Over 200 companies have qualified to participate in the upcoming FCC spectrum auction. While that sounds like enough to create a lot of competition, as the auction approaches FCC chairman Kevin Martin is beginning to sound a little nervous. Yesterday he expressed concern that problems in the credit markets and general economic conditions may discourage some bidders or limit their ability to participate, Reuters reported. However, “Martin said the auction must go forward since Congress has ordered the FCC to begin the auction by January 28.”
Contributing to pre-auction jitters at the FCC may be the recent demise of Frontline LLC. Frontline had been expected to be one of the primary bidders for the “D Block” spectrum, the band of airwaves that is being offered with a bunch of strings attached in terms of priorities for public safety usage, build-out requirements, and other limits. The Frontline folks were heavily engaged in the regulatory processes at the FCC creating the D Block requirements. Last week the company concluded it didn’t have enough financing to go into the auction, so it closed up shop. (Grant Eskelsen at the Progress and Freedom Foundation says the failure of Frontline should be no surprise, and hopes it will be the “end of what has been a tragically flawed experiment in the D-block from the outset.”)
What happens if the auction is a bust? The reserve prices adopted for each block are: Block A – $1.8 billion; Block B – $1.37 billion; Block C – $4.6 billion; Block D – $1.33 billion; and Block E – $900 million. If the reserve prices for blocks A, B, C, and/or E are not met in the auction, the FCC will close the auction for that block and set a new date to auction the unsold spectrum. According to this summary of the FCC auction rules, the new auction would use the same reserve prices as before, but the FCC may alter performance or access requirements imposed on the winners. The new auction would have to begin within a few weeks of the conclusion of the first auction.
According to the FCC rules, “If the reserve price established for the D Block of the 700 MHz Band is not satisfied by the results of Auction 73, the Commission may decide to re-offer that license subject to the same service rules or reconsider the rules applicable to that block.” The WSJ reported yesterday that the FCC could give the spectrum to the highest bidder even if the bidder didn’t reach the $1.33 billion reserve. Silicon Alley Insider suggests that some interesting gaming may result.