[Senate Hearing 110-1125]
[From the U.S. Government Publishing Office]
S. Hrg. 110-1125
700 MHz AUCTION: PUBLIC SAFETY
AND COMPETITION ISSUES
=======================================================================
HEARING
Before The
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
JUNE 14, 2007
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
DANIEL K. INOUYE, Hawaii, Chairman
JOHN D. ROCKEFELLER IV, West TED STEVENS, Alaska, Vice Chairman
Virginia JOHN McCAIN, Arizona
JOHN F. KERRY, Massachusetts TRENT LOTT, Mississippi
BYRON L. DORGAN, North Dakota KAY BAILEY HUTCHISON, Texas
BARBARA BOXER, California OLYMPIA J. SNOWE, Maine
BILL NELSON, Florida GORDON H. SMITH, Oregon
MARIA CANTWELL, Washington JOHN ENSIGN, Nevada
FRANK R. LAUTENBERG, New Jersey JOHN E. SUNUNU, New Hampshire
MARK PRYOR, Arkansas JIM DeMINT, South Carolina
THOMAS R. CARPER, Delaware DAVID VITTER, Louisiana
CLAIRE McCASKILL, Missouri JOHN THUNE, South Dakota
AMY KLOBUCHAR, Minnesota
Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
Lila Harper Helms, Democratic Deputy Staff Director and Policy Director
Christine D. Kurth, Republican Staff Director and Chief Counsel
Kenneth R. Nahigian, Republican Deputy Staff Director and Chief Counsel
C O N T E N T S
----------
Page
Hearing held on June 14, 2007.................................... 1
Statement of Senator DeMint...................................... 3
Prepared statement........................................... 3
Statement of Senator Dorgan...................................... 62
Statement of Senator Inouye...................................... 1
Statement of Senator Kerry....................................... 91
Prepared statement........................................... 94
Statement of Senator Klobuchar................................... 10
Statement of Senator Lautenberg.................................. 7
Statement of Senator Lott........................................ 50
Letter, dated June 13, 2007, from the Rural Cellular
Association and Cellular South to the FCC.................. 50
Statement of Senator Rockefeller................................. 5
Prepared statement........................................... 6
Statement of Senator Smith....................................... 9
Statement of Senator Stevens..................................... 2
Statement of Senator Sununu...................................... 8
Statement of Senator Thune....................................... 90
Witnesses
Barksdale, James L., Partner, Frontline Wireless, LLC............ 16
Prepared statement........................................... 19
Cosgrave, Paul J., Commissioner and CIO, Department of
Information Technology and Telecommunications, City of New York 44
Prepared statement........................................... 48
Lynch, Richard J., Executive Vice President and Chief Technical
Officer, Verizon Wireless...................................... 66
Prepared statement........................................... 68
McCarley, Wanda S., Operations and Training Manager, Tarrant
County 9-1-1 District, Fort Worth, Texas; President,
Association of Public-Safety Communications Officials--
International (APCO); Board Member, National Public Safety
Telecommunications Council (NPSTC)............................. 11
Prepared statement........................................... 13
Sarva, Amol R., CEO, Txtbl....................................... 79
Prepared statement........................................... 80
Small, Michael, Chief Executive Officer, Centennial
Communications Corporation..................................... 73
Prepared statement........................................... 75
Weiser, Philip J., Professor of Law and Telecommunications,
Executive Director of the Silicon Flatirons Program, University
of Colorado.................................................... 34
Prepared statement........................................... 36
Appendix
Montanari, Pam, Radio Systems Manager, Pinellas County, Florida,
Chairperson, Tampa Bay Urban Area Interoperable Communications,
prepared statement............................................. 95
Response to written questions submitted by Hon. Daniel K. Inouye
to:
James L. Barksdale........................................... 98
Paul J. Cosgrave............................................. 103
Richard J. Lynch............................................. 106
Wanda S. McCarley............................................ 97
Amol R. Sarva................................................ 113
Michael Small................................................ 111
Philip J. Weiser............................................. 102
Response to written questions submitted by Hon. John Kerry to:
Richard J. Lynch............................................. 107
Amol R. Sarva................................................ 114
Response to written questions submitted by Hon. Frank R.
Lautenberg to:
Richard J. Lynch............................................. 110
Michael Small................................................ 112
Response to written questions submitted by Hon. Bill Nelson to:
James L. Barksdale........................................... 101
Paul J. Cosgrave............................................. 104
Richard J. Lynch............................................. 109
Wanda S. McCarley............................................ 98
Amol R. Sarva................................................ 114
Michael Small................................................ 112
Philip J. Weiser............................................. 102
700 MHz AUCTION: PUBLIC SAFETY
AND COMPETITION ISSUES
----------
THURSDAY, JUNE 14, 2007
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 10:02 a.m. in
room SR-253, Russell Senate Office Building, Hon. Daniel K.
Inouye, Chairman of the Committee, presiding.
OPENING STATEMENT OF HON. DANIEL K. INOUYE,
U.S. SENATOR FROM HAWAII
The Chairman. The broadcasters are required by law to turn
off their analog signals on February 17, 2009. As we approach
this deadline, the FCC faces decisions that will shape the
future of public safety and commercial communications services.
The Commission appears ready, at long last, to adopt final
service rules that will govern the auction and reuse of
frequencies in the 700 MHz band. As with most communications
policies that offer great promise, the 700 MHz band auction
also offers great complexity. But if history is our guide, the
decisions that the FCC will soon make in establishing service
rules have the potential to revolutionize the communications
landscape and to lay the foundation for the future development
and deployment of new wireless broadband services.
Because radio waves operating in the 700 MHz band can
travel long distances and can penetrate through walls, they are
uniquely capable of extending next-generation broadband
services to parts of America that current technologies fail to
reach. As some have noted, these frequencies are the equivalent
of the new beachfront property in the increasingly crowded
market for spectrum real estate.
For public safety, the stakes are very high. In many
cities, their narrow-band voice communications systems already
chafe under capacity constraints. For that reason, we must
ensure that our band clearing efforts stay on track.
In addition, our efforts must also recognize that the
future of public safety does not depend on voice communications
alone. The 700 MHz proceeding offers our country a unique--and
perhaps historic--opportunity to establish rules that will
promote the development and operation of next-generation
broadband networks for public safety. With proper planning and
safeguards, these networks could be designed, from the outset,
to be interoperable. They could reap the benefits of greater
economies of scale and promote greater efficiency in the use of
scarce spectrum resources.
Without question, the concept of a partnership between
public safety and a commercial operator, as some have
suggested, would represent a paradigm shift in the way
traditional public safety communications have been managed and
operated. It raises many difficult questions that must be
carefully considered and answered.
But the difficulty of the task should not alter the
responsibility of our regulators to meet the needs of first
responders and to facilitate the development and use of
cutting-edge communications technologies that will be essential
to protecting the safety of current and future generations.
In my opinion, we are well past the question of whether we
should help first responders build and operate a nationwide
interoperable broadband network. Instead, it is time that we
focus on what we must do to accomplish this goal as quickly as
possible.
In addition to the unique opportunities that service rules
may offer for public safety, the upcoming auction of commercial
spectrum has the potential to reward consumers with substantial
benefits in the rollout of new wireless broadband services.
Yet, despite such promise, there are lingering concerns that
the FCC's current service rules, which favor large spectrum
blocks and large geographic license areas will limit
participation in the auction and will provide established
incumbents with an opportunity to strengthen their control over
existing spectrum resources.
While changes to these rules are under consideration, it is
important that the Commission recognize the dangers of further
consolidation and adopt rules that will attract new entrants
and promote competition.
Similarly, it is my hope that the Commission will remember
that a spectrum auction represents a means to an end, not an
end in itself. There is no question that the auction of 700 MHz
frequencies will yield the Treasury substantial sums of money,
but we should not let that fact seduce us into forgetting the
importance of designing service rules that also meet other
critical policy goals. This auction must ensure a diversity of
license ownership, promote Universal Service and the deployment
of services beyond major cities and highways, and encourage
entrepreneurship and the development of innovative technologies
and applications that will stoke demand for highspeed service.
In sum, there's a lot at stake.
We are fortunate today to have two distinguished panels of
witnesses to assist us in examining these issues. And I look
forward to their testimony and their answers to our questions.
But, before I do, may I call upon the distinguished Vice
Chairman of the Committee?
Senator Stevens. Well, I was late. If my friend is ready,
go ahead.
Senator Rockefeller. I'd yield to you.
Senator Stevens. Thank you.
STATEMENT OF HON. TED STEVENS,
U.S. SENATOR FROM ALASKA
Senator Stevens. Well, I applaud my good friend, the
Chairman, for calling this hearing to examine the 700 MHz
auction and the public safety issues.
We're now 4 months closer to the 700 MHz auction than the
last time the Committee held a hearing looking at the public
safety proposal that would use some of the auctioned spectrum.
This new proposal involves less spectrum for auction, and does
not fix the price in advance. Still, there are, to me,
outstanding questions to be resolved, and I hope the witnesses
will answer many of the questions regarding how this public
service--how this will serve the public safety interests and
the interests of the American taxpayers, as well as really
control the spectrum. I think that's the primary issue, as far
as I'm concerned. It's important that all proposals be examined
to ensure that Congress is doing as much as we possibly can to
save the lives of our first responders, and help them save
other lives. But we must also be sure that we're not always
examining, and never acting. We must make some decisions now on
this proposal.
Separately, we'll hear, I understand, a discussion of new
proposals for the rules surrounding the commercial side of the
700 MHz auction. Some of those issues are technical in nature,
and impact business plans and business strategies. By the end
of our hearing, I hope that some common themes will emerge so
the FCC can move forward in conjunction with Congress, and so
we can all agree, and, in a timely fashion, hold this auction
in a way that will secure the 24 MHz of spectrum in the 700 MHz
bands for public safety on time, provide new wireless
opportunities for consumers and small businesses, and ensure
that taxpayers receive the full value for the use of the
spectrum that's dedicated to the public interest.
Thank you very much.
The Chairman. Thank you.
Senator DeMint?
STATEMENT OF HON. JIM DeMINT,
U.S. SENATOR FROM SOUTH CAROLINA
Senator DeMint. Thank you, Mr. Chairman.
In the interest of time, I'd like to submit my entire
statement here for the record and just make a couple of
comments.
Thank you for----
The Chairman. Without objection.
Senator DeMint. Thank you, sir.
[The prepared statement of Senator DeMint follows:]
Prepared Statement of Hon. Jim DeMint, U.S. Senator from South Carolina
Thank you, Mr. Chairman, for scheduling this hearing. I also want
to thank the panelists with us today.
The amount of activity and interest in this DTV transition just
goes to show how very important and valuable this public asset--the 700
MHz spectrum--is to our economy, our public safety, and our individual
constituents' daily lives.
After much hard work and many long years, we are finally close--
within months--of realizing the opportunities that the 700 MHz spectrum
presents. With this spectrum finally cleared and licensed, we will have
more tools to attack difficult issues like public safety
interoperability, universal service, and the digital divide.
It is vitally important that we move ahead with wireless broadband
in this Nation. Beyond mobility and the potential ``third pipe'' it
will offer into American homes, it presents us with a great chance to
leapfrog where we are today with funding less efficient and more
expensive technologies through our Universal Service Fund.
Innovation will only increase as commercial applications and
consumer demand grow in this space. That is why it is vital that the
FCC develop flexible rules that allow current providers as well as new
entrants the ability to bid on this spectrum and develop it as the
market demands.
But, we aren't there yet. The Commission has some big decisions to
make, hopefully in the coming weeks, about the rules for this auction.
Those include:
1. whether to competitively auction all of the 60 MHz remaining
for commercial services;
2. the geographic sizes of the licenses to be auctioned;
3. and what, if any, usage rules to impose on the winning
bidders.
Mr. Chairman, several of my fellow colleagues joined me in a letter
this week to the FCC Commissioners outlining our thoughts on the
proceedings currently underway. I would like to ask consent to make
this part of the record.
I believe it is important that the entire 60 MHz of available
spectrum be auctioned competitively. This means that there should not
be special restrictions placed on any portion of it that would either
suppress interest from other bidders or benefit a particular business
model. I urge the Commission to avoid weakening or skewing the role of
market forces in this auction process.
There are some who seek more spectrum for public safety
interoperability in addition to the 24 MHz already set aside. While I
appreciate their sincerity and good intentions, I do feel that they
seem to have made up their minds before we have had a chance to
actually get to the 24 MHz already set aside and fully develop its
potential. Also, I feel there are great opportunities for the public
safety community with the spectrum, technologies, and public/private
partnerships already available today.
As for the appropriate size of licenses, I believe that the
Commission should be guided by what is best for the American people and
not individual bidders. The winners of this auction, if conducted
properly, will be consumers. They should expect the benefits of more
options, lower costs, and better services. There is a place for
smaller, more localized licenses, and I feel the Commission's Lower-700
MHz band plan accounts for this.
But, there is clearly value in large-area licenses, as well. I know
my constituents are ready for nationwide mobility and wireless
broadband speeds comparable to DSL and cable. It seems to me that the
most efficient way to get there is to offer bidders the opportunity to
provide services immediately to a wide area and substantial population.
Finally, I urge the Commission to avoid imposing rules on the
services provided by winning bidders like net neutrality or open access
requirements. Government regulation has not created 200 million
wireless phone users in our country. Neither has it made wireless
Internet the viable option it is becoming today. These developments
have occurred because the market has been allowed to work and innovate,
and competition has been presented to consumers. As always, regulation
in search of a problem should be avoided, and I urge the Commission to
do so in this case.
Thank you again, Mr. Chairman. I look forward to hearing the
thoughts of my colleagues and our panelists.
______
U.S. Senate,
Washington, DC, June 13, 2007
Hon. Kevin J. Martin,
Chairman,
Federal Communications Commission,
Washington, DC.
Dear Chairman Martin,
We are writing to express support for improving our Nation's public
safety communications, expanding wireless broadband for consumers, and
maximizing value to U.S. taxpayers. Specifically, we support your
efforts to bring broadband capability to the 24 MHz Congress allocated
for public safety use in the Digital Television Transition and Public
Safety Act of 2005.
To facilitate wireless broadband, particularly in rural areas, we
believe that a mix of license sizes for the 700 MHz auction is
critical. Larger licenses are needed to facilitate next-generation
wireless networks and will bring more broadband choices to U.S.
consumers sooner, while smaller license areas are essential to create
opportunities for small and mid-sized wireless carriers.
In the past, disregarding Congressional intent for market-driven
auction policy has resulted in spectrum lying fallow for years,
extensive litigation, and consumers being denied the benefits of
wireless technology innovations. The FCC should not devise encumbering
rules which suppress interest in the auction, including build-out
requirements, restrictions on incumbent bidding, net neutrality, and
open access mandates.
We hope that your auction rules will maximize the benefits of this
important public asset and appreciate your prompt action in this
proceeding.
Sincerely,
Jim DeMint
John Ensign
John E. Sununu
Mel Martinez
Kay Bailey Hutchison
David Vitter
Senator DeMint. I want to thank both panels. I can't stay
for both of them, but I appreciate the wisdom, hopefully,
they'll bring today.
I know, Mr. Chairman, you mentioned some concerns about
consolidation and the need for, really, a diversity of
competition and to stir innovation, which is certainly my hope,
as well.
We have to find a balance between the number of competitors
and the ability of larger networks to provide national and
international service. It's very important that the way this
auction works would allow the larger companies to establish a
seamless network. That form of consolidation is certainly not
negative, and that's the balance I hope we can achieve, because
ultimately it's what the customers need that matters, which is
a seamless national/international network, and future of
highspeed broadband that is wireless, which would require
certain chunks of that spectrum be available to networks who
want to provide it.
So, that's what I hope we can come out with today, is a way
that we can encourage a lot of competition, innovation, the
diversity of competition; at the same time, allow the networks,
with the capability, to provide--or to purchase large enough
chunks and bandwidth to provide the services that customers
will need in the future.
Thank you, Mr. Chairman. I yield back.
The Chairman. I thank you.
Senator Rockefeller?
STATEMENT OF HON. JOHN D. ROCKEFELLER IV,
U.S. SENATOR FROM WEST VIRGINIA
Senator Rockefeller. Thank you, Mr. Chairman.
I'll shorten this.
Obviously, we can't underestimate the potential for the 700
MHz auction to transform society. The FCC has to recognize, has
to maximize, the public-interest benefit of this auction.
Spectrum is highly valuable, it's very scarce, it does not
belong to any broadcasters; it belongs only to the American
people, and is only used with the consent of us.
Congress and the FCC, as guardians of this scarce public
resource, must make sure all Americans benefit from this sale.
In my opinion, the FCC must address two fundamental questions
when developing the rules for this auction. First, we must make
sure that the spectrum needs of the public safety community, as
Senator Stevens indicated, are addressed. We have totally
failed with respect to this. We have added homeland security
responsibilities without providing the resources to meet these
new challenges. We have not adequately addressed the issue of
interoperability. Now, if the FCC fails to develop an adequate
spectrum plan that addresses the needs of public safety,
policymakers will have failed them once again, and we may not
be able to rectify that in the future.
As my good friend, Commissioner Copps has stated, the
question of public safety is the first obligation of the public
servant. In a more perfect world, our Nation's first responders
would already have access to an interoperable and fully funded
broadband network that makes use of dedicated public safety
spectrum. We are a very long way from getting that,
particularly in our rural areas, and this is something we
should all be very much ashamed of.
I voted against the last spectrum bill, Mr. Chairman,
because I thought it was just a money grab. It wasn't thought
out. And I think--Senator Stevens might not agree on this, but
I think it's really important that the FCC gets it right before
it presents the auction. The American public does not
understand spectrum. Committee attendance is sparse here today.
Those who are here do care. But it's very much like aviation--
very important subject, not a lot of attendance, not a lot of
knowledge.
But the consequences of this are overwhelming. And if it
meant that we had to give the FCC, depending upon where they
stand--and I'm not confident of where they stand--an extra 2
months to prepare for an auction, then I think we should do
that. But if this is just another effort to raise money for the
Federal Government, I'm going to vote against it again.
Thank you.
[The prepared statement of Senator Rockefeller follows:]
Prepared Statement of John D. Rockefeller IV,
U.S. Senator from West Virginia
The 700 Megahertz (700 MHz) proceeding before the FCC is
extraordinarily complex even for communications policy. I believe that
the upcoming auction is perhaps the most important that the FCC will
ever conduct. It is undeniable that the outcome of the FCC's decisions
will have a significant impact on the development of next generation
broadband networks for public safety and on the competitive landscape
for wireless broadband services in the United States.
As this Committee has heard on numerous occasions, the soon-to-be
freed-up 700 Megahertz (MHz) variety is among the most valuable
spectrum of all because of its uniquely favorable propagation
characteristics. This spectrum is crucial for bringing new wireless
broadband services to our Nation. We cannot underestimate its potential
to transform society.
The FCC must maximize the public interest benefit of this auction.
Spectrum is a highly valuable and scarce resource. It belongs to West
Virginians. It belongs to the American people. Congress and the FCC, as
guardians of this scarce public resource, must make sure all Americans
benefit from its sale.
In my opinion, the FCC must address two fundamental questions when
developing the rules for this auction. First, we must make sure that
the spectrum needs of the public safety community are addressed. For
too long, Congress has failed our first responders. We have added
homeland security responsibilities without providing the resources to
meet these new challenges, and we have not adequately addressed the
issue of interoperability. Now, if the FCC fails to develop an adequate
spectrum plan that addresses the needs of public safety, policymakers
will have failed them once again. And, we may not ever be able to
rectify this failure.
As my good friend Commissioner Copps has stated, ``the question of
public safety is. . .the first obligation of the public servant.'' In a
more perfect world, our Nation's first responders would already have
access to an interoperable and fully-funded broadband network that
makes use of dedicated public safety spectrum. We are a long way from
getting public safety this network, and that is something we all should
be ashamed of.
The FCC should consider a number of innovative new approaches to
addressing this issue. I am not ready to endorse any one of them, but
it is incumbent upon the FCC to evaluate these proposals. The public
interest demands it.
The basic idea of a network that will be used by both commercial
and public safety users is deeply appealing to me, with commercial
users generating enough revenue to build and operate the network and
with public safety users able to preempt commercial users during an
emergency. But, I understand the many challenges before the FCC and the
industry in making this goal a reality.
I believe that the second issue the FCC must address, as it seeks
to maximize the public benefit, is how to make sure all Americans,
especially rural Americans, are provided the new and innovative
wireless services that this auction is certain to bring.
Wireless services in my state are inadequate. Vast stretches of
West Virginia do not have wireless voice coverage, much less data
coverage. Again, let me state that spectrum belongs to all Americans
and the FCC rules need to make sure all Americans benefit from the new
services and competition that companies using this spectrum will bring
to consumers.
When the Congress voted to auction the existing broadcast spectrum,
this Committee's only concern was raising as much money for the
Treasury as possible. I voted against that bill because without
marrying it to good public policy, we achieve nothing. The FCC's
highest priority is making sure that the 700 MHZ auction is done to
maximize the public interest and just not to maximize the revenue to
the treasury.
The Chairman. Thank you very much.
Senator Lautenberg?
STATEMENT OF HON. FRANK R. LAUTENBERG,
U.S. SENATOR FROM NEW JERSEY
Senator Lautenberg. Thanks, Mr. Chairman.
Obviously, this is a fairly complicated subject, but one
that we must deal with, and deal with as fairly and equitably
as we can.
The 700 MHz spectrum has been described as the beachfront
property of the spectrum, which implies the most valuable part
of the land or the property. And so, first we have to make sure
that we maximize its availability. It's a limited, valuable
resource, and so, we've got to do the best that we can to use
it.
Second, we want to protect it. Whoever controls that
property must act with the interest of the public as its
primary obligation. In terms of that analogy, the same is true
for the 700 MHz spectrum. Spectrum is a valuable natural
resource. It's a small portion of the public airwaves that
could bring inexpensive highspeed and wireless Internet across
to customers, the biggest companies, as well as to the ordinary
American in a public park or a coffee shop, because of its
ability to travel at great speeds and great distances, able to
penetrate walls. Many said it could be the backbone of a
national wireless broadband network. And we know we've got to
improve access to broadband.
The United States lags 15th in the world in the percentage
of people with broadband connections, according to the
International Telecommunications Union. Considering that the
Internet access today is essential for everything from
communications to education, public safety, we've got to
improve our situation, relative to the rest of the world and
the needs of our people. We've got to explore every option for
increasing broadband deployment. For example, I have proposed
allowing cities and towns to provide broadband networks of
their own to their residents, and the 700 MHz spectrum creates
a new opportunity to provide widespread broadband access.
It has also got to improve public safety's ability to
communicate. Senator Rockefeller mentioned something. A
significant part of the casualties on 9/11 were people from New
Jersey and we found out that the inability to communicate was a
real deterrent to rescuing these people. And we still don't
know what the aftereffects of exposure there are.
So, we've got to find a way to ensure that local police and
firefighters in our large cities can speak to one another, and
also look ahead to make sure that their equipment in the future
is capable of exchanging data and video over broadband. The 700
MHz spectrum will also benefit those costs. As we explore this
spectrum with the auction, we've got to make sure that a system
is in place that both generates revenue for our businesses and
guarantees this resource is used for the public good.
And, Mr. Chairman, one of the things that I'd like to make
sure that we go into with a degree of depth, and that is this
can't be an asset that's casually held and--I'll use the term
``flipped''--for a profit, that this has to be put to the
public use, and some warrantees or guarantees that that's the
objective.
So, I thank you, Mr. Chairman, and thank all of the
witnesses for your participation.
Thank you, Mr. Chairman.
The Chairman. I thank you very much.
Senator Sununu?
STATEMENT OF HON. JOHN E. SUNUNU,
U.S. SENATOR FROM NEW HAMPSHIRE
Senator Sununu. Thank you, Mr. Chairman.
I'd like to just make three points in my opening statement,
and the first is simple, and may be the most important, that we
need to complete this process. We absolutely need to get this
done. The law says we need to get this done--January 28, 2008.
And we should certainly stick to the law. Completing the
process in a timely way is right for consumers. And getting
them access to the spectrum that Senator Lautenberg was talking
about, whether it's additional wireless services, broadband, or
other innovations that we can't quite foresee, completing the
process is essential. It's right for public safety, as well,
getting them access to the additional spectrum that really will
make a difference, in the long run, to their ability to
communicate, and also to adapt new services for their own
public safety needs.
