700 MHz Auction

1
700 MHz Auction

• Stephen E. Coran
• Rini Coran, PC
• [phone]
• scoran_at_rinicoran.com
• October 16, 2007

2
Auction 44

• Lower 700 MHz C Block (2002)
• 734 CMAs auctioned, 484 purchased
• 88.6 million net high bids
• Aloha Partners 24.1 million
• Independent telcos and wireless companies

3
Auction 49

• Lower 700 MHz C Block (2003)
• 251 CMAs auctioned
• 56.8 million net high bids
• Aloha Partners 5.8 million
• Independent telcos and wireless companies

4
Auction 73/76

• April 25, 2007 FCC released Notice of Proposed
  Rulemaking
• Predicted to generate 10-20 billion
• Spectrum includes 698-806 MHz band currently
  occupied by TV channels 52-69
• Broadcasters required by Congress to vacate
  spectrum by February 17, 2009
• Intense lobbying, highly politicized

5
Auction 73/76

• August 10, 2007 FCC released 352-page Second
  Report and Order
• Public safety element
• Novel and unique rules for commercial bands
• Build-out requirements
• Open Platform
• Block-specific reserve prices
• Anonymous bidding

6
Auction 73/76

• October 5, 2007 FCC released 122-page Public
  Notice announcing auction procedures
• Auction scheduled to begin January 24, 2008
• Auction seminar November 19, 2007
• Short-form applications due December 3, 2007
• Applications to cover both Auction 73 and
  Auction 76
• Anti-collusion compliance period begins
• Upfront wire payments due December 28, 2007
• Mock auction January 18, 2008

7
Auction 73/76

• Lower 700 MHz Band Plan (698-746 MHz)
• Block Frequencies (MHz) Bandwidth Pairing
  Area Number
• A 698-704/728-734 12 MHz 2x6 MHz EA
  176
• B 704-710/734-740 12 MHz 2x6 MHz CMA
  734
• C 710-716/740-746 12 MHz
  2x6 MHz CMA 734
• D 716-722 6 MHz
  unpaired EAG 5
• E 722-728 6 MHz unpaired
  EA 176
• C Block and D Block previously auctioned
• note that B Block is adjacent to already
  auctioned C Block, creating opportunity to
  combine into 2x12 MHz blocks

8
Auction 73/76

• Upper 700 MHz Band Plan (746-806 MHz)
• Block Frequencies (MHz) Bandwidth Pairing
  Area Number
• A 757-758/787-788 2 MHz 2x1 MHz MEA
  52
• B 775-776/805-806 2 MHz 2x1 MHz MEA
  52
• C 746-757/776-787 22 MHz
  2x11 MHz REAG 12
• D 758-763/788-793 10 MHz
  2x5 MHz nation 1
• A Block and B Block guard bands previously
  auctioned
• D Block required to partner with public safety

9
Auction 73/76

• Highlights of Band Plan
• 30 MHz to be auctioned by EA or CMA
• Lower 700 MHz C Block incumbents are positioned
  to acquire contiguous B Block spectrum will
  affect new entry
• Upper 700 MHz C Block has open platform
  obligations

10
Auction 73/76

• License Term
• Initial term not to extend past February 17, 2019
  (eight-year term for broadcast services)

11
Auction 73/76

• Build-out Requirements
• EAs and CMAs
• 35 of licensed area by February 17, 2013
• Failure to meet four-year benchmark will shorten
  license term to eight years
• 70 of licensed area by end of license term
• Failure to meet end-of-term benchmark will result
  in loss of license for unserved areas (keep
  what you use)
• FCC can impose additional penalties for failure
  to meet build-out requirements
• Government lands generally not included
• Waivers not envisioned except in unavoidable
  circumstances beyond licensees control

12
Auction 73/76

• Build-out Requirements
• REAGs
• 40 of population of licensed area by February
  17, 2013
• Failure to meet four-year benchmark will shorten
  license term to eight years
• 75 of population of licensed area by end of
  license term
• FCC will consider compliance on EA-by-EA basis

