What are we going to do about the D Block?

I couldn’t wait until the end of the FCC’s auction of 700 MHz spectrum to express some of my views on the 10 MHz D block, which comes with “strings attached”, namely that it must be available to public safety agencies on demand. 

So far, the top bid for the D block is $472 million.  It hasn’t budged since round 2, with the auction just completing round 14.  The reserve price for this block is $1.3 billion.  If the reserve price is not met, the block must be re-auctioned, presumably under more favorable terms. 

Contrast this situation with the 22 MHz C block, which now has a top bid of $ 4.29 billion against a reserve price of $4.6 billion.  The C block also has strings attached – the winner must provide an “open” network, enabling any device to connect to it, although presumably one compliant to some industry standard. 

The beauty of the auction is that it enables analysts to provide a precise monetary value on the impact of the restrictions that the FCC placed on each block.  If you do the math, the politicians and accompanying bureaucracy estimated that the “hassle” to an operator of taking on the public safety restrictions versus the open network restrictions was worth $79/Hz.  That was what they were willing to accept in reduced revenue to gain additional spectrum for public safety.  The market, on the other hand, currently values that burden at $147/Hz, a little less than double the government value.  When the final bids are in, the gap is likely to be significantly higher.

 

Is the public getting a good deal here?  Should Joe and Judy Average accept several $billion less in the US Treasury to give public safety agencies wireless capabilities they do not have today.  We don’t have a good estimate of the value of those services, so it is difficult to say a priori.  However, the auction is sending a strong signal that operators believe coping with rules, politicians, and miscellaneous government officials makes even “beachfront” spectrum look like a bad business proposition.   Moreover, despite many skeptics, it seems possible that public safety could use the open spectrum just like anyone else.  Why stovepipe public safety broadband, especially when they already own and operate mission critical voice networks?  The auction is helping the policy community face the reality of the downside of stove-piped spectrum for public safety when bidders even avoid shared solutions.