Second fundamental point is, we need to avoid regulations,
mandates, encumbrances on the spectrum that's being auctioned
off. Every regulation, every mandate, every additional
requirement we place on this spectrum is going to reduce the
number of competitors that come forward to bid, it's going to
reduce investment in the systems, it's going to reduce
innovation, and, ultimately, that's going to hurt the
interested parties: consumers and public safety.
And, finally, with regard to the question of
interoperability, we hear a lot of talk about interoperability,
how important it is, how much we care about it. We're going to
allocate funds to support interoperability, as we should, those
funds coming from this auction. But the biggest problem that I
see in the area of interoperability isn't the availability of
funds, per se, but it's the reluctance, in many cases, of first
responding organizations themselves to embrace open standards,
to embrace new technologies, and even to coordinate their own
purchasing across different organizations. There are counties,
even some cities, in America where police and fire fighters
still can't communicate effectively with one another. And
that's not for a lack of spectrum. And, in many cases, it's not
for a lack of funding, but for a lack of coordination and
organization, setting aside turf issues and working together on
a coordinated acquisition plan.
So, we need to focus on interoperability, insofar as
getting the resources available at the Federal level to support
some of these acquisition efforts, but I think there's also a
change in approach and in mentality that needs to go along.
This is very important to get done, to get done in a timely
way, and get done in a way that really supports the needs of
consumers and public safety, and I hope some of the obstacles
and hurdles to getting that done in a timely way are discussed
in earnest today.
Thank you, Mr. Chairman.
The Chairman. I thank you very much.
Before proceeding, I'd like to recognize the presence of a
very distinguished former Chairman of this Committee, Senator
John C. Danforth.
Welcome, sir.
[Applause.]
The Chairman. You want to take over?
[Laughter.]
Senator Stevens. Would you just say a prayer for us?
[Laughter.]
The Chairman. Senator Smith?
STATEMENT OF HON. GORDON H. SMITH,
U.S. SENATOR FROM OREGON
Senator Smith. Thank you, Mr. Chairman, for this hearing.
The auction of 700 MHz band presents a unique opportunity
to both improve our Nation's public safety communications and
expand wireless broadband access for consumers. I encourage the
FCC to expeditiously adopt service rules that facilitate
expanded wireless broadband service offerings for consumers in
rural communities and large cities, alike.
But I'd like to speak, this morning, a bit about the
opportunity this auction presents for public safety and the
tremendous work being done in my home State of Oregon regarding
public safety communications.
The Oregon State Interoperability Executive Council is
chaired by Chief Jeff Johnson of the Tualatin Valley Fire and
Rescue, with whom I met earlier this year. The Council has been
charged with achieving public safety interoperability in
Oregon. The group has been meeting for a few years. The Council
has spent countless hours, beyond their public service day
jobs, to design a statewide interoperable network. Following
completion of the design for the network, the Council took the
plan of--for interoperability to the state government for
funding. The Oregon State Legislature, unfortunately, was
unable to fund the $665 million needed to build this network.
The Oregon State Legislature, like so many others across
the country, having limited resources and any number of demands
on it, determined it could not finance a statewide
interoperability project for Oregon. I suspect this scenario
will be replicated in every one of the 30-plus states that have
state interoperability executive councils trying to resolve
interoperability at the State level.
Knowing that these resources are largely unavailable at the
State and local level, and predicting that it would be equally
difficult to find funds at the national level, if we are to be
pragmatic, we must turn to solutions that could include the
private sector. This is not unprecedented. There are a number
of occasions where collaboration between the public and
commercial sectors has yielded highly effective results. In my
view, the FCC and this Committee, where appropriate, must take
an active role in making this work.
As many of us know, the FCC is already taking steps to
facilitate such a nationwide shared network. While I do not
necessarily agree with every aspect of this proposal being
considered by the Commission, I applaud the steps that have
been taken to recognize both the problem and the opportunity
presented for public safety.
This endeavor must be made a nationwide priority. We must
create the road to nationwide interoperability. The example of
State and local experience demonstrates that the solution must
come on a national level. Let's not wait until the next
disaster to start working on the creation of a nationwide
mobile public safety broadband network.
Thank you.
The Chairman. Thank you very much.
Senator Lott?
Senator Lott. Mr. Chairman, thank you for having this
hearing. And I'm anxious to hear the panel, so I will reserve
my comments for later.
The Chairman. I thank you.
Senator Klobuchar?
STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM MINNESOTA
Senator Klobuchar. Thank you, Mr. Chairman. Thank you for
holding this hearing today.
The 700 MHz auction gives us a unique opportunity in the
public safety area. I come to the Senate having been a
prosecutor for 8 years and running an office of 400 people,
with a county that has 1.1 million people. I was very proud of
the work that our sheriff, Pat McGowan, who has recently
retired, but he was head of the National Sheriffs Association,
the work he did in bringing interoperability to our town. Some
of this came out of a case that was in the metropolitan area in
the Twin Cities, where a St. Paul police officer was shot.
Several different police officers had to pitch in to find the
killers. The helicopter pilots assisting in the search had to
carry 12 different portable radios with them so that they could
individually radio each police department. This obviously led
to some serious discussions in our area. Now, not only does
Hennepin County, but the nine counties that make up the Twin
Cities area are now all interoperable.
This truly isn't the case in all of our State. I was just
up, 2 weeks ago, in the Grand Marais area, way up on the
Canadian border, where we just, tragically, had weeks of
wildfires that started in Minnesota and then went up to Canada.
In Minnesota alone, 200 buildings were destroyed, acres and
acres and acres of forest. And there, I heard the same story
that we heard as in the St. Paul Police Department issue, where
there just was not interoperability, and there are all kinds of
problems with communicating, where you have situations where
they have to get to a house and get the people evacuated. And
what they ended up being able to use was the community radio
station, which, luckily, stayed available in most of their
homes so they could give alerts of when different parts of the
State were being evacuated.
So, that's why I have come to this hearing with this very
recent and poignant experience. And I'm hopeful that we will
hear some good solutions to this very important issue.
Thank you.
The Chairman. Thank you very much.
For our first panel of witnesses, we are most pleased to
have the following: the President of the Association of Public-
Safety Communications Officials--International, and also the
Operations Manager of the Tarrant County 9-1-1 District, Ms.
Wanda S. McCarley; and a Partner in Frontline Wireless, Mr.
James Barksdale; Professor of Law and Telecommunications and
Executive Director of Silicon Flatirons Program of the
University of Colorado School of Law, Professor Philip J.
Weiser; and Commissioner of the New York City Department of
Information Technology and Telecommunications, Commissioner
Paul J. Cosgrave.
May we begin with Ms. McCarley.
STATEMENT OF WANDA S. McCARLEY, OPERATIONS AND
TRAINING MANAGER, TARRANT COUNTY 9-1-1 DISTRICT, FORT WORTH,
TEXAS; PRESIDENT, ASSOCIATION OF PUBLIC-SAFETY COMMUNICATIONS
OFFICIALS--INTERNATIONAL (APCO); BOARD MEMBER, NATIONAL PUBLIC
SAFETY
TELECOMMUNICATIONS COUNCIL (NPSTC)
Ms. McCarley. Good morning.
The Chairman. Good morning.
Ms. McCarley. Thank you, Chairman Inouye, Vice Chairman
Stevens, and members of the Committee, for this opportunity to
appear before you today on behalf of the Association of Public-
Safety Communications Officials--International, APCO, and the
National Public Safety Telecommunications Council, NPSTC.
My name is Wanda McCarley, and I am the Operations and
Training Manager for the Tarrant County 9-1-1 District in Fort
Worth, Texas. I am currently the President of APCO
International, and also serve on the NPSTC governing board.
APCO works very closely with the International Association of
Chiefs of Police and the International Association of Fire
Chiefs, and I speak on their behalf today here, as well.
Public safety agencies throughout the Nation have long had
a critical need for additional spectrum to alleviate radio
system congestion, to accommodate new communications tools, and
to promote improved interoperability. Our Nation's first
responders will need further spectrum resources to deal with
the ever-growing demand for expanded voice, data, video, and
broadband capability.
We have also come to recognize that our country needs a
national broadband network. This network must be built to
public safety specifications, and it must be controlled by
public safety entities. It should also leverage economies of
scale while still meeting local needs. Such a network will
allow for more efficient use of scarce spectrum, facilitate
national standards, reduce costs for State and local
governments, and, most importantly, promote nationwide
interoperability.
The FCC now has before it a one-time opportunity to provide
for a public safety broadband network through its consideration
of the 700 MHz auction rules. The public safety community has
strongly urged the Commission to use this opportunity to
establish the foundation for a public/private partnership that
would deploy a fully interoperable nationwide public safety
broadband network.
Specifically, we have urged the FCC to impose conditions on
the auction to promote a shared network that would create a
synergy to provide first responders with access to additional
spectrum while also leveraging the commercial spectrum.
We believe there is simply no other viable method to fund a
national broadband network for public safety. With the funding
mechanism some local agencies may have, they may be able to
fund local networks, others will not, and this creates a
patchwork of have and have-nots with access to the system.
Some have suggested that the Federal Government provide the
dollars necessary to build a national network. While we would
obviously welcome some Federal funding, we know how difficult
that would be to achieve in this current budgetary environment.
Others have suggested that public safety agencies simply rely
on commercial networks. However, commercial-grade networks are
not usually built to public safety specifications. Adequate
coverage, reliability, functionality, and security are known
issues. We believe the only viable option to fund a national
public safety broadband network is through a public-private
partnership.
The FCC first addressed the potential for a public/private
partnership last year, when it proposed that a portion of the
700 MHz band already allocated for public safety be assigned to
a single national public safety licensee. However, that
licensee would not have the funding to deploy the network. Some
have suggested that the national public safety licensee could
simply issue an RFP seeking a partner to construct the network.
The question still remains, how would the national public
safety licensee pay for the network?
This brings us to the innovative conditional auction
approach that we believe is the best alternative. A key
component of this approach is a network-sharing agreement with
the national public safety licensee. We have urged that the FCC
rules ensure that public safety is not forced into an
unacceptable network-sharing agreement, and that the agreement
must be negotiated prior to the issuance of the license to the
auction winner. We believe that these are key components for
the deployment of a national broadband network.
Mr. Chairman, in conclusion, we believe that the FCC should
adopt a conditional auction approach that requires the auction
winner to build a broadband network that serves both public
safety and commercial users, and is designed, built, and
maintained to meet public safety requirements.
I thank you, again, for the opportunity to appear before
you today.
[The prepared statement of Ms. McCarley follows:]
Prepared Statement of Wanda S. McCarley, Operations and Training
Manager, Tarrant County 9-1-1 District, Fort Worth, Texas; President,
Association of Public-Safety Communications Officials--International
(APCO); Board Member, National Public Safety Telecommunications Council
(NPSTC)
Thank you Chairman Inouye, Vice Chairman Stevens, and Members of
the Committee for this opportunity to appear before you today on behalf
of the Association of Public-Safety Communications Officials--
International (APCO) and the National Public Safety Telecommunications
Council (NPSTC).
My name is Wanda McCarley and I am the Operations and Training
Manager for Tarrant County 9-1-1 District in Fort Worth, Texas. I am
currently the President of APCO and also serve on the NPSTC Governing
Board. APCO works very closely with the International Association of
Chiefs of Police (IACP) and the International Association of Fire
Chiefs (IAFC), both of which are also members of NPSTC, and I speak on
their behalf today as well.
APCO was established in 1935 and today it is the Nation's oldest
and largest public safety communications organization, representing its
16,000 members who manage and operate communications systems and
facilities for police, fire, emergency medical and other state and
local government public safety agencies. APCO's mission is to be a
member driven association of communications professionals that provides
leadership; influences public safety communications decisions of
government and industry; promotes professional development; and fosters
the development and use of technology for the benefit of the public.
The National Public Safety Telecommunications Council (NPSTC) was
formed 10 years ago to serve both as a resource and advocate for public
safety organizations in the United States on matters relating to public
safety telecommunications. NPSTC is a federation of public safety
organizations dedicated to encouraging and facilitating, through its
collective voice, the implementation of the Public Safety Wireless
Advisory Committee (PSWAC) and the 700 MHz Public Safety National
Coordination Committee (NCC) recommendations. NPSTC explores
technologies and public policy involving public safety agencies,
analyzes the ramifications of particular issues, and submits comments
to governmental bodies with the objective of furthering public safety
communications worldwide. NPSTC serves as a standing forum for the
exchange of ideas and information for effective public safety
telecommunications. The following 14 organizations participate in
NPSTC:
American Association of State Highway and Transportation
Officials
American Radio Relay League
American Red Cross
Association of Fish and Wildlife Agencies
Association of Public-Safety Communications Officials--
International
Forestry Conservation Communications Association
International Association of Chiefs of Police
International Association of Emergency Managers
International Association of Fire Chiefs
International Municipal Signal Association
National Association of State Chief Information Officers
National Association of State Emergency Medical Services
Officials
National Association of State Foresters
National Association of State Telecommunications Directors
Several Federal agencies are liaison members of NPSTC. These
include the Department of Agriculture, Department of Homeland Security
(SAFECOM Program and the Federal Emergency Management Agency),
Department of Commerce (National Telecommunications and Information
Administration), Department of the Interior, and the Department of
Justice (National Institute of Justice, CommTech Program).
Public safety agencies throughout the Nation have long had a
critical need for additional spectrum to alleviate radio system
congestion, to provide first responders with new communications tools,
and to promote improved interoperability. Responding to some of those
needs, Congress passed legislation 10 years ago to clear the 700 MHz
band of TV broadcasters and to allocate 24 MHz of that spectrum for
public safety, with the remaining spectrum designated for auction. The
FCC has already established initial rules for the 700 MHz public safety
spectrum, allocating half of the 24 MHz for narrowband voice channels
(some of which are already in use), and the remainder for data and
reserve channels.\1\ However, in much of the Nation use of the spectrum
is blocked by incumbent TV stations until February 17, 2009.
---------------------------------------------------------------------------
\1\ The current rules limit the data channels to ``wideband,''
(i.e., channels of up to 150 kHz). A pending proposal would allow those
data channels and the reserve channels to be consolidated to form
``broadband'' channels (i.e., channels of at least 1.25 MHz).
---------------------------------------------------------------------------
This allocation of 24 MHz of public safety spectrum was based upon
needs identified over 10 years ago. However, even then, the Public
Safety Wireless Advisory Committee had estimated that public safety
would require an additional 70 MHz by the year 2010. The reality of
course, is that public safety's spectrum needs have grown faster than
anyone had anticipated, driven in part by 9/11 and the Nation's
refocusing on public safety and homeland security requirements.
Our nation's first responders will need further spectrum resources
to accommodate the ever growing demand for expanded voice, data, video
and other ``broadband'' communications capability. We have also come to
recognize that our country needs a national broadband network that is
built to public safety specifications, is controlled by public safety
entities, and accommodates local variations to address first responder
agency requirements. Such a network will allow for more efficient use
of scarce spectrum resources, facilitate national standards, reduce
costs for state and local governments, and most importantly, promote
nationwide interoperability on a state-of-the-art communications
system.
The Federal Communications Commission (FCC) now has before it a
one-time opportunity to provide for such a public safety broadband
network through its consideration of the 700 MHz auction rules.\2\ The
public safety community has strongly urged the Commission to use this
opportunity to establish the foundation for a public-private
partnership that would deploy a fully interoperable, nationwide public
safety broadband network. Specifically, we have urged the FCC to impose
conditions on the auction of 10 MHz of spectrum to ensure that the
auction winner will build a broadband network serving both the 10 MHz
of auctioned spectrum and a portion of the public safety spectrum (the
12 MHz currently allocated for data and reserve channels). This
``shared'' network would provide public safety access to additional
spectrum resources when needed, and will also facilitate more efficient
use of the public safety spectrum.
---------------------------------------------------------------------------
\2\ See Further Notice of Proposed Rulemaking in WT Docket Nos. 06-
150, 06-169, 96-86, and PS Docket No. 06-229, FCC 07-72 (released Apr.
27, 2007).
---------------------------------------------------------------------------
Our support for such a public-private partnership flows from our
realization that there is simply no other viable method to pay for a
national broadband network that will meet public safety requirements.
Some local agencies may have special access to the resources necessary
to build a local or regional public safety broadband network of their
own, as is being done here in Washington and in New York City. However,
most agencies around the country will not have similar funding
available to build their own broadband networks, and there is no way to
pool funds beyond state or regional systems. The result will be widely
dispersed networks covering mainly resource-rich jurisdictions, built
to different standards on different portions of the radio spectrum, and
with little or no interoperability.
A national broadband network, in contrast, could provide for
nationwide interoperability, substantial cost efficiencies, and more
effective and efficient use of scarce radio spectrum. We believe that
such a network can and must be designed to provide these benefits while
also accommodating the varying needs and resources of local agencies.
The biggest challenge, however, is to identify viable sources of
funding.
There are few potential funding options for a national public
safety broadband network, most of which are simply unrealistic. One
option that has been suggested is for the Federal Government to provide
the tens of billions of dollars necessary to build a national network
to serve state and local first responder agencies. While we would
obviously welcome such Federal funding, we know how difficult that
would be to achieve in the current budgetary environment. Such highly
speculative and uncertain funding should not deter the FCC from taking
advantage of this one-time opportunity to address our needs through its
auction rules.
Others have suggested that public safety agencies simply rely upon
commercial networks to provide their broadband communications
capability. However, commercial grade networks are not usually built to
public safety specifications. Commercial networks will usually focus on
densely populated areas, leaving out areas that public safety agencies
need to reach. Commercial networks are also typically designed with
higher potential outage rates than public safety can usually tolerate.
Nor are commercial systems designed in most cases to withstand natural
disasters to the same degree as a public safety systems. Public safety
agencies also need substantial on-demand access to network capacity and
user-specific functionalities (such as ``one-to-one'' and ``one-to-
many'' communications) that are difficult to meet on a commercial
network. Moreover, the critical nature of public safety communications
is such that agencies are reluctant to place too much dependence on a
commercial enterprise that could terminate operations or reduce service
quality at any time.
The only viable option to fund a national public safety broadband
network is to form a public-private partnership whereby spectrum
resources can be shared among commercial and public safety users, but
on a network that meets the requirements of first responder agencies
and retains public safety control over public safety spectrum.
This concept of a public-private partnership was introduced last
year in a legislative proposal from Cyren Call Communications. While we
would still welcome legislation to implement some form of that proposal
(as it provided for direct public safety licensing of significant
spectrum resources), we are now focusing on more limited proposals that
are before the FCC and within its authority to implement.
The FCC first addressed the potential for a public-private
partnership last year in its Ninth Notice of Proposed Rulemaking in
Docket 96-86 (``9th NPRM'') in which it proposed that a portion of the
700 MHz band spectrum already allocated for public safety be assigned
to a single national public safety licensee. Until now, all public
safety radio systems have been built pursuant to licenses issued
directly to state or local governments. The Commission explained in the
9th NPRM that a national licensee (which would be a nonprofit entity
representing the interests of public safety agencies) would be
necessary for the successful development of a national public safety
broadband network.
We previously expressed significant reservations about the 9th NPRM
proposal. While the national licensee would have the benefit of
national spectrum resources, it would not have access to the initial
funding necessary to deploy a national broadband network. Unlike
traditional public safety licensees at the state and local level, this
national licensee would lack the ability to raise funds through taxes
or municipal bonds. Nor would the spectrum resources available to the
national licensee be sufficient to attract a commercial partner, as the
amount of spectrum allocated for public safety alone could not support
both public safety's own needs and a viable commercial network,
especially since any commercial use would necessarily be subject to
ruthless preemption.
Some have suggested that the national public safety licensee could
simply issue a request for proposals (RFP) seeking a private partner to
construct a public safety grade network on public safety spectrum. What
happens, however, if nobody responds? In fact, that is a likely result
as few commercial entities would have the ability or incentive to build
a nationwide system with the coverage, reliability, functionality and
security that public safety requires. In any event, how would the
national public safety licensee pay for such a network?
It was with these fundamental constraints in mind that we have
considered the innovative ``conditional auction'' approach that
Frontline Wireless has proposed. This approach assumes that a block of
spectrum will be auctioned with specific conditions, including a
requirement that, subject to a ``network sharing agreement'' with a
national public safety licensee, the auction winner will construct a
broadband network that incorporates the public safety broadband
spectrum and is built to satisfy public safety requirements. Through
the national public safety licensee, the network will be available for
public safety use on a priority basis. While some commercial use of the
public safety spectrum may be allowed, it would be on a ``secondary''
basis subject to unconditional preemption. Importantly, the auctioned
spectrum will also be available for public safety use when currently
allocated public safety spectrum is insufficient.
APCO and NPSTC have filed comments with the FCC explaining their
support for a conditional auction approach, and specifying provisions
necessary to ensure that public safety remains firmly in control of its
own spectrum. A vital element of the conditional auction approach is a
network sharing agreement between the auction winner and the national
public safety licensee. We have urged that the agreement must be
negotiated prior to the issuance of the license to the auction winner,
and that public safety must not be forced into an unacceptable network
sharing with a party selected solely by auction. The agreement must
also address issues related to the design and functionality of the
network, limitations on commercial access to public safety spectrum,
terms and conditions of public safety access to commercial spectrum,
protections in the event of business failure by the auction block
licensee, and assurances that local public safety agency variations can
be accommodated. To the extent possible, some of these issues should be
address in the FCC's rules.
Many national and local public safety organizations and agencies
have indicated their support for a conditional auction approach and a
national public safety broadband network. Some have raised concerns
about certain aspects of the proposal, in particular whether local
agencies will be able to deploy their own data communications systems
(there are no changes proposed for the state/local licensing of
``narrowband'' voice systems). We share those underlying concerns and
have therefore recommended a band plan and procedures to protect local
autonomy, especially for deployment of ``wideband'' public safety data
systems in areas where the national broadband network may be slow to
deploy. We have also been adamant that public safety representatives
must have the final word when it comes to the design, deployment, and
management of the national public safety broadband network. We have no
interest in simply allowing a commercial entity to take over our public
safety spectrum.
Finally, because the FCC is necessarily moving at a vigorous pace,
we have joined with other national public safety organizations to
initiate the formation of a legal entity that could serve as the
national public safety licensee if the FCC proceeds in that direction
Our goal is to ensure that the national licensee will represent the
interests of our Nation's first responder agencies. Thus, the entity
now under formation is to be a nonprofit corporation, known as the
Public Safety Spectrum Trust Corporation, and will be led by a board of
directors consisting of individuals selected by the Nation's leading
public safety organizations, each of which has extensive knowledge
regarding public safety radios systems and spectrum management. There
would also be an advisory committee consisting of a broad range of
organizations that also have an interest in the form and direction of a
national broadband public safety network. Thus, if the FCC adopts a
conditional auction process that requires a national public safety
licensee, the Public Safety Spectrum Trust Corporation would be
positioned to serve in that capacity.
Mr. Chairman, in conclusion, we believe that the FCC should adopt a
conditional auction approach that requires the auction winner to build
a broadband network that serves both public safety and commercial
users, and is designed, built, and maintained to meet public safety
requirements. I thank you again for the opportunity to appear before
you today.
The Chairman. I thank you very much.
Mr. Barksdale?
STATEMENT OF JAMES L. BARKSDALE, PARTNER,
FRONTLINE WIRELESS, LLC
Mr. Barksdale. Thank you, sir.
Chairman Inouye, Vice Chairman Stevens, distinguished
members of the Committee, thank you for the opportunity to
address the vital issue of public safety communications and how
the upcoming spectrum auction can solve this life-threatening
problem.
Thirty years ago, I helped, and was Chief Information
Officer for, Federal Express Corporation when we developed the
tracking and tracing system. It was both a wireless and
wireline system that now reaches around the globe and is the
envy of all, and copied by all of its competitors, tracking
billions of packages a year. As Chief Operating Officer at
Federal Express, I was responsible then for deploying that
around the world, along with many other logistical networks.
I then went to McCaw Cellular, then the largest
independent, and became the largest, cellular carrier in the
world, where I was President for 4 years. We sold that to AT&T.
And then, in the mid 1990s, I went to a little startup at
Silicon Valley. We called it Netscape. It revolutionized the
Internet by creating a browser that let mere mortals use the
Internet, creating the fastest-growing software company in
history. We sold that company in 1999.
