Political expedience on 700 MHz trumps physics, revenue and consumer interests

At its last meeting, the FCC announced it was commencing a new rulemaking to resolve interference issues in the 700 MHz Block and assess how such interference issues impede interoperability among devices and networks using 700 MHz. Before we delve into a conversation about the FCC’s proposals, it is helpful to remind ourselves of the history of the issue.

The FCC knew about the issues it now wants to study in this newest NPRM (Notice of Proposed Rule Making) before the spectrum was auctioned in 2008. Further, the interference issues were taken into account by the FCC at that time, and informed the rules under which the spectrum was auctioned and purchased.

In its notice of proposed rulemaking, the FCC said that it tries to “protect and promote vibrant competition in the marketplace” and to “balance several competing goals, including facilitating access to spectrum by both small and large providers, providing for the efficient use of the spectrum, and better enabling the delivery of broadband services in the 700 MHz Band.” Furthermore, the FCC observed that “this spectrum is being built out less quickly than anticipated…” and that “the 700 MHz band, at 70 megahertz, one of the largest commercial mobile service bands, is the only non-interoperable commercial mobile service band.”

The potential impact of the FCC deciding to intervene in the way it has proposed is curious for several reasons.

Predictable and expected outcome of licensing a non-homogenous environment: The 700 MHz Block is not only the largest band, but it is also the most heterogeneously licensed. The 700 MHz band is a hodgepodge of interference and licensing problems trying to accommodate everything and everyone. And what we’ve got is a science fair project gone badly wrong. Every other band, whether the PCS band or the AWS band, is the same in terms of licensing requirements and interference. In an effort to accommodate everyone, the FCC moved forward with its plans to auction the 700 MHz for commercial wireless broadband services without fully addressing the fact that TV broadcasters on Channel 51 were causing interference to the lower block of 700 MHz. The A-Block has exclusion zones in the largest markets where interference is rampant. The C-Block has net neutrality restrictions unlike any other band. The E-Block is broadcast spectrum that permits transmission at 50,000 Watts instead of the 1,000 Watts that the paired spectrum around it is allowed to, and that’s why interference occurs. Furthermore, the FCC mixed paired wireless licenses next to unpaired broadcast licenses. Most agree the higher power operations authorized on the E-Block has been a significant contributing factor to the A-Block spectrum selling for less than half the price garnered by the B-Block license. Let’s not even talk about the D-Block, which had public safety restrictions on it that were so unrealistic that one bidder thought it might succeed with a bid below the reserve price.

In summary, contrary to what has been said in the NPRM, only the B-Block has any resemblance to what has been traditionally licensed to wireless operators. If all Blocks would have the same interference characteristics and licensing restrictions then there would be interoperability. However, the FCC decided to go down a different avenue when it licensed the 700 MHz Block that it did before and should not be surprised that it ended up in a completely different place.

Impact on consumers: The impact of interference can be mitigated through additional components and filters. These components have to be permanently powered to immediately thwart the interference, and therefore will reduce battery life, in addition to increase the cost, weight, and dimensions of the device. Considering that consumers will not know the negative impact that additional electronics will have on the battery life of their devices, they will just blame the carrier for it rather than the real culprit, the FCC. What makes this all even worse is that the B-Block and C-Block customers are probably never going to roam on A-Block licenses. So the 200 million customers of AT&T, Verizon, and smaller operators will have to live with the negative impact even though they will never need to have the benefit of having to roam on an A-Block network, as in all likelihood the networks of AT&T and Verizon are going to be comprehensive enough for them not to need to roam on A-Block networks.

The only benefit is that the electronics and filters for A-Block devices are going to be cheaper than they would be otherwise due to the increase purchase volume created by the B- and C-Block carriers. This is basically a government-mandated corporate subsidy from one corporation to another that forces them to buy electronics and filters they otherwise would not need. Furthermore, nobody is stopping any operator from adding the additional bands to the devices they are purchasing to make them interoperable.

The consequences of an interoperability mandate are quite far reaching and chilling. What will stop the FCC from requiring that all phones be interoperable? Every device would need GSM, CDMA, LTE, maybe even iDEN and WiMAX on every frequency used. After all, some of these technologies have been around for more than 20 years. From a practical perspective, such a Turducken device would be a consumer nightmare and become the most visible example of regulatory meddling and government overreach. Such devices would be abominations: larger, heavier, slower, more expensive battery hogs that wouldn’t provide any meaningful user advantage over the unimpeded market of today.

Impact on auction revenues. The winners of the B-Block, which range from AT&T to U.S. Cellular to the Buggs Island Telephone Cooperative, paid a premium for clean spectrum. The winner of the C-Block, Verizon Wireless, paid a smaller premium compared to the B-Block to have un-interfered spectrum that, nonetheless, carries with it net neutrality provisions. Now the FCC wants the winners, which deliberately paid more money to have interference-free spectrum, to “voluntarily” find a way to be interoperable with licenses that they deliberately rejected. If they do not voluntarily submit, the FCC has hinted that it would probably mandate interoperability. So much for “voluntary.”

If the FCC really proceeds with this threat, future auctions the FCC will likely raise less revenues from auctions, if some of the licenses are more impaired than others. The move the FCC appears to be contemplating would set a precedent that it will dramatically change terms and conditions of the licenses after the auction. Any rational buyer would pay only as much as the most impaired license is worth. Therefore, the level government revenues raised through the B- and C-Block licenses would not be equaled.

Impact on spectral efficiency. The FCC’s intended interoperability will perpetuate the problem of interference. This makes it impossible to follow a policy of allocating spectrum to ensure the best possible benefit of the American people. By doubling down on the bad choices that have been made regarding the 700 MHz Block highest, the FCC would perpetuate and expand the impact that interference has. This stands in contradiction to the stated objectives of the Administration and the FCC in the national broadband plan.

At best, the FCC’s proposed approach to addressing the 700 MHz interference issue seems misguided. At worst, it is an intentional ploy to further slow the full development of spectrum for the companies that need it to support their commercial operations. The proposed path on the interoperability issue seems to be a government-sponsored wealth transfer from one company to another, without any regard for the consumer impact. That’s an interesting twist on serving the public interest in a time of looming spectrum exhaust and potentially higher prices for wireless broadband services.