Making Lemonade out of Lemons from the FCC's 700 MHz Spectrum Auction Decision

As we expected, the FCC voted today to require just two of the four “open access” conditions for one third of the 700 MHz spectrum that will be auctioned early next year. The conditions the Commission adopted require the spectrum licensee for the 22 MHz “C” block to permit the use of any device and any application on the network (although only if the C block fetches $4.6 billion; if it does not, the spectrum gets auctioned again without the requirements). These are pro-consumer conditions for sure, but do not accomplish the one goal both the FCC and Congress set for the auction - creation of a third broadband service provider that can compete with cable and telephone companies which control 96% of residential broadband lines in the U.S. That could have only been accomplished through adoption of the two other open access conditions; one that would have required the licensee to permit other service providers to connect to the network at wholesale rates, and another that would have required the licensee to make important network interfaces available to those providers.

The FCC’s failure to take this bolder step represents a tremendous missed opportunity that will have repercussions in the broadband market for years to come. While inevitably there will be lots of finger pointing, particularly at Chairman Kevin Martin, the plain fact is that save for a few enlightened souls like House Telecommunications and Internet Subcommittee Chairman Ed Markey (D-MA), Subcommittee Member Chip Pickering (R-MS) and Senator Byron Dorgan (D-ND), Congress did not give Chairman Martin the political cover he needed to propose a decision that would have made the telephone companies apoplectic and guaranteed years and years of litigation (although if their threats are to be believed, the Bells will also challenge the open device and open application rules anyway). Indeed, the Chairman may well have had the votes to forgo the device and applications conditions entirely, so he does deserve credit for inviting the ire of both the telephone companies and many of his fellow Republicans.

Even though the FCC’s spectrum auction decision falls short, there are certain aspects of the decision and the debate that Public Knowledge and its public interest and industry allies can be proud of. Most important of these is that the terms “open access” and “wholesale access” are again part of the telecommunications policy lexicon, having been banished for the past several years as a relic of the past. And they will not go back into hiding anytime soon - since it is virtually guaranteed that this auction will not result in the new broadband competitor Congress desired, there will almost certainly be calls to fix that situation legislatively, putting open access squarely back on the table.

Another hopeful sign is the fact that the public was engaged and energized by an incredibly technical, if enormously important FCC matter. Thanks to the good work of groups like Free Press and Moveon.org, multiple hundreds of thousands of individuals made their support for open access heard at the FCC and in Congress.

Finally, the history books may write that the FCC’s auction proceedings marked a turning point for Silicon Valley’s appreciation of why the policy process matters. Entrepreneurs, investors and technology CEOs like James Barksdale, Ram Shriram, John Doerr and Eric Schmidt saw first hand how incumbents with legions of lobbyists and years of relationships in Congress and at the FCC manipulate the process to keep out competition and preserve their closed business models. For years, the Valley has operated on the assumption that if Washington just stayed out of their business, no business opportunity would be off-limits. They have studiously avoided sending their CEOs and top venture capitalists to testify in Congress or visit with policymakers to discuss communications policy, which has annoyed policymakers and worked to the great disadvantage of the technology industry. If the industry has learned anything from the 700 MHz auction, it is that when it comes to getting access to communications networks, avoiding government is not an option. And that realization may forever change how the technology industry plays the Washington game.