And then, later, as I was trying to be in retirement, I
happened to have been appointed by our Governor, Haley Barbour,
in Mississippi, to chair the Governor's Commission for
Rebuilding our Gulf Coast, where I became reembroiled in this
subject of networks and how you pay for them. And I'll get to
that.
As you said, the Nation is coming to the end of a long road
in the transition to digital television. It's vitally important
that we do this correctly. The good news is that now some 60
MHz of that spectrum can be used to address the vital needs of
our country.
I'm here today out of frustration and out of hope. The
frustration comes from the fact that 6 years after 9/11, and
nearly 2 years after Hurricane Katrina, we are no closer to
giving our brave first responders the basic communications
tools they need to save lives and respond to disasters in the
vast majority of the United States. There are certainly some
exceptions. One is on the panel here today, from New York.
In the wake of Katrina, as I said, honored to serve as
Chairman of Governor Haley Barbour's Commission on Recovery,
Rebuilding, and Renewal in Mississippi, I understood the shared
frustration among police officers, firefighters, and search-
and-rescue teams who were forced to use human runners to
coordinate an emergency response to the largest natural
disaster in our Nation's history. This frustration runs deep,
because it was the same problem the Nation witnessed in the
wake of the 9/11 disaster.
But all problems bear the seeds of opportunity and hope.
The hope comes because we have a tremendous opportunity to
solve public safety's needs for a truly interoperable network.
One of the key recommendations in my recovery report to the
Governor was that Mississippi needs to build a statewide
interoperable wireless network funded and developed through
public/private partnerships. I would point out, Mississippi has
now come up with such a network.
I went to the State legislature for $250 million worth of
bond issues. Didn't get passed. Marvelous network. Didn't get
passed. Can't pay for it. These are the same taxpayers, now,
who pay Federal taxes, who pay State taxes, who pay local
taxes. Same people.
Then, when I was introduced to the Frontline plan, which
set out to solve these problems in the same fashion on a
national scale, joining as a partner seemed like a no-brainer
to me. The proposal put forth by our company would seem to me
to culminate a lifetime of work on my part. Frontline Wireless
is to finance a nationwide, interoperable broadband network
that does not require legislation, does not need a $30 billion
appropriation, and does not delay the upcoming auctions.
After months of careful planning with leaders of public
safety, I am pleased to report that we agree on many of the
essential features of a proposal to solve public safety's
needs. Specifically, we agree on: (1) the need for public/
private partnership; (2) the requirement of additional public
safety spectrum during emergencies, obviously; (3) the need for
public safety to have the private sector pay for the build-out
of the network; (4) the importance of public safety having a
national licensee to coordinate its spectrum; (5) the
requirement to build a network with unprecedented coverage, 99
percent of the U.S. population--99 percent of the U.S.
population, including Alaska and Hawaii; (6) the need to
protect public safety in the event of financial difficulty; (7)
the ability of public safety to have ultimate say over whether
this ``E Block'' network, as it's called, meets their needs;
and (8) the importance of all bidders to understand that this
network needs to be built to public safety standards.
Though other issues remain, in my experience these
questions can, and should, be resolved relatively quickly in
further discussion between public safety and whoever wins the
auction to become the ``E Block'' licensee, which certainly may
not be Frontline.
The upcoming 700 MHz auction marks an historic moment. If
the FCC acts wisely, it can solve public safety's deadly
deficit in interoperable and broadband communications. I'd like
to commend Chairman Martin, of the FCC, and his fellow FCC
Commissioners, for their remarkable flexibility and foresight
in allowing our proposal to be heard in this late stage of the
DTV transition.
If the FCC adopts the right set of rules, then whichever
company wins the auction, Frontline or someone else, the FCC
can achieve, at no cost to taxpayers, the interoperable
broadband network that public safety desperately needs. And, I
submit to you, will never be built if we don't do it this way,
because most states and local governments will find other
things to do with the money. It's no accident that Washington,
D.C. and New York City are the leaders in building these
networks. They're the only ones doing it right now. They also
happen, coincidentally, to be the two cities hit by 9/11. They
fear the clear and present danger, which is what generally
causes people to get off the tax bases and fund these things.
The upcoming auction also has tremendous potential to
foster competition and innovation in the broadband and wireless
market, another thing desperately needed, as identified in this
morning's Wall Street Journal right-hand major piece on why our
current wireless system thwarts innovation and other uses for
this vital national asset, why we're behind the rest of the
world in these things.
The truth is that the wireless industry is rapidly
consolidating. The choice before the FCC is whether it should
take all the spectrum being freed up by the DTV transition and
hand it to the incumbents, who have every incentive to simply
warehouse their spectrum, or whether it should take small part
of it--we propose just 10 MHz--and use that spectrum to help
public safety and also create a vitally needed platform for
innovation and competition.
The Commission can go a long way to lower the significant
barriers to competition and innovation in wireless
communications by designing the commercial side of the shared
``E Block'' network for open access. That's what The Wall
Street Journal is talking about today. A shared network, the
Frontline proposal, would be open to all handsets and devices
that do no harm to the network, the exact argument given in the
Carterfone decision 40 years ago, to any kind of customer, from
established retail providers to startups to device
manufacturers to end-users, and to any of the kind of lawful
content, whether streaming video, Voice over Internet Protocol,
or the next big thing. The current wireless situation is not
good for consumers, it's not good for innovators or the hope of
creating a third pipe to the home.
The FCC can adopt a modest proposal, on just 10 MHz, that
will fundamentally change the current static environment in
which America lags the world on wireless development and
innovation. Who benefits from this requirement? The short
answer: everybody. This requirement means that regional and
rural wireless carriers and telephone companies eager to
improve coverage in broadband for their customers will at last
have a nationwide provider.
In conclusion, we are long past the time to talk about what
might happen, or should happen, or is going to happen for
public safety. Any serious proposal must address how this
costly network will be funded and built without relying on
government funds which are not forthcoming, as was the case in
Oregon, just mentioned.
Frontline's plan is the only proposal to provide a clear
funding mechanism that capitalizes on this crucial opportunity
by incorporating a public/private partnership for public safety
into the 700 MHz auction.
Thank you all very much, and I'll look forward to your
questions.
[The prepared statement of Mr. Barksdale follows:]
Prepared Statement of James L. Barksdale, Partner,
Frontline Wireless, LLC
I. Introduction and Summary
Chairman Inouye, Vice Chairman Stevens, and distinguished Members
of the Committee, thank you for the opportunity to address the vital
issue of public safety communications and how the upcoming radio
spectrum auction can solve this life-threatening problem. I am a
Partner in Frontline Wireless, LLC, which was founded by Haynes Griffin
(CEO), Janice Obuchowski (Chairman), and Reed Hundt (Vice Chairman). I
am pleased that Ram Shriram, who worked with me at Netscape and is now
on Google's board, John Doerr, an accomplished Silicon Valley investor
whose vision helped make companies like Netscape a reality, and Mark
Fowler, Chairman of the FCC during the Reagan Administration, also have
joined me as partners in Frontline. Together, we believe the upcoming
700 megahertz auction presents a once-in-a-generation opportunity for
building a nationwide, interoperable public safety network while also
enhancing competition and innovation in wireless broadband. Haynes
Griffin and I were there in the early days of cellular and we both know
how to make wireless ventures work. I've known former FCC Chairman Reed
Hundt for over fifteen years and most recently co-chaired with him a
study group on the future of public broadcasting for PBS. And I'm
delighted to be teamed up with Janice Obuchowski, who has played an
important role in tackling public safety's needs as former head of the
NTIA and U.S. Ambassador to the World Radiocommunication Conference.
We as a Nation are coming to the end of a long road on the
transition to digital television (``DTV''). This Committee has taken a
leadership role in pushing our country forward to use the precious
radio spectrum freed up by the DTV transition more efficiently, and to
make that spectrum available for commercial and public safety use. The
good news is that now some 60 megahertz of that spectrum can be used to
address the vital needs of our country.
I am here today out of frustration, and out of hope. The
frustration comes from the fact that 6 years after 9/11 and nearly 2
years after Hurricane Katrina, we are no closer to giving our brave
first responders the basic communications tools they need to save lives
and respond to disasters. In the wake of Katrina, I was honored to
serve as Chair of Governor Haley Barbour's Commission on Recovery,
Rebuilding and Renewal in Mississippi. Through a series of town hall
meetings and conferences with government officials immediately in the
wake of Katrina, our recovery commission developed a comprehensive list
of recommendations for rebuilding the Gulf Coast and better preparing
for future hurricanes in that region. My role on the commission exposed
me to the shared frustration among police officers, firefighters and
search and rescue teams who were forced to resort to using human
runners in order to coordinate an emergency response to the largest
natural disaster in our Nation's history. This frustration runs deep
because it was the same problem--the same problem!--that the Nation
witnessed in the wake of the 9/11 disaster.
The hope comes because we as a Nation have a tremendous opportunity
to solve public safety's needs for a truly interoperable network. The
hope comes because for the first time there is a concrete proposal to
finance a nationwide, interoperable, broadband network that does not
require legislation, does not require a $30 billion appropriation from
the Federal or state government, and does not delay the important 700
megahertz auction. The hope comes from the fact that by working
together--the public and private sectors--can solve the problem of
public safety interoperability.
After months of careful planning with leaders in the public safety
community, I am pleased to tell this Committee that while we have not
completely agreed on all details of how the Frontline wireless business
can serve public safety, we agree on many of the essential features. I
want to give you a real time update on what Frontline has discussed
with representatives of the public safety community, which is a
heterogeneous group of hundreds of different local and regional police,
fire departments and other first responders. Working with their
representatives and after spending hundreds of hours in meetings all
around the country, we have a Plan that includes the features most
important to that community, namely:
1. in addition to the 24 megahertz of spectrum already set
aside for public safety, a sixth of the spectrum that will be
sold for commercial use at auction will be designated as an E
Block for both emergency and commercial service;
2. the E Block will go to the highest bidder for that block of
spectrum;
3. the FCC should create a national public safety licensee
(``NPSL'') to make various decisions on behalf of the larger
public safety community, including negotiation of a design and
spectrum sharing agreement with the E Block licensee;
4. the license to use the E Block for commercial purposes will
carry certain conditions subsequent that must be performed in
an orderly fashion, including the duty to reach an agreement
with the NPSL about the design of the network so that it will
meet the specifications of the public safety community;
5. in order to assure that the private sector builds for free a
network that can serve public safety all across the country,
the E Block license will carry the obligation to build a
network that covers at least 99 percent of the U.S. population;
6. public safety will participate in the design and operation
of the network that will provide service across the E Block and
the public safety spectrum;
7. local public safety agencies will have the right to build
interim public safety systems while the national shared network
is being constructed;
8. only the E Block licensee will have the duty to negotiate
with the NPSL as to the terms discussed above;
9. the NPSL will be free to decide whether it wants to work
with the E Block licensee or seek out a different spectrum
licensee or some other firm that lacks spectrum; and
10. the network for the public safety should be interoperable
at the choice of public safety--if public safety users want to
connect to each other through this single national network they
can. For example, if different units need to work together to
respond to a crisis across jurisdictions, they can use the
Frontline network to communicate vital information to each
other in real time with high speed connectivity.
We have not agreed on certain other provisions. For instance,
Frontline does not believe that the FCC can delegate the selection of
the auction winner to an outside party, as would happen if the FCC gave
the right to the NPSL to veto issuance of the E Block license to the
highest bidder in the auction. The E Block licensee should be bound by
an FCC arbitration of any disputes arising from the negotiation of the
network sharing agreement, and to charge the arbitrator with the duty
to determine what is commercially and technically reasonable. While in
my experience all these issues can and should be resolved relatively
quickly in the negotiations between the NPSL and the E Block licensee,
the help of this Committee, other Members of Congress and the FCC may
well be helpful in achieving such resolution. Furthermore, some issues
can well be resolved after the Commission reaches its conclusion on the
service rules later this month.
Overall, the good news is that Frontline and the public safety
community appear to have reached a consensus that a public/private
partnership should be part of the 700 megahertz auction. We also note
with pleasure that the consensus is reflected in a recent resolution of
the Southern Governors' Association, which urged the FCC to ``apply
specific public safety requirements to at least 10 MHz of the spectrum
currently scheduled to be auctioned.'' The State of Hawaii has perhaps
stated it best: ``the Frontline proposal seems to be an excellent
compromise between various proposals for Commercial/Public Safety
sharing of broadband resources.''
The upcoming 700 megahertz auction marks an historic moment. If the
FCC acts wisely, it can solve public safety's deadly deficit in
interoperable and broadband communications. If it adopts the right set
of rules, it can achieve, at no cost to taxpayers, the interoperable
broadband network that has yet to be delivered after 9/11 and after
Katrina. Think about it: fire fighters rushing into a burning building
could access a video feed of the inside and share that with the rescue
squad as they plan how to save lives--without worrying if their
wireless devices were compatible. The FCC also can use this historic
opportunity to infuse the broadband market with a much-needed dose of
competition. This hope of finally addressing public safety's needs will
not be met, in my opinion, if the FCC simply decides to turn this
spectrum over to the national incumbent carriers, who have shown little
desire to respond to public safety's dire needs.
Working with the public safety community, high-tech companies and
public interest organizations, Frontline has put before the FCC a
proposal that would require the winner of one slice of the upcoming 700
MHz auction to build a network that would serve public safety's needs
as well as its commercial customers. If the FCC adopts this proposal,
whichever company--whether Frontline or someone else--wins this
spectrum, it will build for free a nationwide, interoperable broadband
network designed to serve public safety while covering an unprecedented
99 percent of Americans.
The proposal is made economically viable because, outside of
critical emergencies, the winning bidder of the E Block will be able to
make efficient use of unused capacity on the public safety spectrum.
But when an emergency results in high-capacity demands by public safety
officials, they will get immediate access to additional spectrum on the
commercial system. Before running Netscape, I was President and COO of
McCaw Cellular, and built that system into a nationwide network before
selling it to AT&T. I know what it takes to build and operate a network
that meets customers' needs. The Frontline Plan represents the best in
public/private partnerships. It uses the private sector to solve a
crucial public need while generating the revenues necessary to attract
private capital.
The 700 MHz auction also has tremendous potential to foster
competition and innovation in the broadband and wireless market, which
is rapidly consolidating. The choice before the Commission is whether
it should take all the spectrum being freed-up by the DTV transition
and turn it over to the major incumbents, who have every incentive to
simply warehouse their spectrum; or whether it should take a small part
of it--we propose just 10 MHz--and use that spectrum to help public
safety and create a vitally needed platform for innovation and
competition. The Commission can go a long way to lower the significant
barriers to competition and innovation in wireless communications by
designating the commercial side of the shared E Block network for sale
of services to all comers on what is effectively a common carrier
basis. We propose, and have asked the FCC to require, the E Block
licensee to build a new network with advanced fourth generation
capabilities and to sell this network capacity on an open basis. To me,
``open'' means the following:
open to all customers, whether end-users, device makers, or
other service providers;
open to all communications protocols to the degree
technically feasible, and with our software-defined radio plans
Frontline intends to advance the limits of technical
feasibility beyond anything seen to date in America;
open to all lawful content, meaning we will not discriminate
against music or software just because we do not own or control
it;
open to as many combinations of spectrum as are technically
and commercially reasonable, meaning that our customers can use
Frontline spectrum as well as any spectrum they may own, just
as public safety will we hope agree to use its spectrum in
conjunction with us.
Although the E Block represents only one-sixth of the spectrum to
be auctioned, it will create a nationwide broadband license holder
fully motivated to sell wireless network services to, among others: (a)
regional wireless providers until now prevented from offering a
nationwide service, (b) rural wireline providers seeking efficient ways
to deliver to their customers the same high-speed broadband options
available in urban and suburban communities, (c) public utility
companies in need of secure and robust wireless communications, (d)
companies needing additional capacity to offer a ``third pipe'' into
the home, and (e) manufacturers of new mobile devices. This business
approach overcomes the rational but unhealthy incentive of today's
vertically integrated wireless incumbents to refuse such access
whenever it could compete with their own (or their wireline
affiliates') myriad retail offerings. This point is developed further
in the attached white paper by our distinguished economists from
Stanford University.
This Committee should encourage the FCC to take the right steps to
put America on a new path, one that delivers to public safety an
interoperable network and to consumers multiple choices for broadband
service. The large wireless incumbents with an economic interest in the
status quo are loudly stating that public safety ``has enough
spectrum.'' That is not true. As our experience during 9/11 and
Hurricane Katrina clearly demonstrated, public safety needs more
spectrum in times of emergencies, and even Sprint Nextel, a national
wireless carrier, stated that in testimony last month. I firmly agree
with the Hawaii Firefighters Association, which has supported the
essential elements of the Frontline Plan, when they told the Commission
that ``[t]hose who would rather keep the entire 700 MHz block for their
own corporate interests are not focused on doing what is right for
public safety.''
It is completely unrealistic to expect, as the incumbents seem to,
that public money will pay for a nationwide build-out. Verizon, for
example, has stated again and again that the ``majority of funds'' for
a multibillion dollar public safety broadband network--estimated to be
in the range of $15 billion--must ``come from public sources.'' That is
not going to happen. It did not happen after 9/11, nor after Katrina,
and it is not going to happen now. You know that. Public safety knows
that. And we know that.
Even worse, Verizon and others who expect taxpayers to pony up for
this build-out miss the key point about taxpayer funds. Taxpayers pay
taxes locally, and to their states and at the Federal level. Wherever
taxed, they have to support public safety services. The Federal
Government can provide a great boon to taxpayers everywhere by
requiring the E Block licensee to build-out for public safety's benefit
by using its commercial business to fund that network. Then, taxpayers
will know that their funds for public safety can go to hiring more cops
on the beat, more fire engines, better equipment for first responders,
and choice of any devices for first responders, because the shared
network will be open to any and all equipment. Taxpayers will know
their money was not wasted, as Verizon suggests, on funding a $64
billion network that Frontline was willing to build at no cost to the
taxpayer.
This national, interoperable network will serve a diverse group of
public safety users, including local fire and police departments,
county sheriffs, emergency managers, highway patrol, and
municipalities. After building a new wireless broadband network
according to specifications agreed upon by the NPSL, the new E Block
network would be available to each and every public safety entity
across the country. Verizon and AT&T, in contrast, do not propose to
build anything new or even negotiate with public safety about
redesigning commercial networks to make them feasible for public safety
use.
Another area of great importance to public safety is the scope of
coverage. The Washington, D.C. area is fortunate enough to be able to
afford an interoperable system. The same is true for New York City and
parts of Mississippi. But this is a big country, and you well know that
those build-outs simply will not happen in all parts of West Virginia
or South Carolina or Minnesota or North Dakota or almost any other
state in the country. The large national carriers tell public safety
they should just rely on the wireless retail carriers' spotty
commercial networks. In fact, they have not announced any plans to use
the 700 MHz spectrum to expand the coverage or reliability of those
networks to serve public safety's higher standards. Verizon has told
the Commission that if it adopts any coverage requirements (and
Verizon, of course, opposes any requirement to make productive use of a
700 MHz license), the FCC should let carriers leave 25 percent of the
public without coverage. Which one-fourth of America would they leave
behind?
We are long past the time to talk about what might happen or should
happen for public safety. Any serious proposal must address how this
costly network will be funded and built without relying on government
funds. Frontline's plan is the only proposal to provide a clear funding
mechanism that capitalizes on this crucial opportunity by incorporating
a public/private partnership for public safety into the 700 megahertz
auction.
II. We Must Fix Our Failing Public Safety Communications Systems
This Committee has rightly recognized that the public safety
communications systems in this country have reached the point of
crisis. As Chairman Inouye recently urged, ``Congress must act quickly
to give our first responders the tools they need to effectively do
their jobs.'' \1\ Frontline agrees with the Chairman that we owe our
first responders nothing less than the most modern, most reliable, most
interoperable, and most flexible communications system available.
---------------------------------------------------------------------------
\1\ Press Release, Chairmen Inouye and Stevens Introduce Measure to
Improve Emergency Communications, Jan. 24, 2007 (quoting Chairman
Inouye).
---------------------------------------------------------------------------
We have seen the results of communications failures all too
clearly, most notably on September 11. Thomas Kean, Co-Chair of the 9/
11 Commission, has stated bluntly, ``On September 11, people died
because police officers couldn't talk to firemen.'' The 9/11 Commission
Report elaborated, providing examples of how the lack of interoperable
radio frequencies between police and fire department officials hindered
evacuation efforts:
At 9:00, the [police department] commanding officer of the
World Trade Center ordered an evacuation of all civilians in
the World Trade Center complex. . . . This order was given over
World Trade Center police radio channel W, which could not be
heard by the deputy fire safety director in the South Tower.
As we now know, the South Tower collapsed an hour after this
unheard evacuation order was issued.
Four years later, the failures of our public safety communications
networks were again on display during Hurricanes Katrina and Rita. Even
though our first responders once again showed selfless courage and
determination, the communications systems they relied upon failed both
them and the public. It is clear that Vice Chairman Stevens was right
when he commented shortly after those disasters that they ``have shown
that many first responders just cannot talk with one another because
their radios and communications networks have been inoperable.'' \2\ An
independent panel appointed by the FCC also documented some of the more
disturbing examples of these communications breakdowns:
---------------------------------------------------------------------------
\2\ Hearing on Interoperability, 109th Cong. (2005) (Statement of
Senator Stevens).
[C]ommunications between the military and first responders also
appeared to suffer from lack of interoperability. In some
cases, the military was reduced to using human runners to
physically carry messages between deployed units and first
responders. In another case, a military helicopter had to drop
a message in a bottle to warn first responders about a
---------------------------------------------------------------------------
dangerous gas leak.
While we have made important progress in some areas, the truth is
that our public safety communications systems--and thus the American
public--will remain highly vulnerable as long as the networks continue
to rely on yesterday's technology. As the Washington State Council of
Firefighters told the FCC earlier this month: ``We do not have
sufficient spectrum and we do not have operable communications, let
alone interoperable communications. As a Nation we have stood by for
too long as our communications system time and again failed our
Nation's first responders.'' This is unacceptable. The patience of
Congress and the American public is wearing thin. The time has come to
ensure that the public safety community has the 21st century
communications systems it needs and deserves. This can happen if the
FCC, with encouragement from Congress, designs the upcoming 700 MHz
auction to ensure the creation of a nationwide, interoperable broadband
network, as proposed by Frontline.
III. The Frontline Plan Provides the Answer--a Nationwide,
Interoperable Network Built and Paid for by a Robust Public-
Private Partnership
Public safety officials have clearly stated what they need to cure
these communications deficiencies: a nationwide, interoperable network.
This type of network--with the reliable, secure, diverse capabilities
it enables--is the single best way to improve and modernize public
safety communications systems. For this reason, the FCC recently
designated half of the public safety spectrum set aside by Congress in
the 700 MHz band for broadband use, which is key to IP-based
interoperability. Interoperability means that persons from different
parts of the public safety community can talk or exchange information
with one another. But a rule that the network, if built, shall be
nationwide and interoperable is only the first step. As I said at the
outset, I am pleased to report to the Committee on the substantial
areas of common ground that we have with public safety going into the
700 MHz auction. Thus, the Frontline Plan proposes service and auction
rules to ensure that: (1) the public/private partnership will construct
the public safety nationwide network with private sector capital, (2)
the public safety network will have access to additional spectrum in
times of emergency, (3) the network will be built to standards for
coverage, security and local control that are worked out with public
safety, and (4) public safety will maintain control over the spectrum
allocated to it by Congress.
A. Funding a Multibillion Dollar Network
The reality public safety confronts is that a nationwide broadband
network will be costly to construct, and the funds must be generated
up-front. These up-front costs could easily exceed $15 billion. Thus,
while the laudable appropriation of $1 billion from auction proceeds
will improve public safety communications for many agencies, it cannot
be relied upon to construct the nationwide network that will be key to
solving the interoperability crisis. Given the obstacles that this
Committee faced (and overcame) simply in making that $1 billion
appropriation a reality, it would be unrealistic to expect an
appropriation of 15 times that amount in the near future. Nor should
Congress be expected to do so when a public/private partnership can
deliver the same or better results.
