have again failed to counter the legacy of discrimination that has kept women and
minorities from owning their fair share of the spectrum.  In so doing, we failed to meet
the statutory requirement in section 309(j) of the Act to ensure that small businesses,
rural telephone companies and businesses owned by members of minority groups and
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women are given an opportunity to participate in the provision of spectrum-based
services.3
It is troubling that we lost an opportunity to provide crucial bidding credits across
the entire 700 MHz spectrum to designated entities that wholesale fully built-out network
services.  The bidding credits made available through our designated entity program can
be a potent means of getting spectrum into the hands of small businesses and
entrepreneurs.  I think it is essential that we revisit our policies in this respect to ensure
that all bidders have opportunities to bid, particularly where wholesale service is a
compelling option for new and diverse providers.
As we look at the results of the auction and its structure, some have argued that a
more flexible band plan which included a mix of licenses could better support a variety of
business plans. On the other hand, it was apparent that a larger spectrum block could best
address the needs of potential new entrants, who expressed interest in providing a
nationwide wireless broadband service.  Ultimately we had to strike a compromise  and
while the measures we took were less than what I would have proposed, they were
significant.
It is widely recognized that the tragic failure to sell the D block represented a lost
or at best delayed opportunity to come to grips with our countrys public safety dilemma.
Policymakers all agree that our first responders need the best technology and
communications network possible.  Many of our nations public safety agencies already
suffer from antiquated systems and struggle to keep pace with new technological
3 See 47 U.S.C.  309 (j)(4)(D).
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opportunities.  Yet to date, there have been no other viable plans brought forward to
realize the critical need for an interoperable broadband network for public safety.
The implementation of a shared commercial and public safety network presented
a myriad of complex and novel issues.  In adopting these rules, I questioned our approach
and raised the concern that there was no guarantee that the model we created, as
structured, would nurture a nationwide interoperable public safety system that would be
both commercially viable and technically feasible.  Though I would have preferred direct
Federal funding for building a national public safety broadband network, I was
nevertheless painfully aware that the public-private partnership framework itself
presented the only option available to us.  And while this approach could have succeeded,
the rules we ultimately adopted simply did not reach the appropriate balance to meet the
needs of both public safety and a commercial partner.  And while I advocated and fully
supported modifications to the rules, including waiving a portion of our designated entity
rules to allow a D Block winner to wholesale greater than 50 percent of the spectrum, and
reducing the additional default payment percentage, these after-the-fact remedies were
just not enough to woo a successful bidder.
So as we look to revisiting the rules for the D Block, we need to explore all
aspects of proposals intended to help public safety keep apace through this auction.  A
true public-private partnership must meet the needs of both partners.  If public safetys
needs are not met, the basic objective is not met.  If a private partners need for a return
on capital and regulatory certainty are not met, then that partner will not be in a position
to attract the capital necessary to meet public safetys objectives.  A partnership is just
that, and both sides must win to make it work.
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We need to do a top-to-bottom review of what went wrong so we can make it
work in the next round.  We will need to work closely with our friends in public safety, as
well as potential private sector partners, and the financial community who may provide
the capital, to find a balance that works for all parties.
First and foremost, we must provide upfront appropriate and detailed guidance to
allow parties to make a bona fide financial viability assessment.  In the notice of
proposed rulemaking I anticipate the Chairman will circulate, we need to step further
back than only looking at reducing the reserve price or modifying the buildout
requirements.  We need to peel back the onion to the core framework to seek comment on
all aspects of the re-auction.  While I continue to believe that the public-private
partnership can succeed, we certainly need to seek the publics comment on alternatives
and modifications to that model.  We should also look at whether alternatives exist to
nation-wide licensing, regional or otherwise, that might attract bidders and still serve the
needs of public safety.  And, in light of auction results on the other 700 MHz blocks, we
should seek comment on whether we should consider limiting eligibility for the D Block
re-auction and if so, in what way.  Can and should the Commission use this re-auction as
an opportunity to balance the goal of providing an interoperable broadband
communications network for public safety with that of facilitating a new entrant?  What
type of re-auction provisions should be included?  What technologies and features are
feasible?  How do we better define the role of the Public Safety Trust and its interplay
with the commercial entity?  What additional licensing term flexibilities might create
incentives for bidders?
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I do not have the answers to these and the many other questions that need to be
asked about the re-auction of the D block spectrum.  In order to move forward
successfully, we will need to rely on the input of this Subcommittee, private sector
partners, the financial community, as well as public safety.  Only with this vital input will
we be well positioned to provide detailed guidance on the many elements of a re-auction.
Mr. Chairman, thank you for calling this timely hearing on post 700 MHz auction
issues.  I look forward to hearing from you and all the members of the subcommittee on
this issue, as well as any other issues of concern.