13
Auction 73/76

• Build-out Requirements
• Licensees required to submit status reports on
  February 17, 2011 and February 17, 2016, except
  licensees that do not meet four-year benchmark
  submit second report a year earlier
• At end of term, licensees required to submit
  coverage maps and other documentation
  certifying type of service and technology
• Rules subject to reconsideration

14
Auction 73/76

• Designated Entity Bidding Credits
• 15 credit for bidders with average gross
  revenues for the preceding 3 years not exceeding
  40 million per year
• 25 credit for bidders with average gross
  revenues for the preceding 3 years not exceeding
  15 million per year
• FCC rejected proposals for further credits for
  smaller bidders, new entrants and bidders in
  rural CMAs
• FCCs affiliation rules are very complex because
  they include affiliates, family members and
  others who have ability to control the bidder
• FCC to monitor through post-auction audits

15
Auction 73/76

• Designated Entity Restrictions
• Subject to impermissible material relationship
  rule that prohibits lease or resale of more than
  50 of total spectrum capacity
• Subject to attributable material relationship
  rule that prohibits lease or resale of more than
  25 of spectrum capacity to any entity
• Unjust enrichment provisions if a Designated
  Entity loses eligibility or seeks to transfer
  license or enter into de facto lease with entity
  not eligible for bidding credits, FCC will
  assess penalties
• Years 0-5 and if before construction notice filed
  100 of bidding credit plus interest
• Years 6-7 75 of bidding credit plus interest
• Years 8-9 50 of bidding credit plus interest
• Year 10 25 of bidding credit plus interest

16
Auction 73/76

• Designated Entity Rules
• Council Tree objections to designated entity
  rules upheld on procedural grounds by Third
  Circuit on September 28, 2007 because appeal was
  filed before FCC rules were published in Federal
  Register

17
Auction 73/76

• Upfront Payments
• MSA counties (CMAs 1-305) -- .05/MHz-pop
• RSA counties (CMAs 307-734) -- .03/MHz-pop
• Markets where no AWS license sold -- .01/MHz-pop
• Gulf of Mexico (CMA 306) -- 1,000/MHz
• Minimum upfront payment is 500
• Upfront payments rounded to nearest 1,000
• Upfront payments same as for AWS auction

18
Auction 73/76

• Minimum Opening Bids
• 25 of net winning bid for same geographic area
  in AWS auction, subject to minimum of
  .03/MHz-pop
• In response to comments, minimum opening bid for
  RSAs (CMAs 307-734) will not exceed .10/MHz-pop

19
Auction 73/76

• Reserve Prices
• FCC directed Wireless Bureau to establish reserve
  price for each block
• FCC proposed that each block have a separate
  reserve price that is 1 higher than gross
  winning bid for comparable winning bids in AWS
  auction
• Proposal for D Block is less because of open
  platform obligations

20
Auction 73/76

• Reserve Prices (based on gross, not net)
• Block A -- 1,807,380,000
• Block B -- 1,374,426,000
• Block C -- 4,637,854,000
• Block D -- 1,330,000,000
• Block E -- 903,690,000

21
Auction 73/76

• If reserve price not met, FCC would quickly
  conduct second auction (Auction 76) among initial
  applicant pool with no change in reserve price
• Blocks A, B, D and E same geographic areas and
  bandwidths
• Block C split into two blocks of 12 MHz and 10
  MHz each, with no open platform obligations
• For Blocks A, B and E, performance requirements
  would be relaxed

22
Auction 73/76

• Anonymous Bidding
• For first time, FCC will use anonymous bidding
  procedures to reduce potential for collusion and
  signaling
• FCC will notify bidders of the identity of other
  bidders with whom they cannot discuss bidding
  strategies for purposes of compliance with
  anti-collusion rules, but will withhold
  following information from bidders
• - other bidders license selections on
  short-form applications
• - amounts of upfront payments that other bidders
  made
• - information that may reveal identity of other
  bidders

23
Status of 700 MHz Proceeding

• Status of Proceeding
• FCC considering petitions for reconsideration of
  service rules
• Court of Appeals considering Verizon appeal of
  rules related to open platform
• Bidders should be planning for auction

24
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