Accordingly, Frontline's Plan proposes auction and service rules to
ensure that the E Block licensee will fund the build-out of public
safety's nationwide, interoperable broadband network--built to a public
safety grade of service--at no upfront cost to public safety or
taxpayers. That is, the Frontline Plan would require the winning bidder
of the E Block, whoever that may be, to build out a network for the
public safety community and make commercial spectrum available to
public safety in times of emergency. In return, the winning bidder
would have preemptible access to the network capacity operating over
the unused public safety spectrum, providing it with additional
revenues to recoup its investment in the public safety network. There
is nothing novel, let alone problematic, about the Commission's
requiring the E Block licensee to use the public's spectrum resource to
the public's interest. The FCC, as required by Congress, routinely does
so for satellite and broadcast licenses. Indeed, Congress and the FCC
have often required private license holders to assist public safety by,
for example, imposing emergency warning system requirements on
broadcasters and 9-1-1 requirements on cellular systems.
Thus, Frontline's Plan maximizes use of spectrum for public safety
and commercial uses, makes available extra spectrum in emergency
situations, and builds the network for free in state-of-the-art, 4G,
IP-level configuration. If the FCC takes the right step and adopts the
Frontline Plan, it will solve public safety's funding problem by
ensuring that the broadband network infrastructure is built with
private capital with public safety only paying for service. It will
relieve public safety agencies of both the construction costs and the
time-consuming and difficult task of securing investment.
Considering the crucial importance of a broadband public safety
network and the lack of sufficient funding in the public sector,
Congress and the FCC must disregard calls by the incumbent retail
carriers to wait for massive government grants. AT&T, for example,
argues that because a select few large cities have built broadband
networks, every other town and county can be left to sink or swim on
its own--ignoring the lack of sufficient financial resources that many
communities face. As the Association for Public-Safety Communications
Officials (``APCO'') explained in roundly denouncing such hollow
arguments:
APCO rejects suggestions by some in the wireless industry that
public safety's broadband needs can be addressed within current
public safety spectrum and that there is no need for
conditional auctions. What these and other parties ignore is
that public safety alone cannot afford to build a broadband
network.
In addition to suggesting that the Federal Government fund the
creation of the public safety network, Verizon and AT&T have also
advocated a ``go it alone'' approach for public safety that relies upon
a hope that some retail party may some day decide to create the network
if the price is right. In other words, Verizon and AT&T would ``help''
public safety if the U.S. Government paid them $15 billion to do so.
Congress and the FCC have before them the one and only opportunity to
bring about a newly built fourth-generation network on spectrum
adjacent to public safety's spectrum. Relying on incumbents to use
existing retail networks to provide public safety with the necessary
services would leave public safety with old technology on commercial
grade networks. Only a new entrant has the incentive to build a public-
safety grade network, and only a new network can offer these fourth-
generation services, not only to consumers but also to public safety.
B. Access to Sufficient Spectrum in Times of Emergency
Public safety must have access to sufficient spectrum for emergency
operations, when a public safety network is most necessary and its
communications resources most tested. While Congress provided the
foundational block of spectrum for public safety 10 years ago, the half
of that block that can be dedicated to broadband use--10 MHz exclusive
of guard bands--is not sufficient to sustain a nationwide broadband
network. As the National Public Safety Telecommunications Council
(``NPSTC'') has noted, ``assertions that public safety has adequate
spectrum are insulated from the reality facing the Nation's emergency
services.'' \3\ The State of California echoed this finding and stated
that it does not believe this to be ``an adequate amount of spectrum to
handle the expected load.'' \4\
---------------------------------------------------------------------------
\3\ Reply Comments of NPSTC, Implementing a Nationwide, Broadband,
Interoperable Public Safety Network in the 700 MHz Band, PS Docket No.
06-229, at 3 (Mar. 12, 2007) (``NPSTC Reply Comments'').
\4\ Comments of the State of California, Implementing a Nationwide,
Broadband, Interoperable Public Safety Network in the 700 MHz Band, PS
Docket No. 06-229, at 2 (Feb. 26, 2007).
---------------------------------------------------------------------------
Frontline's Plan addresses the clear need for additional spectrum
by more than doubling the amount of peak broadband spectrum capacity
available to public safety communications under emergency
circumstances. It does so by requiring the adjacent, commercial E Block
licensee to provide priority access to public safety broadband
operations on its own commercial spectrum during emergencies.
Consequently, under Frontline's Plan, not only would public safety
services have the highest priority access to network capacity operating
on the 10 MHz of broadband spectrum allocated to public safety, but
when necessary it also would have priority access to the E Block's
additional 10 MHz or more of network service capacity. This network
capacity will save lives in times of emergency by allowing police,
firefighters and other public safety officials and agencies to
effectively communicate with one another whether the interoperable
communication occurs within the same small town or from Hawaii to
Massachusetts.
Although public safety must have access to far more than 10 MHz
during emergencies, it will not fully use its own allocated spectrum
day-in and day-out and all hours of the day. Thus, Frontline's Plan
also makes the most efficient use of spectrum in non-emergency times by
allowing the E Block commercial licensee to sell valuable network
capacity over the unused public safety spectrum. As the FCC has
recognized, commercial use of public safety spectrum on a secondary
basis is a viable option. This secondary commercial access will in no
way disrupt public safety services, which will always have automatic,
instantaneous and unquestioned priority over commercial users with
respect to the full capacity of the 20 MHz or more shared network. The
beauty of an IP-based network is that such prioritization occurs
without ``kicking off'' the commercial users, as occurs today in the
cellular and PCS Wireless Priority Service. Instead, when there is
congestion, the public safety traffic is prioritized, and simply moves
to the head of the line and is delivered to its destination prior to
the commercial traffic. At its simplest level, this is like an
emergency lane for a fire truck. Meanwhile, commercial traffic is not
barred. It is just not given priority. Public safety emergency calls
will always get through, and commercial users may have to wait their
turn. The same thing happens when cars are obliged to pull over to let
an ambulance through on a busy street.
Notably, the parties that have opposed the auction and service
rules proposed by Frontline have themselves failed to propose
alternatives for solving public safety's spectrum shortfall--just as
they have failed to address its funding shortfall, as described above.
Throughout the course of this proceeding, the largest retail carriers
have maintained that public safety ``has enough'' spectrum and the
Commission should ignore public safety's need for more. Indeed, despite
clear evidence to the contrary that has been presented by leaders in
the public safety community, as recently as last week AT&T told the FCC
that ``additional spectrum is not needed by public safety at this
time.'' Public safety and Frontline both strongly disagree. Frontline's
Plan remains the only viable solution to the capacity crunch faced by
public safety.
C. Building to Public Safety Grade Coverage
The public safety community has made clear that a commercial grade
network, built merely to serve population centers and immediately
surrounding areas, will fall far short of public safety standards.
NPSTC stated that ``public safety needs a reliable system that has the
best possible coverage. It is not enough to have coverage that merely
mirrors traditional cellular coverage.'' \5\ Based on the needs
expressed by public safety, Frontline's proposed rules would require
that the nationwide, interoperable, broadband network be built to cover
99 percent of the population within 10 years, with interim milestones
of 75 percent of the population within 4 years and 95 percent within 7
years. Frontline's proposal for a very high, population-based coverage
requirement serves the essential goal of a public safety network in not
merely reaching population centers, but also more sparsely populated
areas. Emergencies can and do occur in outlying towns and rural areas,
just as they do in urban centers.
---------------------------------------------------------------------------
\5\ NPSTC Reply Comments at 12.
---------------------------------------------------------------------------
In contrast, the entrenched retail carriers, reflecting their
equally entrenched business plans that leave little room for innovative
public/private partnerships, have steadfastly opposed any buildout
requirement for the E Block or, for that matter, other 700 MHz
spectrum. Verizon begrudgingly has stated that if the FCC imposes a
buildout requirement, there should be a carveout of at least twenty-
five percent of the population that the licensee could leave completely
without service. Such proposals should highlight to this Committee the
danger of leaving the future of public safety communications in the
hands of the retail incumbents.
D. Preserving Public Safety's Control Over the Spectrum Allocated to It
The Frontline Plan also provides for the public safety community's
full and meaningful participation in administering the nationwide
shared public safety network through the NPSL. Relatedly, it guarantees
that public safety will maintain control over the spectrum allocated to
it by Congress.
Frontline strongly agrees with leading public safety advocates that
the public safety community agree upon and publish a ``Statement of
Requirements'' as soon as possible, and hopefully within 30 days after
the FCC's decision on the service rules. This Statement of Requirements
would spell out key service requirements such as performance objectives
that would inform the architecture of the shared public/private network
while leaving details such as specific technology and service decisions
to a later network sharing agreement. Issuance of the Statement of
Requirements will ensure that all bidders for the E Block license will
be fully aware of public safety's needs prior to bidding on the
spectrum. Frontline has also encouraged the FCC to incorporate as many
of these requirements into the final rules as appropriate with enough
lead time for bidders to take them into account. This also will help to
prevent disputes after the auction. Furthermore the E Block licensee
should begin to negotiate the details of the network sharing
arrangement as soon as the auction is over, and aim to resolve that
negotiation with the NPSL within 6 months at most. In the unlikely
event negotiation was not successful, the E Block licensee would be
bound by an arbitrator's conclusion as to what is a commercially and
technically reasonable network design.
The FCC will not be able to adopt rules that address all potential
facets of the shared public/private network relationship, since some
details will need to be worked out by the NPSL and the winning E Block
bidder after the auction is concluded. The resulting network sharing
agreement will determine the design and features of the shared network
between the E Block licensee and the NPSL.
IV. The E Block Network's Commercial Capacity Should Be Made Available
to All Carriers and Network Users to Create a Platform for
Competition and Innovation
At the same time that it makes Americans safer by improving public
safety communications, the plan which Frontline and its supporters have
put before the FCC will give new and existing smaller wireless
companies a future in the increasingly consolidated wireless and
broadband markets. The telecommunications marketplace has shown us that
when markets are competitive, American consumers win. But the truth is
that the wireless industry is not nearly as competitive as it was a few
years ago, and as a consequence the two largest national carriers are
discouraging innovation by high-tech entrepreneurs. Apple's iPhone is
going on sale later this month, but if Steve Jobs wanted to reach
critical mass of the population he really could only call two people to
offer his phone, the head of Verizon or the head of AT&T, which control
access to more than half of the market. We think that the innovators of
new devices should be able to ask more than two people before launching
an exciting new product. In fact, in an ideal world, they should have
to call no one. That is the way it has worked on the telephone network
for thirty years, and that system works well. All we're saying is that
the FCC should dedicate a small part of the spectrum, the E Block, for
a network to be offered to all innovators and competitors. Such a
policy ensures that the wireless industry remains entrepreneurial and
open to innovation by Silicon Valley and other high-tech companies. It
also ensures that companies serving rural America will have at last a
provider of network capacity eager and willing to offer service to
enable these smaller carriers to offer their customers nationwide
roaming.
Verizon and AT&T, as rational incumbents, presumably want to buy
the E Block and all the other spectrum to be sold in this last auction
and then warehouse it. While that makes sense for them, it doesn't make
sense for public safety or for the American people. The shared network
that Frontline proposes will be open to competition and innovation in
all the following ways:
Open to all handsets and devices that do not harm the
network;
Open to any kind of customer, from established retail
providers to startups to device manufacturers to end-users;
Open to any kind of lawful content, whether streaming video,
VoIP, or the next big thing;
Open to be used as a complement to any other network,
regardless of communications protocols to the degree
technically and commercially reasonable, especially including
other 700 MHz networks.
The benefits of such openness will be many, but most notably will
come in: (a) the lowering of barriers to entry in the wireless market;
(b) a loosening of the tight controls that the wireless incumbents have
held over the ability of online innovators to make new content and
services available to consumers through wireless devices; and (c) a
nationwide roaming provider for regional and rural wireless carriers
eager to improve coverage for their consumers.
Lowering of Barriers to Entry. The primary goal of Frontline's
proposed commercial service rules is to promote competition by reducing
barriers in the wireless market. With a facilities-based provider open
to all kinds of customers, both new and existing retail providers will
be freed from the often prohibitive costs of purchasing low-frequency
spectrum and constructing wireless networks. As a result, these
providers--currently under intense pressure to offer their customers
nationwide roaming capability--will be able to compete in their local
and regional markets against the huge national firms that have their
own national networks that enable them to offer national roaming to all
customers at no extra charge.
It bears mention that Sprint Nextel currently provides roaming and
other services to smaller carriers and so-called ``mobile virtual
network operators.'' But the two largest carriers insist that they do
not want to be obliged to provide roaming in the future to small local
and regional carriers. And frankly they are entitled not to use their
networks to enable their rivals to compete with them. We understand
that. But precisely because that is their economic incentive, the FCC
needs to address the problem of competition by requiring the E Block
licensee to sell service to any and all buyers.
Notably, parties who routinely struggle with such formidable
barriers of entry have endorsed such openness for the E Block. A group
of mid-sized wireline carriers consisting of Embarq, CenturyTel, and
Citizens/Frontier--which each have a significant presence in rural
communities--specifically described to the Commission the prohibitive
costs of network build-out: ``Broadband deployment in rural areas is
costly, in significant measure because of the challenges caused by low
population densities, which make it difficult to aggregate the customer
demand needed to justify large network investments.'' These companies
added that there are no network operators who simply sell network
services and do not choose to compete with their customers.
These comments from mid-size and rural telephone companies
demonstrate in concrete detail how and why a network that offers
service to all parties can translate into greater broadband deployment,
particularly in rural areas. In these areas, it is often economically
irrational for providers to build state-of-the-art wireless broadband
facilities. (As discussed above, it is this same incentive that makes
existing retail networks poor options for public safety
communications.) As a result, rural buildout is stymied. Frontline's
service proposal provides a way around this economic reality by making
rural wireless service cost-effective for retail service providers.
The open service proposed for the E Block would also encourage and
rely on market-based forces, rather than command-and-control
regulation, to meet the concerns identified by companies like Embarq,
CenturyTel, and Citizens/Frontier. Instead of relying on universal
service support, Frontline's Plan addresses the critical problem of
rural broadband deployment with private sector solutions that do not
burden taxpayers. Further, a requirement that the E Block licensee sell
service to anyone, end-users or other companies, will create market-
based incentives to complement buildout requirements, which Frontline
supports.
Consumer choice. Frontline's proposed open service rules are also
intended to promote competition and innovation by ensuring that service
providers (e.g., content companies, applications providers) can freely
offer new wireless services to consumers without having to ask
permission from Verizon or AT&T.
Several high-tech innovators have confirmed the need for an open
service network and provide examples of the benefits that such a
network will bring to them and to the state of competition in the
broader broadband market. Google, for instance, outlined its critical
need for guaranteed access to its customers:
The greater challenge [Google faces] is . . . universal
accessibility. Like other Internet-based companies, Google
relies on the communications infrastructure provided by
underlying carriers in order to reach our ultimate end-users.
In particular, in the United States, the telephone companies
and cable companies control the only means of broadband access
to Google's customers.
I already mentioned another example, Apple's iPhone, which had to
go through the gates marked AT&T or Verizon if it wanted to bring its
exciting new product to market.
Objections to a network that may not act as a gatekeeper between
companies and consumers came, predictably, from those powerful
incumbents whose retail businesses have the most to lose from
competition and innovation. I want to highlight that this is a very
modest proposal. We are not proposing to impose this open service
requirement on all wireless providers. And we are not proposing to
impose this requirement retroactively on incumbents. Rather,
Frontline's open service proposal simply says on a prospective basis
that a fraction of the 700 MHz spectrum should be made available as a
platform for competition and innovation. We think that is a small
investment that will pay huge dividends for the future of our
information technology economy.
Roaming. This Committee has long demonstrated leadership in
bringing advanced telecommunications services to rural Americans, who
deserve access to the same advanced services as their counterparts in
urban centers. Frontline's proposed open service rules will further
these goals. By definition, a network making service available to any
buyer will serve as a nationwide roaming provider to regional and rural
wireless carriers. The emergence of such a roaming provider would
encourage wireless competition in rural areas by freeing existing
competitors from the need to construct facilities or purchase access
from entrenched national incumbents who offer competing retail
services.
Comments filed with the FCC in support of the Frontline Plan
confirm the need for competitive roaming arrangements. Cellular South,
for example, describes both the lack of existing competitive options
for mid-sized carriers and its causes and consequences:
Frontline's proposal would provide a much-needed broadband
roaming partner for small and regional wireless providers.
Today, small and regional carriers find it increasingly
difficult, if not outright impossible, to negotiate high-speed
data roaming agreements with national wireless providers. This
hurts the small carriers but, more importantly, it hurts the
rural consumer.
The open service requirement will not only help ensure widespread
and robust wireless service in rural areas, but will allow smaller and
mid-sized carriers to ``go national,'' and offer additional competitive
choices to American consumers. Without the ability to offer national
service, these carriers cannot provide a competitive alternative to
larger carriers' service.
* * * * * * *
Finally, in terms of who can bid on the E Block and thereby make
this open service available to the marketplace, it is important to
remember that when Congress adopted the law creating auctions in 1993,
this Committee recognized that it would be bad policy if the spectrum
simply went to large incumbents that have little incentive to innovate
and bring new technologies to market. The Committee required that the
FCC adopt policies to ensure that small businesses would have a chance
to participate in the auctions by giving them bidding credits if they
qualify. The FCC recently adopted rules that say these credits would
not be available to an entity that leases or resells more than fifty
percent of its bare spectrum capacity to entities. The E Block
licensee, however, will not be leasing or reselling spectrum. Instead,
it will be required to build facilities and construct a national
network over which it will offer services. It will operate thousands of
towers and radios and utilize this network as a facilities-based
provider. Because these build-out requirements will apply to any E
Block licensee (whether Frontline or anyone else), the leasing and
resale restrictions are not relevant and the FCC should so clarify.
Moreover, the licensee should sell network capacity to anyone including
end-users. Under these circumstances, an entity is acting as a small
business and, if it otherwise qualifies as a small business under the
FCC's rules, should get the bidding credit established by Congress.
V. The Frontline Plan Ensures That the Commercial Network Will Sustain
the Public Safety Network
AT&T and Verizon, in a naked effort to keep the E Block free of any
obligation to serve public safety, have tried to say that the FCC
should not adopt those obligations because the E Block licensee will
not succeed as a business. Well, making money, particularly with a
wireless business, happens to be a topic my partners and I know
something about, so I want to offer a few comments. Of course, like any
smart entrepreneur, we are keeping the details of our business model to
ourselves, but it has been tested by sophisticated investors and is
both viable and distinctive. The need for confidentiality is especially
important going into a highly competitive auction. And we are working
with Citigroup to arrange financing and additional investment as we
look toward the upcoming auction and construction of the network.
In general terms, I can say that we envision a wide range of
potential customers for E Block network services. Of course, we all
know that public safety and the related critical private sector
infrastructure segment is the most important group. But there are many
others on the commercial side, and in fact it is these commercial uses
that make the economics work for public safety. As any Wall Street
analyst or high-tech player can attest, mobile Internet is the next
growth frontier in the wireless industry and the potential is simply
enormous. Just as the Internet supplanted voice as the growth engine in
wireline telecommunications, the same will happen in wireless. At McCaw
Cellular, we recognized early on the demand for ubiquitous mobile
communications, and we built a multi-billion dollar business. At
Netscape we recognized early on the power of the Internet and we built
a multi-billion dollar business. Now I look to the future and see the
intersection of these two markets and I expect to be able to build
another multi-billion dollar business.
The U.S. wireless market now has over 230 million voice
subscribers, but only a small fraction of these have mobile Internet.
Over the next decade, many if not most (and perhaps even all) of the
people who now use cell phones will come to adopt mobile Internet. That
is a huge, disruptive and exciting market opportunity.
The business opportunity for the E Block winner will come from
device makers such as Apple that want to launch a new product. Imagine
going on vacation and using your camera--not a crude camera phone, but
an honest-to-goodness camera--to take pictures and immediately send
them to relatives through the air. You get the picture (so to speak).
So it's easy to see how one could sell network connectivity not only to
service providers but to device makers as well. Google could be a
customer, if they want to test a mobile broadband service in a region
of the country. Demand could come from a rural telephone company like
Embarq, who wants to offer broadband service in high-cost areas, and
``triple play'' mobility. It could come from Clearwire, who hopes to be
the ``third pipe'' into the home and needs a complementary coverage
network. It could come from smaller wireless carriers, like
Mississippi's own Cellular South, eager to deliver customers a truly
national service through roaming arrangements. Also, there are large
enterprise customers who would like to buy wide area, coverage-rich
connectivity. My former company FedEx comes to mind. What if FedEx
could track every package in real-time across the entire United States?
Not just at hubs or transaction points, but everywhere and for every
package? Now extrapolate to the entire logistics sector. This is
another big opportunity, and there are many more opportunities out
there for a company, like Frontline, willing to take advantage of them.
Demand for this service also could come directly from consumers, who do
not like the idea of being locked in long-term contracts with expensive
termination fees.
In short, I see this as an exciting business opportunity for
whatever company wins the E Block auction. That is why I think the E
Block auction will attract many bidders. It offers the chance of
becoming the wireless version of Level 3, which has built a strong
business offering network capacity to a range of buyers.
* * * * * * *
The FCC will soon auction what is perhaps the most important piece
of spectrum ever allocated by Congress, and it is expected to set the
rules for that auction in the next month. It will be decades before
such a large amount of versatile spectrum is auctioned again. Thus, it
is critical that the FCC use this historic opportunity to improve our
public safety communications systems and promote competition within the
market. In my opinion, it would be a mistake to construct an auction
that will solely serve the interests of the dominant national carriers.
When the next emergency strikes, our communications systems must be a
tool that saves lives rather than a source of confusion and tragedy.
This Committee has overcome multiple obstacles over the past decade
to bring the DTV transition to a successful conclusion so that our
Nation's first responders can make urgent changes to the way they
communicate. Now, all that remains between success and failure are a
few, critical last steps which the FCC must take to finish the job. To
make sure that happens, I respectfully urge the members of this
Committee make clear their expectation that the FCC adopt the following
elements for the upcoming 700 MHz auction:
Meet the urgent need for a nationwide, public safety
wireless broadband network by providing that the E Block
licensee must construct that network and design it to public
safety grade specifications.
Meet the needs of rural wireline carriers, smaller wireless
companies and online entrepreneurs to access low-frequency
networks by requiring the E Block licensee to offer network
services to commercial customers, including by offering roaming
to requesting carriers.
Promote competition and innovation by ensuring that the E
Block's network service is offered without unreasonable
discrimination against particular types of services,
applications, and content.
Clarify that the Designated Entity restrictions on lease or
resale of raw spectrum do not apply to the potential E Block
licensee given that it is required to construct its own
facilities and offer services upon them.
In these first years of the 21st Century, you and I have too many
times seen the devastating effects of communications failures. Given
the stakes involved, I and my partners at Frontline hope this Committee
will urge the Commission take the steps necessary to make this
Committee's vision for public safety communications a reality. I thank
you again for the opportunity to be here today.
______
Economic Comments on the Design of the 700 MHz Spectrum Auction
Peter Cramton, Andrzej Skrzypacz, and Robert Wilson \1\
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\1\ This paper was funded by Frontline Wireless, LLC. Curriculum
vitae of Andrzej Skrzypacz and Robert Wilson were attached to our
comments, ``Report of Andrzej Skrzypacz and Robert Wilson'' filed with
Comments of Frontline Wireless, 23 May 2007.
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11 June 2007
1 Introduction
Our previous submission in response to the Report and Order and
Further Notice of Proposed Rule Making (FCC 07-72, 27 April 2007)
presented economic analysis that supports Frontline's proposal that a
national license for the E Block of the 700 MHz band should mandate
open access. Open access means that
1. wholesale contracting is transparent and nondiscriminatory,
and
2. there is neither exclusion nor discrimination among devices
and communications that conform to the licensee's published
standards and operating protocols.
The motivation is straightforward. Extending to the wireless sphere
the huge gains to communication and commerce of the wireline Internet
will greatly benefit the American public. The creation of the Wireless
Internet requires an open network comparable to the wireline network
that has made the Internet so beneficial. The 700 MHz auction is the
Commission's main opportunity to give the public the full benefits of
wireless services from competitive providers of digital telephony,
Internet connections, and broadband.
