Broadcasters are currently transmitting analog TV signals using radio frequency channels that will be vacated as they switch to digital broadcast technology. The Deficit Reduction Act of 2005 ( P.L. 109-171 , Title III) requires broadcasters to end analog broadcasting by February 17, 2009, freeing the spectrumâusually referred to as the 700 MHz band âfor other uses. Some of the channels have been assigned for public safety communications; licenses for a few channels have been auctioned; and the remaining licenses are slated for auction no later than January 2008. The Congressional Budget Office (CBO) has assigned a value of about $12.5 billion for the auction; many industry estimates are significantly higher. Funds from the auction will initially be deposited in a fund created for that purpose, the Digital Television Transition and Public Safety Fund. The National Telecommunications and Information Administration (NTIA) is responsible for managing the fund and for disbursements, which total approximately $10 billion. The Deficit Reduction Act allocates $7.363 billion of auction proceeds toward closing the budget deficit, to be paid to the U.S. Treasury on September 30, 2009. Nine programs authorized by the act to receive auction funds are: a program that would expend up to $1,500 million on coupons for households toward the purchase of TV set top boxes that can convert digital broadcast signals for display on analog sets; a grant program of up to $1,000 million for public safety agencies to deploy systems on 700 MHz spectrum they will receive as part of the transition; payments of up to $30 million toward the cost of temporary digital transmission equipment for broadcasters serving the Metropolitan New York area; payments of up to $10 million to help low-power television stations convert full-power broadcast signals from digital to analog; a program funded up to $65 million to reimburse low-power television stations in rural areas for upgrading equipment; up to $106 million to implement a unified national alert system and $50 million for a tsunami warning and coastal vulnerability program; contributions totaling no more than $43.5 million for a national 911 improvement program; and up to $30 million in support of the Essential Air Service Program. For some of these programs, the NTIA is authorized to borrow money from the Treasury, to be repaid from auction proceeds. One of the first steps the FCC takes in preparing for an auction is to develop a band plan that allocates the spectrum for specific purposes (for example, high-speed transmission, which benefits from bandwidth of at least 10 MHz per license) and to decide the number of licenses and the geographic coverage for each license (for example, 200 licenses for metropolitan areas). These decisions begin the process of shaping the auction: the size of the bandwidth has an impact on the type of service it can be used for, and the geographic coverage of licenses can be used to encourage, for example, small companies seeking a local license or large companies seeking to expand their national coverage by acquiring a regional or national license. The FCC also establishes criteria for participation in the auction, for example, requiring documentation of financial resources. It also draws up service rules, which are a statement of the regulator's expectations for how the license will be used. Service rules usually include a timetable for putting the license to use, that is, the rules impose deadlines for the license-holder to build out a network so that a specified number of people or areas are served. The FCC makes its proposed plans known through a series of notices, which are made available for public comment, before announcing its decision about the auction in a final Report and Order. The rules for the auction of licenses in the 700 MHz band are in a Second Report and Order adopted July 31, 2007. Key points are summarized below. The process of preparing rules for the 700 MHz Band auction attracted more debate than usual for a number of reasons. One reason for interest in the spectrum is that the airwaves used for TV have good propagation qualities, able to travel far and to penetrate building walls easily. The proposals for service rules that will provide the framework for licensee business models have dominated the controversy over the preparations for the auction of the 700 MHz airwaves. Some observers have called this the "100-year auction," because the decisions about its service rules could have a significant impact on spectrum management and the wireless industry for decades to come. Public safety groups have been assigned 24 MHz of spectrum in the 700 MHz band that will become fully available once broadcasters have vacated the band. The licenses for this spectrum were assigned for public safety use by Congressional mandate, in 1997, and are not slated for auction. Provisions in the auction rules, however, provide for a new, interoperable communications network for public safety users to be shared with commercial users. A national license for 10 MHz, designated as Upper Block D, will be auctioned under service rules that will require working with a Public Safety Licensee to build and manage a shared network. The