Frontline, AT&T appeal FCC auction order

Fears that the rules will shut out small bidders

WASHINGTON -- Several companies have challenged spectrum auction rules recently set by the Federal Communications Commission, with Frontline Wireless LLC protesting that the auction of the 700MHz band to be auctioned in January could shut out small bidders.

In addition, AT&T Inc. has asked the FCC to reconsider requirements for the winning bidder of a block of spectrum to be used to build a nationwide broadband network for public safety agencies.

The rules require bidders to reach a service agreement with public safety officials before the auction, and the FCC's decision to deny bidders the spectrum if an agreement is not reached is "an extreme penalty," AT&T said in its petition.

AT&T and Frontline, a startup made up of government and wireless industry veterans, filed petitions for reconsideration of the auction rules with the FCC yesterday. They were among 10 companies that filed petitions in the past week asking the FCC to reconsider the auction rules it set in July for the 700MHz band of spectrum being vacated by U.S. television stations.

The FCC is scheduled to auction 62MHz of spectrum in the 700MHz band beginning Jan. 16. The FCC set a reserve price of $10 billion for the entire 62MHz, but many observers believe the auctions will raise much more than that.

The spectrum is controlled by U.S. television stations using channels 52 to 69. Congress in late 2005 passed legislation that requires the stations to move to digital broadcasts and abandon this spectrum by February 2009.

Frontline raised several objections about the auction rules. The company and some consumer groups had called for the FCC to require that the winning bidder of a portion of the spectrum resell the spectrum at wholesale rates, but the FCC declined to do so.

FCC members talked about including small businesses in the auction, but they denied bidding discounts, called credits, for small business wholesalers, Frontline said. Small businesses can't compete against large wireless carriers unless they adopt a wholesale model, the company said.

"Wholesaling is also the only model a new nationwide wireless network operator could realistically afford to adopt, given the massive costs associated with providing retail service -- consider Verizon's 2,300 retail outlets and its $1.9 billion annual advertising budget," Frontline said in its petition.

Frontline also suggested the reserve, or minimum prices, for two blocks of spectrum are too high. Frontline objected to a reserve price of about $1.3 billion for a 10MHz portion of spectrum to be paired with 12MHz set aside for emergency response communications. Frontline said the $4.6 billion reserve is also too high for another 22MHz of spectrum, for which the FCC adopted so-called open access rules. If the reserve price is met, the FCC will require the winning bidder to allow customers to bring wireless devices from other carriers and prohibit the winner from blocking or slowing competing Web content.

Under the FCC rules, both blocks of spectrum would be re-auctioned under new rules if the reserve prices aren't met. "The unlawfully high reserve prices will nullify or disrupt and damage the commission's carefully considered decisions as to the highest and best use of this spectrum, encourage bidding strategies that defeat these sound allocations decisions and seriously reduce auction revenues," Frontline's lawyers wrote.

Earlier this month, Verizon Wireless Inc. asked the U.S. Court of Appeals for the District of Columbia Circuit to review the FCC's decision to require open-access rules supported by Frontline and some consumer groups.

Those rules are "arbitrary, capricious, unsupported by substantial evidence and otherwise contrary to law," Verizon Wireless said in a brief filed with the court.

Copyright © 2007 IDG Communications, Inc.

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