This paper extends the economic analysis by addressing claims from
opponents of this open access proposal. We argue that the current state
of the wireless market, and the potential for improving consumer
welfare, justify the following conclusions:
Open access for the E Block is necessary and will improve
the efficiency of the auction outcome. Further, it is essential
to address open access in this proceeding. The open-access and
wholesale provisions for the E Block are narrowly-tailored
remedies and fully consistent with the Commission's goals.
There is an important market failure in auctions with
dominant incumbents. Auction rules that level the playing field
between incumbents and new entrants are necessary to assure
efficient assignment of the licenses. In particular, the
previous AWS auction of high-frequency spectrum was not
comparable to the upcoming 700 MHz auction of low-frequency
spectrum. If the AWS auction rules are used for the 700 MHz
auction then incumbents can block entry and consolidate their
dominant positions.
In the next section we justify these conclusions in the context of
our replies to others' comments.
2 Responses to Open Access Opponents' Claims
This section explains why the points listed in the Introduction are
true, contrary to claims made by some opponents of the open access
proposal. It also explains why opposition serves the narrow interests
of incumbents rather than the public welfare.
2.1 The open-access requirement on the E Block is necessary to obtain
an efficient auction outcome
As we explained in detail in our previous comments, the wireless
market is highly concentrated and on a path toward even greater
concentration that could eventually justify antitrust actions. Indeed,
the concentration level is well above levels that normally trigger
antitrust scrutiny in merger situations were it not for the FCC's pre-
emption of regulation in communication industries. Such concentration
can harm consumers in general, and it is especially noxious when
incumbent firms can stifle innovative entry straightforwardly in
auctions conducted by the FCC. Their exclusions of roaming and selected
devices and communications could be interpreted as vertical
foreclosure.
Two firms, Verizon and AT&T, now control much of the access to the
low-frequency spectrum in the 800 MHz range. Low-frequency spectrum is
necessary for low-cost nationwide coverage and robust service. It
allows these two firms to charge higher prices and yet have lower churn
rates and a higher share of new subscriptions. The financial interests
of these two companies are to exclude access by any provider of retail
wireless services that might capture market share by competing against
their own retail arms and dependent affiliates.
The Wireless Internet can be a source of great benefits to
customers. It will greatly improve the efficiency of the markets for
communications services, which is the most important policy goal of the
Commission. The benefits are likely to accrue mostly to consumers and
reduce incumbents' profits. Therefore, the Commission cannot
realistically hope that any incumbent will create the Wireless Internet
on its own initiative. Hence the Commission must act in the interest of
the consumers to designate the E Block for open access and to sell the
right to build and operate it to the highest bidder.
Consumer welfare has been enhanced by the introduction and
expansion of mobile wireless services. But the absolute level of
consumers' gain is not the appropriate metric--instead it should be
measured against the gain in consumer welfare that is possible. The
introduction of additional competition--competition engendered by an
open access E block--can accelerate and magnify the gains in consumer
welfare from wireless services. It is this opportunity that the
Commission risks missing were it to allow the incumbents to forestall
entry in the 700 MHz auction.
2.2 There is an important market failure in spectrum auctions with
dominant incumbents
Some opponents of open access argue that selling a license with no
restrictions to the highest bidder should result in the most efficient
assignment of the spectrum.\2\ Subject to various qualifiers, this view
can sometimes be a valid guide when all potential bidders are on equal
footing. But it is severely wrong when some bidders are new entrants
and some are incumbents motivated to protect their market shares.
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\2\ For example, see ``Comments of Verizon Wireless'' pages 51-53,
or ``Reply Comments of AT&T Inc.'' Section IV.
---------------------------------------------------------------------------
The reason is that entrants and incumbents have very different
motives. A new entrant's incentive is to maximize its profits from the
license alone, while an incumbent maximizes the sum of its profits from
the combination of its existing licenses and new licenses. When its
existing profits would be threatened by a new entrant, an incumbent is
willing to pay more for a new license to prevent competition than any
entrant would pay for the license.
To gain market share, an entrant prices services on its
newly acquired spectrum to undercut the incumbents' prices.
Customers benefit from this downward pressure on prices due to
increased competition. To gain further market share, a new
entrant also wants to offer technical innovations valued by
customers.
In contrast, an incumbent realizes that any competing
service offered on the new spectrum steals business from its
existing retail service plans. Hence it has muted incentives to
offer lower prices or new technologies that compete with its
existing offerings. To prevent losing business to new
competitors and being forced to reduce prices, an incumbent is
willing to pay a premium to acquire the spectrum--and the
larger its current market share, the larger is the premium it
is willing to pay. It is crucial to realize that under these
circumstances, even though an incumbent values winning the
license more than an entrant does, that additional valuation
does not represent true value added, but rather the incremental
value of thwarting competition from entrants.
This is why allowing bidders with large market shares to compete on
equal terms with entrants yields an allocation that is distorted away
from an efficient allocation. Equal competition among unequal bidders
is biased toward those with market shares to protect. The resulting
allocation is inefficient in that it displaces entrants who could
otherwise have invigorated competition and thus lowered prices to
consumers.
2.3 Auction rules that level the field between incumbents and new
entrants are necessary to assure the most efficient assignment
of licenses
To enable an efficient assignment of the new spectrum, the
Commission cannot take a hands-off approach to the design of the
service and auction rules. In the early spectrum auctions a spectrum
cap prevented each cellular duopolist from obtaining additional
licenses in its cellular regions. Comparable intervention is needed now
to prevent the current low-frequency carriers from capturing the 700
MHz spectrum to solidify their dominant positions. Because the spectrum
cap that the FCC established before the PCS auctions was removed, the
chief remaining instruments available now focus on exclusion of the 800
MHz licensees and/or bidding credits for small businesses. Measures of
this kind are necessary lest the 800 MHz duopoly is extended to the 700
MHz spectrum to fully and permanently consolidate their dominance. By
enabling entrants to compete effectively in the auction, bidding
credits for small businesses encourage an assignment of the licenses
that is more efficient and ultimately more beneficial to consumers.
This conclusion accords with the argument for restrictions on the E
Block license. Nondiscriminatory wholesale contracts for open access to
the E Block licensee's network level the field for regional licensees
and retailers who compete in retail markets with the retail arms of the
incumbents' nationwide vertically integrated proprietary networks.
2.4 It is important to create the Wireless Internet now, not in
separate proceedings after the auction
Some parties want the open access and Carterfone issues to be
addressed in other proceedings, and thus they argue that Commission
should not address them separately for this auction.\3\ We disagree: it
is essential to address open access and other provisions of the E Block
license in this proceeding.
---------------------------------------------------------------------------
\3\ For example, see ``Reply Comments of CTIA--The Wireless
Association'' (filed on 4 June 2007), Section V.
---------------------------------------------------------------------------
The Commission cannot readily impose open access on selected
licenses after the license assignment and the licenses' prices have
been previously determined by an auction process conducted without the
bidders' knowing the service rules that will ultimately prevail. A
decision before the auction allows the two business models (open-access
and proprietary vertically integrated networks) to compete in the
auction and subsequently to co-exist and compete for customers. It is
better policy to establish the licenses' specifications before the
auction, to allow firms competing in the auction to assess their
valuations without uncertainty about the future outcomes of additional
proceedings.
2.5 The AWS auction is not an appropriate analogy for the upcoming 700
MHz auction, and it did not perform as well as some commenters
argue
Dr. Hazlett in his paper ``Competition, Auction Receipts and
Economic Welfare'' submitted on behalf of Verizon in response to the
Notice states that the recent AWS auction attracted competitive bidding
and no anticompetitive behavior by the incumbents. His supposition that
there is an analogy between the AWS auction and the 700 MHz auction is
incorrect. The AWS auction allocated very different spectrum--high-
frequency spectrum that is not economical for development of a robust
nationwide network that could compete with the coverage of existing
networks in the 800 MHz band. The AWS auction did not allow any entrant
to challenge the position of AT&T and Verizon as the two leading firms
with the requisite low-frequency spectrum that is necessary for
developing nationwide products. Nor did it create a major threat to the
duopoly rents that they earn from their exclusive holds on licenses for
low-frequency spectrum.
The situation is very different in the upcoming auction of 700 MHz
spectrum. The 700 MHz auction is not ``just another auction''. It will
assign spectrum with physical properties greatly superior to the PCS
and AWS spectrum, and indeed, directly comparable to the incumbents'
800 MHz spectrum. The 700 MHz auction is a unique opportunity to
prevent entrenchment of the dominant positions of the current
incumbents. The FCC should ensure that new entrants have a chance to
pursue their business plans and that the ``incumbent bias'' of auctions
described in Section 2.2 does not yield an inefficient allocation of
this precious spectrum.
Moreover, the view that the AWS auction was a boon for competition
is not correct. In reality, the participation of one new entrant with a
nationwide strategy was hampered by the auction rules. The DBS bidders
dropped out of the auction when the total of the prices for nationwide
coverage by aggregating smaller blocks was evidently well below their
willingness to pay. We say this based on the DBS bidders' actual bids
for large regional licenses, which might also have reflected discounts
from their willingness to pay for nationwide coverage because of
exposure risk (as we explained in our previous filing). It is
impossible to say whether the DBS bidders would have been successful
with different auction rules, but one can say that the AWS auction
rules frustrated the participation of this potential nationwide
entrant.
Given that vastly more is at stake for AT&T and Verizon in the
auction of the 700 MHz spectrum, it is clear that if the Commission
does not level the playing field then these two firms will have both
incentive and ability to discourage new competition in wireless markets
at the national level.
2.6 The open access provisions for the E Block are narrowly tailored
remedies, fully consistent with the Commission's goals
Some parties before the Commission argue that the open-access
provisions are heavy-handed regulation and contrary to the Commission's
goals. We disagree with both parts of this statement. Rather than being
heavy-handed, the proposal asks for a modest restriction on a single 10
MHz block out of the 78 MHz of spectrum licensed for commercial use in
the 700 MHz band and no restrictions on the other low-frequency CMRS
spectrum. This restriction is no more than minimally necessary to
assure open access on nondiscriminatory terms. Without it America will
likely never see open access.
Any decision the Commission makes about the service and auction
rules is ultimately a decision about the structure of the market for
decades to come. Extreme concentration of the low-frequency spectrum in
the hands of two firms sets the stage for continued domination by these
two companies, unless the FCC takes action now.
Imposing modest restrictions on the E Block license is much less
intrusive than the two main alternatives: (a) endorsing continued
domination of the low-frequency spectrum by Verizon and AT&T's
vertically integrated proprietary networks, or (b) requiring open
access on all spectrum by requiring mandatory roaming at regulated
rates. The provisions of the E Block license are confined to the
minimal requirements for open access on nondiscriminatory terms. This
is the least intrusive of the ways the Commission can establish an
infrastructure for wireless communication that is not controlled and
manipulated by firms with a chokehold on nearly every aspect of
America's digital technology.
The Commission's goal is to allocate spectrum, a very scarce and
valuable resource, to its highest and best use as measured by the
public welfare. This outcome will not be achieved by selling the 700
MHz spectrum without restrictions to the 800 MHz incumbents, whose high
valuations stem from their incentives to protect their current profits
by stifling competition rather than creating value added for the
public.
Lastly, we add that the effect on the Treasury's revenue of the E
Block provisions is much less than the incumbents argue in their
comments, and under some scenarios may generate higher bids.
Establishment of the Wireless Internet will make all the regional
licenses more valuable and hence it will increase the revenue from
auctioning other blocks. Further, if the Commission chooses to take no
action and adopts rules that perpetuate the incumbents' dominant
positions, then the auction will likely be over before it starts--if
potential bidders expect the incumbents to win then there will be
little competition and low revenue for the Treasury. Evidence from many
European countries has shown clearly that auction prices were much
lower when incumbents could acquire all 3G licenses than when the
auction rules guaranteed a level field for new entry.\4\ Given the
dramatic evidence from Europe's sad experience, there is no excuse for
repeating such a mistake in the upcoming auction of 700 MHz spectrum.
Importantly, similar rules worked well in some countries' auctions and
terribly in others' auctions--what did matter was the incumbents'
ability in the auction to dwarf competition from potential entrants.
The erroneous expectation that the same rules--closely comparable to
those for the FCC's auction of PCS spectrum--will work well for many
different auctions with differing competitive environments, was a major
mistake in the designs used in Europe. In several countries the
unexpectedly small revenues brought dismay at the relevant Treasury
departments.
---------------------------------------------------------------------------
\4\ See for example Paul Klemperer ``Auctions: Theory and
Practice'' Chapter D, Princeton University Press, 2004.
---------------------------------------------------------------------------
3 Conclusion
We see the Commission having three main alternatives: (a) do
nothing and thus continue the dominance of the vertically integrated
incumbents, (b) enforce open access on all spectrum by imposing service
rules requiring nondiscriminatory terms for roaming on all spectrum, or
(c) establish an open-access license on a slice of the 700 MHz spectrum
to create room for both business structures to co-exist and to compete
for customers on price, quality and variety.
We stress that the last alternative is available only now, in the
band plan, service rules, and auction design for the licenses to be
sold in the upcoming auction of 700 MHz spectrum. It is also the
propitious moment for extending to wireless services the advantages of
the Internet. We believe that the dire situation implied by (a) and the
heavy-handed intervention implied by (b) can be avoided with minimal
intervention by the Commission. Applying pro-competitive open access
rules to just a single slice of the 700 MHz spectrum leaves most of the
spectrum available for other business plans. The E Block license
provides the Nation a minimal public infrastructure for wireless
communication, one comparable to the wireline Internet that has yielded
vast benefits.
If an open access license is not created then thereafter the FCC
will be limited to forcing selected license owners to open access to
retail entry. Doubtlessly the vertically integrated networks will offer
solutions for many retail customers, but we emphasize that competition
from new retail providers using the open access network will force
incumbents to improve their services and lower prices.
The Chairman. I thank you very much, Mr. Barksdale.
Professor Weiser?
STATEMENT OF PHILIP J. WEISER, PROFESSOR OF LAW AND
TELECOMMUNICATIONS, EXECUTIVE DIRECTOR, SILICON FLATIRONS
PROGRAM, UNIVERSITY OF COLORADO
Mr. Weiser. Thank you, Chairman Inouye, Vice Chairman
Stevens, members of this distinguished Committee. I appreciate
the opportunity to testify here on a very important public
policy issue, which is, how can this upcoming auction help
facilitate the development of advanced technologies for use by
public safety?
My approach to this issue comes from my standpoint as
Professor of Law and Telecommunications at the University of
Colorado, where I also serve as the Executive Director of the
Silicon Flatirons Program.
More particularly, over the last year I've focused on this
issue intensely, working on a report for the Aspen Institute,
writing an article for the Federal Communications Commission
Law Journal, and, most recently, convening a roundtable
supported by CTIA, which published a report on this topic.
Today, I testify on my own behalf, and the views are only
mine. And I'm not here affiliated with any other entity.
I want to underscore three basic points in my oral remarks
today that are elaborated in my testimony, the only one, you'll
note, with footnotes today, as appropriate for a professor.
The main points I want to emphasize are the following:
One is, there's an emerging new policy strategy that is far
better than anything that has been done with public safety
communications to date.
Number two is, the lynchpin of this strategy is the idea of
a public safety spectrum licensee, which can be very effective,
with some safeguards that I'll note.
And, number three, we should all appreciate how difficult
the transition will be from the old model of public safety
communications to a new one.
So, let me quickly underscore this first point.
There was an old model, where public safety agencies
managed their own networks. They operated networks on a local
level, buying highly specialized and expensive equipment to do
so. The result, as has been emphasized quite a bit by members
of this Committee, was non-interoperable and generally
antiquated equipment used by public safety that is inferior to
that available through commercial providers. Moreover, because
public safety communications systems often are intermittent in
their use--sometimes they're used intensely, and other times
not at all--spectrum often went underutilized.
In short, this old model left the agencies using antiquated
equipment. It was difficult to facilitate interoperability, and
it was at odds with spurring next-generation technologies. This
new model, which can be facilitated by this upcoming auction
and related policy initiatives, would allow public safety
agencies to get cutting-edge technology and equipment that is
as powerful as used by commercial sectors and the military.
This new model will enable this new network to be adapted and
to meet the requirements of public safety.
So, rather than have spectrum dedicated only to public
safety, public safety agencies can embrace an opportunity to
share spectrum with a commercial partner, thereby enabling
greater efficiencies and the buildout of a next-generation
network.
To spur this network, as I've mentioned, the FCC has wisely
introduced--and I commend its leadership on this--the concept
of a public safety spectrum licensee, which would control 12
MHz of spectrum that could be used to develop this new advanced
network. This policy innovation can bring great benefits to the
public, to public safety, as long as the licensee can negotiate
an effective framework with a commercial partner.
And for this framework to be effective, it has to be able
to adapt to changing circumstances as new requirements emerge,
and it needs qualified advisors to help it come up with a
framework that can protect its prerogatives and ensure that the
partner follows through on its promises.
Finally, I want to emphasize that, even with the right
framework in place, this transition to a new technological
architecture is going to be difficult. As Senator Sununu
mentioned, this culture of public safety communications as
operating a silo is deeply ingrained, and it's very important
to bring local public safety agencies onboard with this new
transition, where they'll operate virtual private networks
along the lines of those used by corporate America.
In any event, the development and deployment of a next-
generation network has to happen at higher levels. It's not
going to happen effectively locally, and it's not going to
happen if local agencies are unable to break out of the
cultural mindset where they need to operate their own networks.
Rather than operating and controlling their own networks, they
need to become smart users of them.
I know this is not going to happen overnight. It's going to
take a lot of political leadership, continued attention from
this Committee and the FCC, and I commend you all on this
important work.
Thank you.
[The prepared statement of Mr. Weiser follows:]
Prepared Statement of Philip J. Weiser, Professor of Law and
Telecommunications, Executive Director, Silicon Flatirons Program,
University of Colorado
I. Introduction
Thank you, Mr. Chairman, Senator Stevens, and Members of this
Committee for the opportunity to testify on the important public policy
challenge of ensuring that the upcoming 700 MHz auction and related
policy initiatives facilitate the development and deployment of
advanced communications technologies for use by public safety agencies.
I approach this issue from the standpoint of my position as a Professor
of Law and Telecommunications at the University of Colorado, where I
also serve as the Executive Director of the Silicon Flatirons Program.
More particularly, my testimony reflects my intense research focus on
this issue over the past year, during which I authored a report for the
Aspen Institute, wrote an article recently published in the Federal
Communications Law Journal, and co-authored a report informed by a
roundtable recently sponsored by CTIA--The Wireless Association.\1\ My
testimony today, however, reflects solely my own views and any
recommendations I offer should not be ascribed to any of the entities I
have worked with on this issue.
---------------------------------------------------------------------------
\1\ The Aspen Institute report, Clearing the Air: Convergence and
the Safety Enterprise, can be found at http://www.aspeninstitute.org/
atf/cf/%7bDEB6F227-659B-4EC8-8F84-8DF23CA704F5
%7d/C&S%20FINALAIRSREP06.PDF. The article, Communicating During
Emergencies: Toward Interoperability and Effective Information
Management, 59 Fed. Comm. L.J. 547 (2007), can be found at http://
papers.ssrn.com/sol3/papers.cfm?abstract_id=980285. The CTIA-sponsored
roundtable report, Toward A Next Generation Network for Public Safety
Communications, can be found at http://www.silicon-flatirons.org/
conferences/Hatfieldt_Weisert_PublicSafety
Communications.pdf (hereinafter, ``Next Generation Network Report''). I
have also co-authored a paper discussing the role of satellites in a
next-generation architecture. See Phil Weiser et al, Toward A Next
Generation Architecture For Public Safety Communications, available at
http://papers.ssrn.com/sol3/papers.cfm?abstractt_id=903151. That
earlier work emerged from a project undertaken on behalf of MSV. See
Dale Hatfield & Phil Weiser, Toward A Next Generation Strategy,
available at http://www.msvlp.com/newst_docs/papers/NextGenOct21R2.pdf.
---------------------------------------------------------------------------
In my remarks today, I will focus on four themes that merit
particular attention as this Committee and the Federal Communications
Commission wrap up their important work related to public safety
communications and the upcoming 700 MHz auction. First, I will discuss
the need for a national public safety entity to manage a block of
spectrum (i.e., ``a public safety spectrum licensee'') to promote the
rollout of a wireless broadband network to support the use of advanced
information and communications technologies by public safety. Second, I
will address the concept of a shared public safety/commercial wireless
network, explaining the powerful logic behind this proposal both with
regard to enabling public safety agencies to use advanced technologies
and in promoting spectral efficiency. Third, I will discuss the issues
of governance and enforcement that must be addressed in order to make a
public safety spectrum licensee model a success. Fourth, I will
emphasize the importance of moving forward quickly with the auction,
managing expectations, supporting ongoing innovation in this area, and
not letting the perfect be the enemy of the good. In short, promoting
the development and widespread deployment of an advanced communications
infrastructure for use by public safety is critically important,
difficult, and likely to take some time. Before I develop these themes,
however, I will begin by detailing some important background
information.
II. Background
For many years, the development of communications infrastructure
for public safety agencies remained largely an afterthought in
telecommunications policy. This reflected the conventional wisdom that
local public safety agencies should be assigned specific blocks of
spectrum and use that spectrum to operate their own wireless
telecommunications networks. This policy was arguably a sensible one
when public safety agencies were among the relatively few established
entities that operated wireless networks. Over the last several years,
however, two distinct concerns have arisen as to the state of public
safety communications: (1) different agencies cannot communicate with
one another using their legacy equipment; and (2) advanced
communications technologies increasingly being offered by commercial
wireless providers are not available to public safety agencies. I will
address each point in turn.
A. The Traditional Interoperability Concern
The concerns related to the inability of public safety agencies to
communicate with one another reflects the continuing lack of
interoperability between many legacy public safety radio systems. In
general, legacy radio systems are engineered to meet specific
requirements articulated by public safety agencies--such as a very
quick call setup time to enable communication during ``shoot-don't
shoot'' situations, effective talk group functionality, and ``talk-
around'' capability. Radio systems manufactured to meet these
specifications, however, are produced solely for public safety
agencies, often rely on proprietary technology, and are generally quite
expensive. Consequently, if one public safety agency adopts a
particular system and another public safety agency adopts a different
system, there often is no easy way for the two systems to communicate
with one another. As you all appreciate, this lack of interoperability
can be at best challenging (by making communication between different
first responders difficult or impossible) or at worst tragic (as in the
case of 9/11 when lives were lost because messages were not relayed
between different agencies).
The often touted solution for addressing the lack of
interoperability between public safety radio systems is that all public
safety agencies should purchase new equipment that can enable them to
talk to one another. Under this strategy, local agencies would all
purchase new equipment and operate that equipment using the same
spectrum bands. Indeed, the Project 25 initiative rests on this vision,
as it aimed to develop an open standard for digital trunked radio
systems that would enable agencies to cooperate with one another, share
spectrum between them, and, ideally, enjoy interoperable communications
across jurisdictions. As a recent GAO report detailed, however, the
Project 25 initiative has failed to deliver on its promise, largely
because the relevant standards never facilitated a more competitive
market in equipment.\2\ Stated simply, ``the Project 25 [initiative]
made the mistake of treating public safety communications as a distinct
island, giving rise to proprietary technologies that are not compatible
with commercially developed (and far cheaper) alternatives.'' \3\
Finally, Project 25 radios are designed to support narrowband voice
communications, but not broadband communications that can enable public
safety agencies to gain access to useful information and communicate
more effectively.
---------------------------------------------------------------------------
\2\ U.S. Government Accountability Office, First Responders: Much
Work Remains to Improve Communications Interoperability 3 (Apr. 2007),
available at http://www.gao.gov/new.items/d07301.pdf [hereinafter GAO
Report].
\3\ Next Generation Network Report, supra note 1, at 36.
---------------------------------------------------------------------------
A second interoperability solution is the use of gateways that use
Internet Protocol technology to connect otherwise incompatible systems.
Such gateway solutions are considerably cheaper than purchasing new
Project 25 radios for a particular area, but they do not necessarily
enable as effective or efficient communications as direct radio
connections. Nonetheless, as a cost effective method of enabling
different agencies to communicate at all (which is often what is
needed), such solutions are quite promising and continue to improve in
terms of their level of functionality.