Public Safety Licensee will be assigned a single, national license for part of the 24MHz assigned for public safety use. The two licensees will be required to work together under a Network Sharing Agreement that they will negotiate, subject to FCC approval. The Public Safety Spectrum Trust has requested the preparation of a Statement of Requirements that will be made available to potential bidders for Block D. This document outlines public safety expectations for the network, its operation and security, the types of devices it will support, and other technical and administrative requirements. A partnership would give some public safety agencies access to private-sector capital and expertise to build the network; there is currently no federal plan to assist in building a nationwide, interoperable network. Although public safety users would be charged for access to the network, proponents of the plan argue that overall costs will be less than if the network were purely for public safety, because of greater economies of scale. Several companies associated with Silicon Valley and Internet ventures petitioned the FCC to set aside a block of spectrum as a national license that would be used for open access, which was defined as open devices, open applications, open services, and open networks. The FCC has ruled that it will auction licenses for 22 MHz of spectrum with service rules requiring the first two criteria: open devices and open applications. There will be 12 regional licenses that will require winning bidders to allow their customers to choose their own handsets and download programs of their choice, subject to reasonable conditions needed to protect the network from harm. If these licenses are not sold, subject to a minimum price, the licenses will be put on the block a second time, without the open platform requirement. Proponents of wholesaling argue that only an open network that anyone can useânot just subscribers of one wireless companyâcan provide consumer choice. If successful, an open network would allow customers to choose their own wireless devices without committing to a service plan from a single provider. Such a model challenges the business plans of the large wireless companies, the incumbents, that rely on contracts for a specific wireless device to tie their customers to them. Not only do service contracts between consumers and wireless companies limit the customer's choice of wireless devices, but also, carriers are increasingly blocking access to certain services. This contract-driven business model is often referred to as a walled garden. A wholesale network could provide more market opportunities for new wireless devices, especially wireless devices that could provide unrestricted access to the Internet. Wireless incumbents, in particular, have challenged the concepts of open access and wholesaling. They, and others, claim that the unproven nature of a wholesale business model makes it risky and that therefore the auctionable licenses would be devalued. They argue that imposing requirements that would create a wholesale network introduces an extra level of regulatory oversight, covering such areas as handset compatibility, applications standards, market access regulation, and interconnection rules. The band plan for the auction reflects several changes to the plan originally proposed by the FCC. The changes make it possible to create licenses for 62 MHz of spectrum at 700 MHz instead of 60 MHz. In the Lower 700 MHz band, the FCC has allocated 12 MHz for local area licenses, known as Cellular Market Areas, or CMAs. There will be 734 CMA licenses for auction. There will also be 176 licenses offered for broader Economic Areas, or EAs, also using 12 MHz of the Lower 700 MHz band. Some commentators believe that the conditions placed on the licenses in the Upper 700 MHz Band will divert bidding activity to the lower part of the band, possibly driving up the prices of these licenses. In this case, some of the smaller companies may be outbid in their efforts to obtain CMA licenses. All of the commercial licenses have what the FCC describes as "stringent" performance requirements, in particular for what are referred to as build-out rules. Winning bidders in the upcoming auctions will have a short time to provide service, based on geographical or population parameters, or risk forfeiting licenses. For example, the CMA and EA licensees in the Lower 700 MHz band must cover at least 35% of the geographic area within four years and 70% of the area by the end of ten years, the term of the license. The regional license-holders in the Upper 700 MHz band must have built a network that will reach 40% of the population in their license area within four years, and 75% by the end of the license term. Failure to meet these interim guidelines will result in a reduction of the license term, from ten to eight years, accelerating the build-out schedule. Licensees that fail to meet the final deadline will forfeit that part of the license that has not met build-out requirements. The FCC will reclaim the spectrum and make it available to others. Rules for the auction cover minimum opening bids, reserve prices and other procedures. One decision is to use "blind bidding."