A third interoperability solution is for agencies to adopt new
wireless broadband systems that enable them to use Internet-based
communications (such as Voice over Internet Protocol) that can
communicate directly to other agencies equipped with broadband systems
or indirectly through gateways solutions (such as those described
above). Unlike the Project 25 model, the purchase of wireless broadband
systems is relatively inexpensive (as they rely on commercially
marketed products) and can support an array of applications other than
voice communications. Like the gateway solution, however, the use of
interoperability at the Internet layer--i.e., Voice over IP
connections--does not provide the same level of operability (at least
using today's technology) as traditional dispatch systems. But again,
in many situations, such as the often cited failings at the Columbine
tragedy, 9/11, and the aftermath of Hurricane Katrina, the critical
problem was an inability to communicate at all, not an inability to
communicate at the required call setup times that public safety
agencies sometimes need.
The case for promoting wireless broadband and advanced information
and communications technologies is not merely that it constitutes a
potential interoperability solution. Rather, such technologies can
enable public safety agencies to operate more efficiently and
effectively. Indeed, such technologies are increasingly a source of
important efficiencies in the hands of corporate America and the
military--think of how FedEx tracks packages or how Walmart tracks its
inventory--and there is every reason to believe that advanced
information and communications technologies can empower public safety
agencies in numerous ways. The challenge, however, is to develop a
policy strategy to promote the development of a next-generation network
for public safety agencies.
Before I discuss the opportunities created by and the strategy
necessary to develop next generation networks for public safety, let me
emphasize two sobering points about the above discussion. First, it is
important to appreciate that the need for short term interoperability
solutions--such as the gateway model--will not disappear once we embark
on the road toward a next generation network. Second, the next
generation network will not, at least in the reasonably near term,
function as a replacement for the traditional public safety dispatch
systems. Rather, over at least the next decade (while a next generation
network is developed, deployed, and proven out as sufficient to meet
the requirements of public safety), it is likely that public safety
agencies will need to support both their traditional dispatch systems
and a next generation system. Among other things, this means that the
funding needs of public safety agencies with respect to information and
communications technologies are likely to increase in the near term.
B. A Next-Generation Network Architecture
During my initial exposure to the issue of how to develop a next
generation network for public safety, the conventional wisdom was that
public safety agencies would never face up to a challenging cultural
shift as to how public safety communications should operate. In
particular, the prevailing wisdom was that public safety agencies would
always insist on operating their own networks and would never accept an
architecture that would call for the sharing of spectrum between public
safety and commercial services. In my experience, however, a number of
public safety officials have led the way in embracing the logic behind
the move to a new technological architecture and a new policy strategy
to deliver next generation network services to public safety agencies.
For that progressive vision, I applaud their leadership and willingness
to break from the old model.
The increasing interest in a policy strategy to promote next
generation networks for public safety reflects the realization that
broadband networks are critical to the future of public safety
communications and the services now available to corporate America
should be adapted to meet their needs. As one public safety official
put it, ``[n]ew public safety applications and capabilities involving
broadband communications, IP technologies and flexible radios and
spectrum sharing opportunities with commercial providers where
appropriate are all in public safety's future.'' \4\ The public policy
challenge is how to facilitate the emergence of this future.
---------------------------------------------------------------------------
\4\ Testimony of Stephen T. Devine, Missouri State Highway Patrol,
House Comm. on Energy and Commerce Subcomm. on Telecommunications and
the Internet (Mar. 22, 2007).
---------------------------------------------------------------------------
To spur the development of broadband networks, it is reasonably
clear that the old model of networks operated and used solely by public
safety agencies themselves is inefficient and unsustainable. That
model, which was borne of necessity in an era where there were no
suitable commercial wireless services, ignores a powerful case for
using spectrum more efficiently. After all, public safety agencies use
spectrum intensely at particular moments, but often use their spectrum
on a limited basis. Consequently, the ability to share spectrum between
a public safety entity and other customers can ensure that the network
and spectrum is used more efficiently.
On a practical level, it makes sense to develop and operate
broadband infrastructure for public safety in concert with other
providers. After all, we do not expect public safety agencies to
manufacture their own uniforms or cars. As with uniforms and cars, it
is not difficult to develop next generation technologies that can be
adapted to the needs of public safety. The advantage of relying on
commercial technologies is that public safety agencies will be able to
benefit from commercial economies of scale and purchase equipment far
more economically than they have been able to with respect to their
traditional dispatch networks. Consider, for example, that ``a cell
phone with voice, video, and data capability costs about seven times
less than a public safety digital portable radio that cannot even take
a digital photo, much less send it to another person.'' \5\
---------------------------------------------------------------------------
\5\ Robert Rouleau, Connecting Data Networks, Public Safety Rep.,
Aug. 2006, at 98, 102.
---------------------------------------------------------------------------
The bottom line in terms of the policy strategy for next generation
networks for public safety is that the traditional approach for
supporting public safety communications will not work effectively.
Consequently, policymakers need to appreciate that our Nation's effort
to develop next generation networks for public safety agencies will
turn on our ability to spur a new model of governance, new cultural
mindsets amongst the relevant stakeholders, and new funding models to
support a new technological architecture. As I will emphasize in
closing, these are difficult transitions and policymakers should both
be vigilant in prodding them forward as well as understanding that they
will not take place overnight.
III. The Importance of a National Public Safety Spectrum Licensee
The Federal Communications Commission initially assumed that the
traditional policy model would govern the use of the 700 MHz spectrum
dedicated to public safety. In particular, the vision animating early
discussions of how the spectrum would be used assumed that agencies
would purchase new systems, such as Project 25 radios, and operate them
at the same frequencies. Over the last several years, however, it has
become clear that this solution is neither cost effective nor would it
enable public safety agencies to use advanced broadband technologies.
Indeed, this model is often associated with the ``narrowbanding''
concept that is antithetical to the development of broadband networks.
Over the last year, the Federal Communications Commission has moved
in a new direction. This new direction has made the Commission's work
on the relevant rules for the soon-to-be assigned spectrum far more
challenging, but I applaud Chairman Martin and his fellow Commissioners
for their leadership on this issue. If, for example, the Commission
carved up the entire 24 MHz of spectrum devoted to public safety into
narrowband channels and distributed them to local agencies, it would
have undermined the ability to use this spectrum for broadband. Instead
of following the old model, however, the Commission created a new one.
In particular, it proposed the creation of a public safety spectrum
licensee that would receive a nationwide 12 MHz license and use it to
spearhead the development and deployment of a broadband network (or
network of networks) to be used by public safety.
The model of a national public safety spectrum licensee is one that
poses a number of risks, but I believe that these risks can be managed.
Moreover, I believe that the principle that networks should be operated
at higher levels than local agencies--i.e., regional or state--is
essential to enabling next generation networks to be deployed. In other
words, the development of regional and national cellular networks is
not an accident; there are real economies of scale in deploying such
networks at higher levels. For both cost purposes and expertise
purposes, the development of next generation networks by a public
safety spectrum licensee is a considerably better bet than expecting
localities to do so themselves.
The national public safety spectrum licensee would enjoy several
important advantages not available to local agencies who have
traditionally managed public safety's communications systems. In
particular, this licensee would be uniquely positioned both to develop
a more attractive bargain for public safety (by purchasing in bulk and
using its assembled expertise) and could ensure a level of consistency
as to the technology adopted by public safety. Today, for example,
early next generation public safety systems being developed in New York
and Washington use different technologies and different bands of
spectrum, meaning that a radio devised for the New York City system
will not operate in Washington. By contrast, a public safety spectrum
licensee would be in a position--presumably in concert with a
commercial operator--to develop a standardized air interface (or a
relatively economical commitment to a multi-mode device) that would
afford public safety agencies a similar mobility with their devices to
that enjoyed by customers of commercial wireless firms.
One of the principal risks of a national public safety spectrum
licensee is that this entity will be insufficiently attentive to the
needs of local public safety agencies and will attempt to craft a ``one
size fits all'' solution. To guard against this risk, localities should
be afforded an effective voice as to what kind of offering should be
available to them. (An alternative safeguard is that local public
safety agencies would be able to receive Federal grant money and not
use the offering sponsored by the national public safety spectrum
licensee provided that they demonstrated that they were adopting
another effective interoperability solution.) Finally, state, regional,
or local planning efforts will be critical to developing the
appropriate rules for how different agencies receive priority to the
network in different scenarios.
Fortunately, the nature of Internet Protocol-supported applications
are that they can easily be adapted to deliver different
functionalities and to empower local agencies to operate their own
virtual private networks--even if local agencies do not control the
physical infrastructure. In fact, that is exactly the model used by
almost every major American enterprise company. Ideally, leadership at
the state level will emerge (and be encouraged to emerge by Federal
policy \6\) to spearhead the development of these networks, public
safety-centric applications, and wired Internet Protocol backbones that
can interface with other critical systems (such as E-911 services,
electric utility information, and public health information). To date,
however, such state leadership is the exception, not the rule. \7\
---------------------------------------------------------------------------
\6\ To date, Federal policy has not always effectively encouraged
strategic leadership at the state level. See U.S. Government
Accountability Office, First Responders: Much Work Remains to Improve
Communications Interoperability 20-21(Apr. 2007), available at http://
www.gao.gov/new.items/d07301.pdf 21 (``[A]lthough DHS has required
states to implement statewide plans by the end of 2007, no process has
been established for ensuring that states' grant requests are
consistent with their statewide plans'').
\7\ The Aspen Institute report, see note 1, supra, discusses the
importance of such leadership. And, in a promising development, the
Southern Governors Association is investigating a strategy for
providing such leadership on a regional basis. See http://
www.southerngovernors.org/resolutions/Interoperability.html.
---------------------------------------------------------------------------
IV. The Shared Public Safety/Commercial Wireless Network Concept
The creation of a national public safety spectrum licensee is the
essential starting point for the development of an effective next
generation network. The FCC's proposal to create such a licensee is
thus an important start for ensuring the development and deployment of
a next generation network. The next question is whether that is the
only necessary step. As I will explain, I believe that the Federal
Government will either need to provide significant funding to subsidize
the development of this network directly or, as a second best option,
enable spectrum to be monetized as an asset to support the network
development and deployment. Let me be clear at the outset--I would
prefer to see government fund the development of such networks
directly, but in the absence of this development, the other model may
well be a second best strategy. Indeed, in the ideal world, such
funding might come through a reform of the Federal Government's own
wireless network project (the IWN initiative), which is estimated to
run between $5 billion to $10 billion and to only serve a limited
number of Federal agencies.\8\
---------------------------------------------------------------------------
\8\ See Next Generation Network Report, supra note 1, at 35.
---------------------------------------------------------------------------
In its proposal for a public safety spectrum licensee, the FCC
states that the 12 MHz to be licensed to the public safety spectrum
licensee can be leased to commercial users when not being used by
public safety (on a preemptible basis). This policy innovation--and it
is a progressive step away from the silo-mentality that often has
characterized spectrum policy--offers the licensee a revenue source to
support the development of a next generation network. Moreover,
Frontline has suggested that this policy be supplemented with a further
encumbered 10 MHz band of spectrum that would be auctioned to an entity
willing to develop a next generation network that would be used by
public safety (as well as others). In principle, the encumbering of
spectrum with a requirement to serve public safety would depress the
price of the relevant spectrum and thereby constitute an indirect
subsidy to public safety.
In developing its proposal, Frontline has suggested that an open
access requirement should be coupled with a commitment to serve public
safety. The theory behind this proposal appears to be that the current
wireless operators are insufficiently motivated to support a variety of
applications and equipment developers, thereby stifling innovation.\9\
If this suggestion is indeed valid, policymakers should be concerned
about a lack of competition in the wireless industry. After all,
competition is the most powerful and effective facilitator of
innovation; that is, even in the best of worlds, regulatory responses
are only a second best strategy. To that end, I am very sympathetic to
the goal of attracting new entrants (particularly wireless broadband
providers) via this auction and believe the rules for the auction
should be hospitable to them. But the proposal to attach an open access
mandate to spectrum encumbered with a requirement to serve public
safety seems to me like a misfit as it would limit the number of
eligible bidders, potentially compromising on the goal of finding the
best possible partner for public safety.
---------------------------------------------------------------------------
\9\ To put the issue in terms of economic analysis, it boils down
to whether the incumbent platform providers view applications
developers hospitably (i.e., because they make their platform more
valuable) or as a threat (for any number of possible reasons). For a
comprehensive discussion on how information platform providers view
applications developers, see Joseph Farrell & Philip J. Weiser,
Modularity, Vertical Integration and Open Access Policies: Toward A
Convergence of Antitrust and Regulation in The Internet Age, 17 Harv.
J. L. Tech. (2003).
---------------------------------------------------------------------------
As I emphasized above, the relevant question is how much money
public safety will be given directly to support the development of next
generation networks. With enough money, public safety agencies can
lease spectrum in the marketplace and build a next generation network--
as is currently happening in New York City. Without a commitment of
serious resources, however, the encumbered spectrum model becomes a
possible second best strategy. I am not opposed to this strategy and
appreciate that in the current environment, it might be the best
opportunity available and a risk worth taking. But if the FCC decides
to take this risk, I believe it needs to implement a series of measures
to enhance its chances of success.
V. The Public Safety Spectrum Licensee and the Importance of Effective
Governance
The public safety spectrum licensee concept, whether or not coupled
with encumbered spectrum such as that proposed by Frontline, must be
implemented with a number of safeguards to ensure that it will be able
to deliver on its promise. The first, and in some ways the most
critical, challenge is to ensure that the public safety spectrum
licensee is assisted by able and independent advisors so that it can
negotiate effectively as to how the 12 MHz of spectrum will be used and
how a next generation network system will be developed and deployed.
There are a number of important details that will need to be hammered
out and, just like corporate America relies on specialized consultants
to craft contracts related to their information and communications
technology needs, public safety will similarly need the aid of highly
qualified advisors. Thus, I would emphasize the importance of hiring of
qualified consultants to aid the public safety spectrum licensee in its
series of important decisions.
The second principal strategy related to the public safety spectrum
licensee concept is that this entity must be held accountable for its
decisions and the FCC will need to exercise its oversight of the
relevant licensee to ensure that it is operating responsibly. Notably,
the FCC's oversight should not entail second guessing of that
licensee's decisions or invite appellate review of them. It should,
however, stand ready to investigate any concerns that the licensee is
abusing its authority.
The final two strategies related to ensuring an effective public
safety spectrum licensee function address directly the challenges that
emerge from the proposal to encumber 10 MHz of spectrum with a
requirement to serve public safety. Again, whether or not the Frontline
proposal is adopted, it is both likely and desirable that public safety
cooperate with commercial firms to develop a joint public safety-
commercial network. In principle, this network would both meet the
requirements of public safety (to the extent reasonably practicable)
and enjoy the economies of scale that emerge from a shared network that
relies on commercially produced equipment (as opposed to equipment
specially produced for public safety). In short, the Frontline proposal
raises two wrinkles that require special attention: (1) public safety
agencies must be afforded with the right to walk away from the proposed
partnership; and (2) the FCC must ensure that some level of enforcement
be self-executing (say, binding arbitration) in the event that the
winner of an auction for encumbered spectrum failed to follow through
on its commitments.
As I noted above, a proposal like the Frontline model reflects a
second best strategy in the absence of an available revenue source to
support the development and deployment of a next generation network for
public safety. Significantly, the Frontline proposal is not premised on
any need by public safety agencies to gain access to more spectrum to
deploy such a network. Indeed, without any additional spectrum
assignment at all, the City of New York is contracting for the
development and deployment of a next generation network. But the City
of New York is able to contract for that network because it possesses
the necessary financial resources to do so. Thus, unless there is a
more robust funding commitment from the Federal Government, the option
of using encumbered spectrum becomes a plausible second best strategy.
The advantage of simply endowing the public safety spectrum
licensee with a funding commitment is that this model makes clear that
they are in the driver's seat when it comes to negotiating the relevant
contractual terms. In the case of an encumbered spectrum solution, the
nature of the negotiation becomes more complex and, in the worst
possible case, it might represent a ``forced marriage'' whereby the
public safety spectrum licensee is, in effect, coerced to deal (and
share its spectrum) with an entity that it views as either unqualified
or untrustworthy to deliver on its promises. To avoid this scenario,
the public safety spectrum licensee must be in a position to walk away
from any possible deal with the winner of an auction for encumbered
spectrum. Moreover, if the public safety spectrum licensee did walk
away from such a partnership for ``reasonable grounds,'' the winner of
the encumbered spectrum would necessarily be judged unable to deliver
on its commitment to facilitate the development of a next generation
network for public safety.\10\ Going forward, it will be important that
the public safety spectrum licensee and its commercial partner develop
strategies for instituting new requirements to meet the needs of public
safety and ensure that the commercial partner is not able to take
advantage of public safety--i.e., in effect becoming an unregulated
monopoly.\11\
---------------------------------------------------------------------------
\10\ It is critical that any consequences to the winner of an
auction for encumbered spectrum be confined to a ``reasonable grounds''
scenario. Otherwise, the public safety spectrum licensee would have an
incentive to use its hold-out leverage to extract unfair and
inappropriate concessions from the encumbered spectrum licensee.
\11\ The public safety spectrum licensee and its commercial partner
will, in all likelihood, enter into what economists call a ``bilateral
monopoly relationship.'' Such partnerships are generally characterized
by mechanisms to guard against undue opportunistic behavior by one
side, including a stylized ``hostage exchange'' scenario, where each
side gives something of value to the other and can threaten to keep it
in the event the other side acts unreasonably. See Oliver Williamson,
The Mechanisms of Governance (1996).
---------------------------------------------------------------------------
The second important safeguard that should accompany the award of a
spectrum license with a commitment to provide a next generation network
to public safety is that there must be real and self-executing
enforcement mechanisms. The history of spectrum policy is littered with
the commitments of spectrum licensees who made, and have failed to
keep, any number of assorted commitments. As noted above (and as I have
argued elsewhere \12\), the use of a spectrum license to generate
public interest benefits is suboptimal to using direct fiscal support
to achieve those benefits. But the fact that this approach has failed
elsewhere does not mean it is destined to failure here--only that
regulators should approach any regulatory bargain with their eyes open
and a well devised strategy to hold a licensee to its commitments.
---------------------------------------------------------------------------
\12\ See Phil Weiser, ``Promoting Informed Deliberation and A First
Amendment Doctrine For A Digital Age: Toward A New Regulatory Regime
for Broadcast Regulation,'' Deliberation, Democracy, and the Media
(Costain and Chambers, eds., 2000). As Richard Posner explained in his
classic article, the use of a spectrum license--or any regulatory
program--to achieve such benefits indirectly can be termed ``taxation
by regulation.'' Richard Posner, Taxation by Regulation, 3 Bell J.
Econ. 22 (1971). As Posner explained, such an approach has certain
merits, but also comes with notable risks. Id.
---------------------------------------------------------------------------
In terms of the relevant commitments that a licensee should be
forced to make, I am aware that overly onerous commitments could
backfire insofar as they might undermine the ability of the licensee to
attract sufficient funding via the capital markets. This concern,
however, only means that the relevant performance bond, lien on the
spectrum, or lien on the infrastructure should be triggered with
sufficient sensitivity so that public safety does not possess an
ability to pull out the rug from the licensee unfairly. Again, the
historical concern tends to argue that the more realistic scenario
would be an overly forgiving posture toward a failure to perform rather
than an overly harsh judgment as to whether a licensee had actually
performed. In short, an appropriately balanced enforcement mechanism
should be clear, provide fair warning, be self-executing (i.e., not
require a lengthy proceeding), and provide significant consequences so
as to ensure effective performance.
VI. The Importance of Ongoing Innovation and Responsible Leadership
Before I conclude, I must emphasize that the current focus on the
upcoming auction and the proposals now taking center stage should be
kept in appropriate perspective. In particular, the current 700 MHz
auction is not the last opportunity to facilitate improvements in
public safety communications. Rather, it is merely one important
chapter in an ongoing effort to improve the use of information and
communications technology by public safety.
As I have discussed above, a next generation network offers
enormous opportunities for public safety agencies to operate more
efficiently. Indeed, if the public safety spectrum licensee can help
facilitate the development of a hybrid traditional land mobile radio
and broadband device, that development will provide public safety
agencies with access to capabilities that will enable them to perform
far more effectively, more efficiently, and facilitate improved
interoperability using Internet Protocol connections. The development
of such a device, however, should only be the beginning of an ongoing
technological development cycle that will enable public safety agencies
to operate more effectively. Indeed, one important architectural
feature of a next generation network is that it can allow ongoing
modular development and the use of secondary systems (e.g., commercial
cellular systems, municipal WiFi systems, and satellite technology) to
supplement the principal communications systems.
The traditional model of buying expensive and specialized equipment
dedicated to public safety has disserved public safety agencies by
ensuring that they operate networks using equipment that is quickly
antiquated and expensive to replace. A new model whereby public safety
agencies purchase equipment premised on commercially developed
standards would break from this tradition by enabling public safety
agencies to benefit from technological advancements on an ongoing
basis. Consider, for example, that cognitive radio technology continues
to improve and should be able to ultimately facilitate the use of
radios that can operate both at different frequencies and using
different modes, thereby providing a promising interoperability
solution.\13\ Similarly, the ongoing development of satellite
technology that can operate in conjunction with terrestrial wireless
networks (the so called ``ancillary terrestrial component'' systems)
could also have a significant impact on public agencies by enabling
them to have a redundant communications connection as well as a way to
reach all outdoor coverage areas.\14\
---------------------------------------------------------------------------
\13\ SDR Forum, Software Defined Radio Technology for Public Safety
26 (Apr. 14, 2006),
http://www.sdrforum.org/uploads/
pub_36302706_a_0001_v_0_00_public_safety
_04_14_06.pdf (``the flexibility inherent in [software defined radio]
technology facilitates multi-protocol, multi-band and multi-service
devices that can operate across multiple systems, thereby supporting
the `system of systems'concept for public safety communications.'');
Testimony of Stephen Devine, supra note 4 (suggesting that ``new
frequency agile software based radios, capable of operating on multiple
public safety frequency bands, can soon be used as a tool to bridge
existing gaps between frequency bands'').
\14\ This point is more fully elaborated upon in Phil Weiser, Dale
Hatfield and Brad Bernthal, Toward A Next Generation Architecture For
Public Safety Communications, available at
http://papers.ssrn.com/sol3/papers.cfm?abstractt_id=903151.
---------------------------------------------------------------------------
The new policy model necessary to promote a next generation network
will take time for the relevant stakeholders to adjust to a new
opportunity. For this model to be successful, it is critical that, in
addition to spectrum policy decisions by the FCC, other governmental
actors (such as the Department of Homeland Security, the National
Telecommunications and Information Administration, and state and local
governments) all embrace and support this new policy strategy. Even
with the effective focus of all involved, this process will take years
to succeed and, even when complete, it will, by necessity, be imperfect
in terms of its overall coverage and capacity. This model, however,
provides a far more effective solution to the ongoing failings of
public safety communications than any other strategy I can fathom.
Conclusion
In short, I commend the Federal Communications Commission for
recognizing that public safety must take advantage of new information
and communications technology opportunities--i.e., the promise of a
next generation network built around broadband technology--by acting as
an enterprise that seeks to leverage the advances of a converged
ecosystem. That ecosystem features ongoing development of new
technologies for commercial users and, with a commitment by public
safety to adapt such technologies for its own needs, it can avoid the
mistake of the Project 25 initiative. In that case, public safety
operated in an environment where it was confined to its own silo and
could only use equipment produced uniquely for it. By embracing a
strategy whereby it shares spectrum with one or more commercial
partners, public safety will facilitate a win-win arrangement where
unused public safety spectrum can be put to good use, money from that
leasing arrangement can be dedicated to supporting public safety's
advanced communications needs, and public safety can have access to
more spectrum (than it would itself control) when it needs it.
The opportunity to develop a next generation network to afford
public safety access to cutting edge technologies will require a major
reorientation on the part of all stakeholders as to how public safety
agencies use communications technology. This reorientation will require
leadership on the Federal, state, and local levels as well as a
compelling explanation as to how the public safety spectrum licensee
concept can facilitate opportunities that will otherwise not become
available or will be prohibitively expensive for most agencies. I
recognize that the public safety spectrum licensee concept comes with
some risks, but provided that this licensee is supported by able
advisors and with a sensitivity toward the needs of individual
localities, I believe this policy strategy is a sound linchpin of the
effort to spur the development of a next generation network. It can
only succeed, however, if other stakeholders rally around this strategy
and embrace the importance of a next generation network and work hard
to make it a success.
The Chairman. I thank you very much.
And may I call upon Commissioner Cosgrave.
STATEMENT OF PAUL J. COSGRAVE, COMMISSIONER AND CIO, DEPARTMENT
OF INFORMATION TECHNOLOGY AND
TELECOMMUNICATIONS, CITY OF NEW YORK
Mr. Cosgrave. Thank you, Chairman Inouye, Vice Chairman
Stevens, and Members of the Committee.
My name is Paul Cosgrave. I am the Commissioner of New York
City's Department of Information Technology Telecommunications.
I also serve as New York City's Chief Information Officer. Some
of you may also remember me when I worked here as the CIO for
the Internal Revenue Service.
On behalf of the City of New York, thank you for the
opportunity to appear before you today to discuss how the
interests of public safety communications can be safeguarded in
the upcoming 700 MHz band auctions. Clearly, public safety
communications continue to face significant challenges and
uncertainties, even as the February 2009 deadline for a
transition of 700 MHz spectrum to public safety and commercial
use fast approaches. New York City appreciates the FCC's
interest in potentially utilizing the upcoming 700 MHz spectrum
auction to advance public safety communications and this
Committee's examination of the issue.
At the same time, however, we're deeply concerned about the
potential consequences of any FCC decision that mandates
establishment of a nationwide public/private broadband network
which would be shared by public safety and commercial users.
Under the Frontline Wireless plan, a nationwide public/private
network would be deployed in 22 MHz of spectrum in the 700 MHz
band--as you know, 12 MHz of which has been currently allocated
to public safety, and 10 MHz which is scheduled for commercial
auction. The auction winner would build a nationwide network
and negotiate with a newly established national public safety
licensee over respective access rights. Commercial users would
receive secondary access to the public safety segment, and
public safety would receive emergency access to the commercial
segment.
The City of New York certainly welcomes the establishment
of rules that would make more spectrum available in the 700 MHz
and other frequency bands for public/private partnerships on a
voluntary basis for both voice and data communications.
However, we're concerned about the imposition of such a
sweeping mandate, particularly after only, at most, 2 months of
consideration and debate.
Ultimately, New York City's present view is that public/
private partnerships should be optional. Furthermore, decisions
to enter in such partnerships, along with coordination
decisions, should take place at the regional, rather than at
the national, level. And, finally, the Federal Government must
not dictate use of particular frequency bands or technologies.
The sudden emergence and popularity of proposals for
public/private partnership appears at least partly due to a
misperception that the public safety community is unable to
solve its own communications and interoperability needs. This
is typically accompanied by the view that the Federal
Government has invested massive funding and allocated a great
deal of spectrum to support local public safety efforts and
that commercial intervention is now necessary.
Consequently, I believe it is relevant to this hearing for
me to share, briefly, New York City's perspective on Federal
funding in spectrum allocations for public safety
communications and to describe the state-of-the-art broadband
wireless network New York City is deploying virtually without
Federal support.
Unfortunately, for more than a decade the Federal
Government's provisioning of funding and spectrum to State and
local public safety communications has, in fact, been
inadequate. New York City, which is at the highest risk for
another terrorist attack, has committed more than $1 billion of
local taxpayer money since the 9/11 attacks to enhance our
public safety voice and data communications networks and to
upgrade and to harden our E-911 infrastructure. At the same
time, we receive less than 20 cents on the dollar in federally-
funded support to assist these homeland security-related
initiatives.
Equally distressing is the perception that public safety
has inefficiently used radio spectrum. Nearly 11 years ago, on
September 11, 1996, a high-level Federal advisory committee
summarized, ``Not only does the shortage of spectrum jeopardize
the lives and health of public safety officials, it threatens
their ability to fully discharge their duty to protect the
lives and property of all Americans.''
Regrettably, since that warning cry 11 years ago, there has
been no national provision of spectrum to support emergency
responder voice communications. Indeed, absent action by this
Committee last year, public safety would have been forced to
wait well beyond 2009 for the 700 MHz spectrum. In addition,
there has only been a single--much appreciated, but exceedingly
inadequate--provision of 4.9 GHz spectrum to support data
applications.
So, to summarize, the lack of Federal financial support and
spectrum, rather than the flawed or inadequate efforts by the
State and local public safety communities, are at the heart of
the challenge to achieve advanced broadband services and
interoperability.
In March 2004, New York City issued a request for proposal
for the implementation of a broadband wireless network for
public safety to support our own highspeed public safety data
needs. The solicitation, which was agnostic as to spectrum and
technology, challenged the country's leading systems
integrators to propose the best-available solution. At the
time, no Federal programs were available to assist us in this
initiative, and the public safety segment of the 700 MHz band
was earmarked by the FCC for narrowband and wideband
applications rather than for broadband use. Consequently, the
city, at considerable local expense, went it alone.
In September 2006, after evaluating and testing several
competing solutions, New York City contracted with Northrop
Grumman to deploy a $500 million highspeed data network for
public safety. The network, known as New York City Wireless
Network, or NYCWiN, will enable a wealth of mobile and fixed
applications, including real-time video, rapid-response lookup,
and exchange of rich graphical information. NYCWiN will provide
critical real-time information to the city's first responders
when and where they need it.
The network, which is already operational in Lower
Manhattan and scheduled for citywide deployment by March 2008,
utilizes 10 MHz of licensed spectrum in the 2.5 GHz band,
spectrum which New York City has, indeed, purchased at market
rates. NYCWiN employs UMTS technology, which is well suited for
highspeed mobile data applications. Moreover, NYCWiN is an IP-
based network enabling fully interoperable data communications.
Essentially, information can be shared instantaneously among
multiple agencies. New York City is working through its
existing interoperable communications relationships with its
partners in the State, Federal, and regional public safety
agencies to ensure their access to the network, as well.
The FCC is now considering a nationwide buildout of a
public/private network for first responders on the 700 MHz
frequency, which aims for capabilities similar to what we've
done with NYCWiN. New York City has described, in comments
filed with the FCC, various factors that the FCC should
consider in evaluating the merits of such a proposal. In the
interest of time, I'll outline only our two most pressing
concerns:
First, a national network based on one-size-fits-all
approach may not meet the disparate communications needs of
emergency responders throughout the country.
And, second, it's not clear such a network would be
engineered to meet the demanding mission-critical needs of
public safety.
With respect to the one-size-fits-all approach, as I just
described, New York City is implementing a broadband data
network that utilizes UTMS technology on the 2.5 GHz band.
Recently, the District of Columbia opted to deploy a broadband
network, as well, that utilizes a different technology--EV-DO
technology--and different frequency; they're deploying on 700
MHz.
These cities' respective decisions were dictated by the
fact that New York City and the Capital region must contend
with much different physical environments and different
operational priorities. Any scheme for a national network must,
from technology and spectrum-related standpoints, ensure that
each implementing public safety jurisdiction has the
flexibility to evaluate and respond to its own circumstances,
both physical and operational. It should be no surprise that
the same technology and spectrum that works well in New York
City may not work well in Los Angeles, Boise, or, for that
matter, even in Buffalo, New York.
So, to accommodate these differences, the policies and
rules governing the 700 MHz band must recognize the need for
flexibility and discretion at the local, State, and regional
levels. New York City has implemented citywide and regional
interoperability protocols between and among our emergency
responders and those of neighboring counties in New York, as
well as in New Jersey, along with regional authorities and
various State and Federal agencies.
New York City participates in several regional planning
bodies, including the Region 8 Regional Planning Committee,
which currently coordinates use of 700 MHz and 800 MHz
channels. The regional role in interoperability planning should
be preserved with respect to broadband. Nor does the proposal
for a national public safety licensee officially address how
channel allocation and frequency coordination will take place
among various local, State, and Federal entities operating in a
common area and/or responding to the same emergency.
New York City's second major concern is that the proposed
700 MHz public/private network will, in fact, be dominated by
commercial interests, and that deployment and maintenance will
be undertaken based on a return of investment rather than
effectiveness of emergency response.
The current FCC rulemaking includes no parameters to uphold
mission-critical standards, and public safety agencies have no
recognizable right, such as a license, to protect their
interests. Moreover, the current proposal provides no
indication of how the FCC will address the complex issues of
ensuring that public safety has priority access, vis-a-vis
commercial interests, and that access among various public
safety authorities is appropriately prioritized.
Ultimately, emergency responders must not be forced to rely
on a carrier-grade network, which would most likely not be
available to them when it is most needed. Anyone who's ever
experienced a large-scale emergency knows that cell phone
communications quickly deteriorate and soon become impossible.
This is a result of several factors, including competition
among callers for access to cell antennas, possible degradation
of the wired backbone interconnecting the network, and
frequently the loss of both commercial and backup power to the
network.
Compare this to NYCWiN. In the event of a major emergency,
New York City Government will be able to prioritize network
access among various agencies and users. The network is being
built with redundant backbones, overlapping coverage, and a
minimum of 24-hour backup power at every site. One cannot
imagine that a commercial carrier would be willing to invest
the capital required to build such a robust, redundant network
in New York City.
Public safety cannot be put in the position of sharing a
plain vanilla network, which, quite frankly, is really no
option at all.
In the final analysis, public safety systems stand in stark
contrast to commercial systems. Deploying and maintaining
public safety systems entail much more detailed requirements,
analysis, engineering, testing, and training. Heightened
requirements include capacity, coverage, system restoration,
reliability, and security. Public safety networks require
greater diversity and redundancy. Moreover, there can be no
experimentation in the public sector. As I think you all know,
lives are at stake.
In conclusion, the public/private partnership model holds
promise and should continue to be developed as a means of
deploying next-generation voice and data networks using various
frequency bands. However, this model is also very new and,
frankly, untested. Mandating that a portion of the limited
spectrum currently allocated to public safety be used for a
nationwide public/private broadband network in the 700 MHz band
is fraught with uncertainties and risks.
Chairman Inouye, this completes my statement. The City of
New York greatly appreciates the privilege to be here today.
Thank you.
[The prepared statement of Mr. Cosgrave follows:]
Prepared Statement of Paul J. Cosgrave, Commissioner and CIO,
Department of Information Technology and Telecommunications, City of
New York
Chairman Inouye, Vice Chairman Stevens, Members of the Committee:
My name is Paul Cosgrave. I am the Commissioner of New York City's
Department of Information Technology and Telecommunications. I also
serve as New York City's Chief Information Officer.
On behalf of the City of New York, thank you for the opportunity to
appear before you today to discuss how the interests of public safety
communications can be safeguarded in the upcoming 700 MHz band
auctions.
Clearly, public safety communications continue to face significant
challenges and uncertainties--even as the February 2009 deadline for
transition of 700 MHz spectrum to public safety and commercial use fast
approaches.
New York City appreciates the FCC's interest in potentially
utilizing the upcoming 700 MHz spectrum auction to advance public
safety communications, and this Committee's examination of the issue.
At the same time, however, we are deeply concerned about the potential
consequences of any FCC decision that mandates establishment of a
nationwide, public-private broadband network, which would be shared by
public safety and commercial users.
Under the Frontline Wireless plan, a nationwide, public-private
network would be deployed on 22 MHz of spectrum in the 700 MHz band--12
MHz of which is currently allocated to public safety, and 10 MHz of
which is scheduled for commercial auction. The auction winner would
build a nationwide network, and negotiate with a newly established
national public safety licensee over respective access rights.
Commercial users would receive ``secondary access'' to the public
safety segment, and public safety would receive ``emergency access'' to
the commercial segment.
The City of New York certainly welcomes the establishment of rules
that would make more spectrum available in the 700 MHz and other
frequency bands for public-private partnerships on a voluntary basis--
for both voice and data communications. However, we are concerned about
the imposition of such a sweeping mandate, particularly after only a
few months of consideration and debate. Ultimately, New York City's
present view is that public-private partnerships should be optional.
Furthermore, decisions to enter into such partnerships, along with
coordination decisions, should take place at the regional, rather than
at the national level. And, finally, the Federal Government must not
dictate use of particular frequency bands or technologies.
The sudden emergence and popularity of proposals for public-private
partnerships appears at least partly due to a misperception that the
public safety community is unable to ``solve'' its own communications
and interoperability needs. This is typically accompanied by the view
that the Federal Government has invested massive funding and allocated
a great deal of spectrum to support local public safety efforts--and
that commercial intervention is now necessary.
Consequently, I believe it is relevant to this hearing for me to
share, briefly, New York City's perspective on Federal funding and
spectrum allocations for public safety communications; and to describe
the state-of-the-art broadband wireless network New York City is
deploying--virtually without Federal support.
Unfortunately, for more than a decade, the Federal Government's
provision of funding and spectrum to state and local public safety
communications has been inadequate. New York City, which is at highest
risk for another terrorist attack, has committed more than $1 billion
of local taxpayer money since the 9/11 attacks--to enhance our public
safety voice and data communications networks, and to upgrade and
``harden'' our E-911 infrastructure. At the same time, we have received
less than twenty cents on the dollar in Federal financial support to
assist these homeland security-related initiatives.
Equally distressing is the perception that public safety has
inefficiently used radio spectrum. Nearly eleven years ago, on
September 11, 1996, a high-level Federal advisory committee summarized:
``Not only does the shortage of spectrum jeopardize the lives and
health of public safety officials, it threatens their ability to fully
discharge their duty to protect the lives and property of all
Americans.''
Regrettably, since that warning cry, there has been no national
provision of spectrum to support emergency responder voice
communications. Indeed, absent action by this Committee last year,
public safety would have been forced to wait well beyond 2009 for the
700 MHz spectrum. In addition, there has been only a single--much
appreciated but exceedingly inadequate--provision of 4.9 GHz spectrum
to support data applications.
To summarize, the lack of Federal financial support and spectrum--
rather than flawed or inadequate efforts by the state and local public
safety communities--are at the heart of the challenge to achieve
advanced broadband services and interoperability.
In March 2004, New York City issued a Request for Proposals for the
implementation of a broadband wireless network for public safety to
support our own high-speed public safety data needs. The solicitation,
which was agnostic as to spectrum and technology, challenged the
country's leading systems integrators to propose the best available
solution.
At the time, no Federal programs were available to assist the City
in this initiative; and the public safety segment of the 700 MHz band
was earmarked by the FCC for narrowband and wideband applications,
rather than for broadband use. Consequently, the City, at considerable
local expense, ``went it alone.''
In September 2006, after evaluating and testing several competing
solutions, New York City contracted with Northrop Grumman to deploy a
$500 million high-speed data network for public safety. The network,
known as the New York City Wireless Network, or ``NYCWiN,'' will enable
a wealth of mobile and fixed applications, including real-time video,
rapid database lookup and the exchange of rich graphical information.
NYCWiN will provide critical, real-time information to the City's first
responders where and when they need it.
The network, which is already operational in Lower Manhattan, and
scheduled for citywide deployment by March 2008, utilizes 10 MHz of
licensed spectrum in the 2.5 GHz band--spectrum which New York City has
indeed purchased at market rates. NYCWiN employs UMTS technology, which
is well suited for high-speed mobile data applications. Moreover,
NYCWiN is an IP-based network, enabling fully interoperable data
communications. Essential information can be shared instantaneously
among multiple agencies. New York City is working through its existing
interoperable communications relationships with its partners in state,
Federal and regional public safety agencies to ensure access to the
network.
The FCC is now considering a nationwide buildout of a public-
private network for first responders, on the 700 MHz frequency band,
which aims for capabilities similar to those of NYCWiN.
New York City has described in comments filed with the FCC various
factors that the FCC should consider in evaluating the merits of such a
proposal. In the interest of time, I will outline our two most pressing
concerns.
First, a national network, based on a ``one-size-fits-all''
approach, may not meet the disparate communications needs of emergency
responders throughout the country. Second, it is not clear such a
network would be engineered to meet the demanding, mission-critical
needs of public safety.
With respect to the one-size-fits all approach, as I just
described, New York City is implementing a broadband data network that
utilizes UMTS technology and the 2.5 GHz band. Recently, the District
of Columbia opted to deploy a broadband network that utilizes a
different technology (EV-DO), and different frequency band (700 MHz).
These cities' respective decisions were dictated by the fact that New
York City and the Capital Region must contend with much different
physical environments and different operational priorities.
Any scheme for a national network must, from technology- and
spectrum-related standpoints, ensure that each implementing public
safety jurisdiction has the flexibility to evaluate and respond to its
own circumstances, both physical and operational. It should surprise no
one that the same technology and spectrum that ``works'' for New York
City may not be very well suited to Los Angeles, and Boise, and
Buffalo.
To accommodate these differences, the policies and rules governing
the 700 MHz band must recognize the need for flexibility and discretion
at the local, state and regional levels. New York City has implemented
citywide and regional interoperability protocols between and among our
emergency responders and those of neighboring counties in New York and
New Jersey, along with regional authorities and various state and
Federal agencies.
Toward this end, the City participates in several regional planning
bodies, including the Region 8 Regional Planning Committee, which
currently coordinates use of 700 MHz and 800 MHz channels. The regional
role in interoperability planning should be preserved with respect to
broadband. Nor does the proposal for a national public safety licensee
sufficiently address how channel allocation and frequency coordination
will take place among various local, state and Federal entities
operating in a common area and/or responding to the same emergency.
New York City's second major concern is that the proposed 700 MHz
``public-private'' network will, in fact, be dominated by commercial
interests, and that deployment and maintenance will be undertaken based
on a return on investment, rather than effectiveness of emergency
response. The current FCC rulemaking includes no parameters to uphold
mission-critical standards; and public safety agencies have no
recognizable right, such as a license, to protect their interests.
Moreover, the current proposal provides no indication of how the FCC
will address the complex issues of ensuring that public safety has
priority access vis-a-vis commercial interests, and that access amongst
various public safety authorities is appropriately prioritized.
Ultimately, emergency responders must not be forced to rely on a
carrier-grade network, which would most likely not be available to them
when it is most needed. Anyone who has ever experienced a large-scale
emergency knows that cell phone communications quickly deteriorate and
soon become impossible. This is the result of several factors,
including ``competition'' among callers for access to cell antennas;
possible degradation of the wired backbone interconnecting the network;
and, frequently, the loss of both commercial and backup power to the
network.
Compare this to NYCWiN. In the event of a major emergency, New York
City government will be able to prioritize network access among various
agencies and users. The network is being built with redundant
backbones, overlapping coverage and a minimum of 24-hour backup power
at each site. One cannot imagine that a commercial carrier would be
willing to invest the capital required to build such a robust network
in New York City. Public safety cannot be put in the position of
sharing a ``plain vanilla'' network, which, quite frankly, is no option
at all.
In the final analysis, public safety systems stand in stark
contrast to commercial systems. Deploying and maintaining public safety
systems entail much more detailed requirements analyses, engineering,
testing and training. Heightened requirements include capacity,
coverage, system restoration, reliability and security. Public safety
networks require greater diversity and redundancy. There can be no
experimentation in the public safety sector, because lives are at
stake.
In conclusion, the public-private partnership model holds promise;
and should continue to be developed as a means of deploying next-
generation voice and data networks utilizing various frequency bands.
However, this model is also new and untested. Mandating that a portion
of the limited spectrum currently allocated to public safety be used
for a nationwide, public-private broadband network on the 700 MHz band
is fraught with uncertainties and risks.
Chairman Inouye, this completes my statement. The City of New York
appreciates very much the privilege to participate in the Committee's
hearing. I would be pleased to respond to your questions.
Senator Lott. Mr. Chairman?
The Chairman. Senator Lott?
STATEMENT OF HON. TRENT LOTT,
U.S. SENATOR FROM MISSISSIPPI
Senator Lott. At this point--could I ask unanimous consent
to include in the record, a letter to the FCC from the Rural
Cellular Association and Cellular South, Incorporated?
The Chairman. Without objection, so ordered.
[The information previously referred to follows:]
Lukas, Nace, GutIerrez & Sachs
McLean, VA, June 13, 2007
Via Electronic Filing
Marlene H. Dortch,
Secretary,
Federal Communications Commission,
Washington, DC.
Re: Response to CTIA Coordinated Ex Parte Communication--PS Docket
No. 06-229; WT Docket Nos. 96-86, 06-150, 06-16
Dear Ms. Dortch:
On behalf of Rural Cellular Association \1\ and Cellular South,
Inc.,\2\ this letter is to respond to the Ex Parte Communication
coordinated by CTIA on behalf of 55 entities that oppose adoption of
the Commission's proposed geographic build-out requirements in the 700
MHz Service Rules proceeding.
---------------------------------------------------------------------------
\1\ RCA is an association representing the interests of
approximately 100 small and rural wireless licensees providing
commercial services to subscribers throughout the Nation. RCA's
wireless carriers operate in rural markets and in a few small
metropolitan areas. No member has as many as 1 million customers, and
all but two of RCA's members serve fewer than 500,000 customers.
\2\ Cellular South is the Nation's largest privately-owned wireless
carrier serving all of Mississippi and portions of Alabama, Tennessee,
Arkansas and Florida. Most of the area served by Cellular South is
rural in nature.
---------------------------------------------------------------------------
The CTIA letter misconstrues the Commission's geographic build-out
proposal as one that would ``force'' or ``compel'' 700 MHz licensees to
construct facilities beyond the areas the licensees prefer to serve.
That is simply not the case. In the Commission's words the proposal in
question ``. . . combines performance requirements based on geographic
benchmarks and a `keep what you use' rule.'' \3\ This arrangement would
allow licensees to make economically sound business decisions based on
their ability and willingness to serve consumers in any area. To the
extent that any licensee chooses not to serve a part of its license
area the spectrum rights to that area would be relinquished, but not
before the licensee has opportunities after three, five and 8 years to
protect a percentage of the market adjacent to the served areas. The
licensee would always be in control of decisionmaking over what areas
would be served, protected or relinquished.
---------------------------------------------------------------------------
\3\ Report and Order and Further Notice of Proposed Rulemaking in
WT Docket No. 06-150, et al (FCC 0772), at para. 212.
---------------------------------------------------------------------------
A ``keep what you use'' system is consistent with the pursuit of
market-based solutions and has the added value of curbing potential
inefficiencies such as spectrum stockpiling or a licensee's inability
to build-out the areas for which it is licensed. Secondary market
transactions including spectrum leasing likewise could allow a licensee
to work with other companies that are willing to serve areas not a
priority for the original licensee.
Strict performance requirements based on geographic coverage are
vital to promoting near-term availability of wireless broadband
services in rural areas. The Commission's proposal properly recognizes
that effective use of 700 MHz spectrum to be auctioned will best serve
consumer interests. Rural communities deserve the opportunity to
experience all the advantages that wireless broadband can offer. The
alternative proposed in the CTIA letter is equivalent to proceeding
without a safety net to guard against market failure and consumer harm.
Respectfully submitted,
David L. Nace
cc: Christopher Guttman-McCabe, CTIA
Senator Lott. And I would like to just like to thank the
panel for their testimony. In particular, I'd like to recognize
Mr. Barksdale, from my home State, college contemporary, a real
leader in telecommunications and business. We appreciate all
you do, and we appreciate, in this instance, once again, your
willingness to get involved, even though it's not something you
particularly need; you're involved in it, because of your
interest in public service. And whether people agree or
disagree with what you're trying to do, I think you should be
commended for your effort, and I thank you for that.
Thank you.
The Chairman. I thank you very much.
Because of the time element, I will be submitting my
questions to the panel.
But my primary interest with respect to public safety is to
determine which option we've been discussing would give our
first responders the best chance of building a nationwide
interoperable broadband-capable network.
As I see it, first, we can rely on local and regional
public safety networks, as we do now; or, second, we can use
the 12 MHz already allocated to public safety for a national
network; or, three, we can do something like the Frontline
proposal and use public safety's 12 MHz along with 10 MHz of
commercial spectrum.
Under each of these scenarios, I'd like to know, what is
your best estimate as to how much it will cost public safety to
build and operate a next-generation broadband network? And how
long will it take to build this network across the Nation?
So, this is a complex question that takes some
consideration, so I would hope that you will carefully respond
to this question.
May I now call on Senator Stevens?
Senator Stevens. Well, thank you, Mr. Chairman.
I will submit some questions also.
But I want to try to examine this, and I don't want to be
offensive, but it sort of looks like this is ``Cyren Call''
like proposal, that we really rejected the past approach, and
we're approaching, now, a different concept, but it comes back
to the same thing, as I see it.
Now--I could be disabused of that--now, Mr. Barksdale, it's
my understanding that Frontline has indicated it will not
comply with 9-1-1 requirements or CALEA, in terms of public
safety, in terms of handling the mandatory court-ordered
wiretaps for public safety, and you will not handle 9-1-1. Is
that right?
Mr. Barksdale. That is not correct, Senator.
Senator Stevens. What?
Mr. Barksdale. I'm sorry, I need to turn this on.
That is not correct. We would be supportive of that, and
we've already told the FCC that we would support those.
Senator Stevens. You would comply----
Mr. Barksdale. I don't know where the----
Senator Stevens.--with them?
Mr. Barksdale. Sir--yes, sir.
Senator Stevens. I'm told that Frontline indicated to the
FCC it does not want to take on those requirements, and asked
to be absolved from complying.
Mr. Barksdale. I do not know where that came from, but we
have now told the FCC we'd be happy to do that. I also would
point out----
Senator Stevens. I only have 5 minutes, now. And----
Mr. Barksdale. Yes, sir.
Senator Stevens.--this is from the FCC, ``We seek comment,
as well, on Frontline's view there's no need to impose CALEA,
E-911, or similar obligations on the `E Block' licensee,
because it believes that retail service provides that spectrum
and already is subject to similar requirements''----
Mr. Barksdale. Yes.
Senator Stevens.--``for the blocks that they already
have''--not this----
Mr. Barksdale. Yes----
Senator Stevens.--block, but the block----
Mr. Barksdale.--that was the FCC's language. We submitted
technical papers that said that we could comply with it.
Senator Stevens. Well, it's my understanding that that's
what Frontline submitted to FCC. All right, well, I'd like to
have that straightened out.
Mr. Barksdale. That's not true. This man who wrote the
document----
Senator Stevens. I'd appreciate it if you'd straighten it
out for the record.
Mr. Barksdale. Yes, sir, I--we will get you the----
Senator Stevens. Our counsel----
Mr. Barksdale.--exact answer.
Senator Stevens.--says that was filed with the FCC.
Mr. Barksdale. I will make sure you get the exact answer--
--
Senator Stevens. All right.
Mr. Barksdale.--in response----
Senator Stevens. Now----
Mr. Barksdale.--to that.
Senator Stevens.--the Frontline proposal calls for allowing
anyone anywhere to access their dual-use network, as I
understand it. If that's the case, then how can we say this is
a public safety network?
Mr. Barksdale. Because normally we're not having hurricanes
and 9/11, and public safety, the amount of the 20 MHz it would
be using, in most markets--not all, certainly, and maybe more
in New York than in Boise--is a lower percentage of this
enormous amount of spectrum. And then, when there is----
Senator Stevens. But, now, wait----
Mr. Barksdale.--an emergency, we would have----
Senator Stevens.--what do you do with it, if it's not used
by public safety? Are you leasing it out?
Mr. Barksdale. Yes, sir. We are leasing or selling that
service. We operate a network--as opposed to previous people
who put up money and tried to resell spectrum, we would
actually operate a nationwide network. We will build it out in
10 years, covering 99 percent of the population, we'll put the
money up front for the auction----
Senator Stevens. But where's the partnership, if you're
operating it and you're selling it, you're getting money, and--
are you going to buy equipment for public safety?
Mr. Barksdale. We are going to build the network. Public
safety would----
Senator Stevens. That's not what I asked, now. Are you
going to buy equipment for public safety with the income from
this public partnership?
Mr. Barksdale. Which equipment?
Senator Stevens. The equipment for them to go into--new
equipment for interoperability.
Mr. Barksdale. Well, there are two pieces. One is the
network, the switching equipment. We build and--we buy that,
yes, sir, every bit of it.
Senator Stevens. I understand that. But they----
Mr. Barksdale. Those handsets----
Senator Stevens.--have a requirement for equipment to
become interoperable--they have a requirement--public safety
has enormous requirements. So, I want to see--and the Cyren
Call said they would take some of their income and help public
safety buy that equipment.
Mr. Barksdale. This is not Cyren Call.
Senator Stevens. I understand that. Are you going to buy
the public----
Mr. Barksdale. We're going to buy the network----
Senator Stevens.--are you going to buy the public safety
any equipment, Mr. Barksdale?
Mr. Barksdale. Yes, sir, $12 billion worth of it, at least,
which is the network that will be interoperable. They would
have to provide their own handsets. They are certainly free to
use different technologies that, in New York, might fit
differently than others, but they would use this spectrum. We
would put up at least the $12 billion to build the network--
from private funds, not from public funds--and then that would
be an interoperable network, just like the cellular system
works today. It's interoperable.
Senator Stevens. We only have--each of us have just so much
time. I'd really appreciate it----
Mr. Barksdale. Yes.
Senator Stevens.--if you'd answer my questions. I
understand what you said before. I'm just asking you questions.
All right?
Mr. Barksdale. Yes.
Senator Stevens. Now, what are the costs of this network.
This network you wish to build out, what would be the cost of
it?
Mr. Barksdale. Approximately $12 billion.
Senator Stevens. And where will that money come from?
Mr. Barksdale. From private investors.
Senator Stevens. It won't come from the leasing of the
spectrum?
Mr. Barksdale. Well, that's how you get the capital of the
company from private investors. Then they would resell the use
of this network to commercial users, to wholesale users, to
innovators, and to others, who would pay by the minute for the
service, and that would be the revenue stream that would pay
for the long-term business.
Senator Stevens. But other people at this auction are going
to pay enormous sums of money for spectrum.
Mr. Barksdale. Yes, sir.
Senator Stevens. They will have the ability to build
networks, too.
Mr. Barksdale. Yes, sir.
Senator Stevens. And those networks would be accessible by
public safety people also, right?
Mr. Barksdale. Not necessarily.
Senator Stevens. Why not? They're just--anyone can access--
--
Mr. Barksdale. Well, they're as accessible as they are
today, but they're not built. As was pointed out by the
gentleman from New York, this network will be built
specifically to withstand some of the hardened requirements of
public safety.
Senator Stevens. I'm trying to understand the difference
between Mr. Cosgrave and your position, as far as this network
is concerned. I support getting public safety all the network
and all the money we can possibly get them to provide an
interoperable----
Mr. Barksdale. Right.
Senator Stevens.--system. Cyren Call led us to believe that
the money that they would get from leasing the spectrum would
be used for public safety. When we examined that, that wasn't
quite the case.
Mr. Barksdale. This proposal is not the Cyren Call
proposal, has nothing to do with it.
Senator Stevens. But what's the difference?
Mr. Barksdale. On this proposal, we take the public safety
spectrum and this other 10 MHz, put them together, build a
network right down the middle, covering 99 percent of the
people. Private interests build the network. We sell out the
portions that public safety doesn't use. When public safety
needs more for emergencies, they can absorb all of this
commercial, through written agreements that are well in
existence before this, so that they can expand the network. In
a case of Hurricane Katrina or 9/11, they get all the spectrum.
But most of the time, you don't have that; therefore, the
spectrum lays fallow. We're submitting that we would be able to
wholesale that spectrum to the people--to small cellular
carriers who can't get national coverage, to innovators who
can't get on AT&T or Verizon's system, as indicated in today's
Wall Street Journal, the people who are willing to pay for it.
That's the business risk we take. We're willing to take the
risk. Others may bid higher than we, and they may get the
spectrum. But that's the idea, that private interests would
love to do this, and, as a great benefit to public safety,
build it out.
But, to Mr. Cosgrave's point, we're not requiring New York
City to participate in this. It would be their option.
Senator Stevens. Really, you know, I'm out of time already.
I'm trying to get questions. Would you please just answer my
question?
Mr. Barksdale. Yes, sir.
Senator Stevens. Now----
Mr. Barksdale. I apologize.
Senator Stevens.--we have--as I understand it, we have 84
MHz before us, in terms of the total concept of what's going to
be available after the digital change in 2008.
Mr. Barksdale. I think that's correct.
Senator Stevens. And if I understand it, the public safety
has 24 MHz reserved already.
Mr. Barksdale. Yes, sir.
Senator Stevens. And you want to add 10 to that.
Mr. Barksdale. Yes, sir.
Senator Stevens. But you would take 12 MHz of the existing
24 MHz, and that 10 MHz, and you would control it by this
private partnership that you create. Now, this is a stock
company, right?
Mr. Barksdale. Yes, sir.
Senator Stevens. Well, where's the partnership?
Mr. Barksdale. Well, before we can get the bid, before we
start, we have to have signed agreements, as Ms. McCarley said,
with the public safety entity that we're proposing, which would
be a public safety spectrum trust that has to be signed and
agreed to. And that is the partnership. They're our principal
customer. They would be treated--they would be our largest
customer.
Senator Stevens. You would be able to lease to them before
all this demand of accessibility for the public safety comes,
you'd be able to lease 34 MHz--well, you'll control 24--24 MHz
to those who might otherwise bid for it at the public auction,
right?
Mr. Barksdale. Well, 10 of it to others, because public
safety has already got 10.
Senator Stevens. But you're going to control 12 from public
safety, plus the 10 that you want----
Mr. Barksdale. Yes, sir.
Senator Stevens.--to be allocated to this----
Mr. Barksdale. Yes, sir.
Senator Stevens.--to Frontline.
Mr. Barksdale. Yes, sir.
Senator Stevens. You're not going to pay anything for that.
Mr. Barksdale. We're going to pay whatever the bid price
is, billions of dollars. It could cost 20, 40 billion dollars
to pay for it.
Senator Stevens. You're going to bid on the 10 MHz?
Mr. Barksdale. Yes, sir. That's the whole point. We're not
asking anybody to give us this spectrum. We're going to bid on
it. There are others who are going to bid on it. And then, in
addition, public safety gets the free ride of the network.
That's a heck of a deal.
Senator Stevens. Well, it is, if it really--and I see my
light's on--it is, if the commitment is there to public safety.
Mr. Barksdale. Of course.
Senator Stevens. And I think----
Mr. Barksdale. And only if that's true.
Senator Stevens.--if part of this is leased out, how does
public safety get it after it's leased out?
Mr. Barksdale. Well, it's just like the network works
today, sir, everybody participates, but some have higher
priorities. Public safety would have the highest priority.
Senator Stevens. All right. Well, then, the last question
is, if it doesn't achieve the goal, how does FCC get control
again?
Mr. Barksdale. Well, that's part of the agreement that
would have to be nailed down. We've made some suggestions on
that subject, which I think would be acceptable. But the main
thing is, we would have to put the money up front. That's
different than any prior new entrant has had to do.
Senator Stevens. I applaud the difference between that and
Cyren Call, but I want to know, if it doesn't achieve its
result, how do we get it back so it can be auctioned again, and
that money applied, the money that's coming in, from----
Mr. Barksdale. Yes, sir.
Senator Stevens.--the auction is first dedicated to public
safety. And----
Mr. Barksdale. But a very small amount.
Senator Stevens. Well, it's a billion dollars. Then we----
Mr. Barksdale. That's not near enough, Senator.
Senator Stevens. I understand that, but we had earmarked
some money to repay money we previously put up, then it comes
back and it----
Mr. Barksdale. Yes, sir.
Senator Stevens.--deals with public safety again.
Mr. Barksdale. Correct.
Senator Stevens. So, if it brings in the kind of money that
we think it's going to bring in. It's going to be a tremendous
amount. Yours will be bid as part of the total of the 50 MHz
that's--no, the 60 MHz available now? You're going to be in
competitive bid for up to 10 MHz, is that what you're telling
me?
Mr. Barksdale. Yes, sir. A portion of that 60 MHz--10 MHz
of it.
Senator Stevens. Who do you compete with on that?
Mr. Barksdale. People who buy spectrum to build out
networks--AT&T, Verizon, anybody who wants to step up, private
investors, public investors.
Senator Stevens. Well, I'm taking too much time. I'll have
some more questions, but I do apologize. In terms of the
concept that you're going to be part of the----
Senator Dorgan. Could I ask him to yield----
Senator Stevens.--auction.
Mr. Barksdale. Yes, sir.
Senator Stevens. And you're going to go in and bid for 10
MHz.
Mr. Barksdale. Yes, sir.
Senator Stevens. If you don't get it, this doesn't work. If
someone----
Mr. Barksdale. No, somebody else will get it. We ask that
the FCC set it aside for this purpose--public safety----
Senator Stevens. All right. Well----
Mr. Barksdale.--and combined with----
Senator Stevens.--if it's not in----
Mr. Barksdale.--their other.
Senator Stevens.--the public auction----
Mr. Barksdale. And if they do that, somebody will bid on
it. If they--if nobody bids on it, it goes back into the----
Senator Stevens. Well, they can only bid on it to compete
with you within your plan, right?
Mr. Barksdale. Only bid on it--I didn't understand the
question.
Senator Stevens. You want 10 MHz set aside to----
Mr. Barksdale. Yes.
Senator Stevens.--join the 12----
Mr. Barksdale. Yes, sir.
Senator Stevens.--and----
Mr. Barksdale. Exactly.
Senator Stevens.--you can bid on that.
Mr. Barksdale. Yes, sir.
Senator Stevens. But for the purpose outlined in your
Frontline proposal.
Mr. Barksdale. And contractually agreed to with the
representatives of the public safety community and the FCC in
the United States.
Senator Stevens. But the people that are competing with you
have to agree with your plan on that 10 MHz.
Mr. Barksdale. For that 10 MHz, whoever competes with us
would have to agree to that plan, yes, sir.
Senator Dorgan. Senator Stevens, could--would you yield
just for----
Senator Stevens. Yes. I'm sorry to take so much time. I had
a problem with Cyren Call, and----
Senator Dorgan. I understand.
Senator Stevens.--I'm developing another problem with this,
I want you to know.
[Laughter.]
Mr. Barksdale. Please don't pick on me because of Cyren
Call. This has nothing to do with that.
[Laughter.]
Senator Dorgan. But if you would yield just for----
Mr. Barksdale. This was a gift.
Senator Dorgan.--so that I can understand the point. I
appreciate the questions you've asked.
Is it a business model that says you will go out and bid
on, and hopefully achieve, the 10 MHz, and you'll pay for that,
and then you block that with the 12 MHz that's public safety.
You----
Mr. Barksdale. Yes.
Senator Dorgan. You will not be paying for that. And that--
--
Senator Stevens. Well, he's just said he wants 10 MHz set
aside----
Mr. Barksdale. Right.
Senator Stevens.--to comply with his plan, and anyone else
can compete and bid to fulfill that plan----
Senator Lautenberg. There is an order here, Mr. Chairman.
Senator Stevens.--fulfill that plan. But it's not to
compete--to go and have a nationwide plan that would include
service to public safety.
Senator Lautenberg. I've been waiting a long time.
Senator Stevens. Thank you. I'm sorry.
The Chairman. Senator Lautenberg?
Senator Lautenberg. Mr. Chairman, there are fairly
complicated issues here, and----
Senator Stevens. Yes.
Senator Lautenberg.--and I really do think it's hard to
thread through, with the volume of testimony, and then the
things that we'd like to know more about.
I'm going to focus on Mr. Cosgrave, because we're
neighboring States, and we both shared very significantly in
the tragedy of 9/11, and saw what happened when police
departments couldn't communicate with fire departments. It
compounded that tragedy by a major factor. It just was very
painful throughout. It has been, even in the later years.
So, now, New York City is in the process of--is your
interoperability requirement fully met, at this time?
Mr. Cosgrave. Well, we've certainly--in New York City, have
made significant progress since 9/11. Commissioner Kelly and
Commissioner Scapetta would certainly tell you, if they were
here, that they feel the police department and fire department,
respectively, have much better communications today, and that
they are, in fact, capable of being interoperable.
You know, there's a lot of confusion on this whole question
of interoperability. Fire departments--first responder
organizations, fire departments, police departments, are, in
effect, paramilitary organizations, and they run with a chain
of command. And you don't want every fireman to be able to talk
to every policeman. So, this notion of interoperability being,
sort of, everybody's got to talk to everybody, is a false
notion, to start with. What----
Senator Lautenberg. But----
Mr. Cosgrave.--you want to do is have the chains of command
be able to talk, and we certainly can effect that today very
effectively.
Senator Lautenberg. So, today, that part of the process----
Mr. Cosgrave. Absolutely.
Senator Lautenberg.--is complete. All right. Now, how about
the same question related to communities, let's say, in New
Jersey. We're, after all, part of the same metropolitan area.
So, has New York City addressed that part of the question?
Mr. Cosgrave. We work together, we have committees that----
Senator Lautenberg. Professor Weiser's shaking----
[Laughter.]
Mr. Cosgrave. Yes, I noticed, as I looked at the right
side, here. We work together, we have committees that do that.
But I would agree with Professor Weiser's negative nod that
it's not where it needs to be.
Senator Lautenberg. OK. So, then the objective of a
nationwide service is still the right way to go, because if we
can't, across our river, be clear in which fire department,
which police department, which boats, et cetera, are operating
to respond to----
Mr. Cosgrave. There's no question about that. And the need
for capital to build the infrastructure to allow this is a very
real point. Clearly, New York City, recognizing the need, and
Washington, D.C., recognizing the need, were able to raise the
capital. But I understand the problem that other areas have----
Senator Lautenberg. Yes.
Mr. Cosgrave.--where they, maybe, don't have the resources
to raise the capital. So----
Senator Lautenberg. That----
Mr. Cosgrave.--absolutely, the financing of this is a
major, major issue.
Senator Lautenberg. Yes. And that will be a problem
throughout the country. I mean, we're----
Mr. Cosgrave. Correct.
Senator Lautenberg.--especially areas that are close to one
another, and metropolitan areas, across a river, across a
boundary.
Mr. Barksdale, I just want to be sure that I heard
something correctly that you said, and that was that safety--
did I hear you say--would get a free ride--public safety would
get a free ride?
Mr. Barksdale. Public safety would not have to pay for the
$12 billion network that we would build nationwide, that they
could use; that is--that would be built out. It is certainly
our intention that we would make it available. But, for
example, in New York, if they already have a system, they don't
want to participate, they don't have to participate.
Senator Lautenberg. Right. But I think that the suggestion
that safety gets a free ride----
Mr. Barksdale. Well, let me put it this way----
Senator Lautenberg.--people probably applaud that one.
Mr. Barksdale. Well, they ought to. The Wall Street Journal
said, ``This would lower the auction price if they compromise
it with this public safety thing.'' What they forgot is the $12
billion to build the network, that we all dream of for the
future, is going to be paid for by the same taxpayers, whether
they're State, local, or Federal. Add that to the auction
price, and it is a terrific deal for the government, for the
taxpayers. They will spend less money on our proposal than any
other proposal entertained.
And I couldn't disagree more with this Cyren Call thing. It
requires no legislation. We participate in the auction. It has
nothing to do with that sort of proposal.
This is a great deal for public safety. Does it solve
everything? Heck no. There are a lot of things public safety
has to do. But it would allow them to focus on those important
issues without worrying about this nationwide network, which
will be a godsend for them. This is what the Governors reported
in Mississippi--we begged people to come in and do this after
Katrina.
Senator Lautenberg. Well, since the threat of attack, the
threat of a major catastrophe still looms large, we're going to
have to spend some portion of our annual budget in these areas,
because we spend $3 billion a week on the war that we're
presently in, and with supplementals boosting that. So, we pay
for the things that we want to get done. And----
Mr. Barksdale. Yes, sir, but one other thing----
Senator Lautenberg. And the protection of the public, right
now, is uppermost. When I see--and I have a responsibility for
safety and security in transportation, harbors, and so forth,
as a Chairman of the Subcommittee, and I see that--how
pitifully small the budgeting is for these things, and yet, we
find other ways to put money into programs that we question
very sharply.
Thanks, Mr. Chairman. Thank you all.
The Chairman. Thank you very much.
Senator Smith?
Senator Smith. Mr. Barksdale, if I understand your model,
the 10 MHz you're going to add so that there's private money to
build out, what would then be available to the public----
Mr. Barksdale. Yes, sir.
Senator Smith.--it would be leased--the 10 MHz would be
leased commercially, but those leases would be subject to the
call of public safety.
Mr. Barksdale. Yes, sir.
Senator Smith. Who would trigger that requirement?
Mr. Barksdale. Well, the agreement that would be specified
between whoever wins the auction and the public safety spectrum
trust.
Senator Smith. And without the involvement of public or
private money, the point you've made, and the point I made in
my opening statement, is that there just isn't going to be the
money to build this out.
Mr. Barksdale. No, sir, they won't be built. The networks
won't be built.
Senator Smith. OK.
I wonder, Mr. Weiser----
Mr. Barksdale. Now--some will, now. Obviously, New York,
Washington, some others. But nobody else is building them right
now.
Senator Smith. But your point is, it won't be built on a
national-enough scale.
Mr. Barksdale. No way.
Senator Smith. OK.
Mr. Weiser, if adopted, the Frontline proposal would impose
many requirements on the ``E Block'' license.
Mr. Weiser. Right.
Senator Smith. What do you think would be the impact on the
amount of money the auction participants would be willing to
pay for the ``E Block'' license licensee if they were--if
requirements are proposed?
Mr. Weiser. It would probably be less. It's hard to say
exactly how much, but the encumbered requirement of serving
public safety, as Mr. Barksdale has outlined, is a fairly
demanding responsibility. There is some opportunity that comes
with it, which is to work with public safety and to use the 12
MHz of the national public safety licensee. So, that is some
offsetting benefit. But, on net, I would imagine it would be
less than otherwise would be obtained.
Senator Smith. If these regulations that Frontline's
proposed were adopted in a general rulemaking that applied to
all wireless now--or should they be applied to all broadband
providers, in your view?
Mr. Weiser. Sir, there are different sorts of regulations
that are at issue. One is the requirement to serve public
safety. That's the principal one. And that one, I think, is
best done in a focused manner, because public safety has
particular needs, and it needs to be done in a coordinated
fashion. So, I don't think it--that would work effectively
across the board.
Senator Smith. So, you don't think the FCC should be
adopting rules for certain providers that do not apply to
others.
Mr. Weiser. I wouldn't necessarily say it that way. I think
that, you know, in the context of auction, this proposal has a
particular goal in mind, to serve public safety with one part
of the spectrum, and I think, as I believe Senator Inouye said
at the beginning, the only goal shouldn't simply be to maximize
the amount of auction revenue. This is a proposal that could,
you know, provide the rollout of the next-generation network.
And I think that is a proposal that, although a risk, can be
managed, and can facilitate some good benefits.
Senator Smith. Thank you, Mr. Chairman.
Senator Stevens. Could you ask him one--if you would
yield----
Do you perceive competition to bid on that 10 MHz, based on
this plan that's prepared, by Frontline?
Mr. Weiser. Sir, I do think there can, and should, be
competition. I will say----
Senator Stevens. Wait, wait. From whom?
Mr. Weiser. Sir----
Senator Stevens. Who would compete with Frontline?
Mr. Weiser. Sir, I think there could be a number of
providers out there who would see this opportunity. The
opportunity is to build a next-generation network, from the
ground up, with public safety as an anchor tenant, and have the
option not only for that 10 MHz, but to partner with public
safety for an additional 12 MHz. So, I do think Frontline will
not be the only bidder who would come forward. And they'll have
to compete at auction to win this license.
Senator Smith. But that's where the competition occurs, is
at the auction. No other place.
Senator Stevens. Who's going to bid to compete with him and
his plan?
Mr. Weiser. Sir, there are a lot of companies out there who
could bid. Now, I will say one thing, which I explain in my
testimony. The requirement to serve this participation spectrum
with an open-access requirement might limit some bidders. And,
although I understand the rationale behind that, I don't know
that it necessarily helps public safety, per se. So, that could
be limiting the bidding. But, even with that, I still think
there are going to be others who will come forward. This is an
opportunity; and for great entrepreneurs, like Mr. Barksdale,
they'll see it, and they'll try to seize it.
Senator Smith. Thank you, Mr. Chairman.
The Chairman. Senator Dorgan?
STATEMENT OF HON. BYRON L. DORGAN,
U.S. SENATOR FROM NORTH DAKOTA
Senator Dorgan. Mr. Chairman, thank you very much.
I think it's safe to say this is beachfront property, and
it's very valuable, will be auctioned once, by and large, and
establish policy choices for our country for the long period. I
want to try to understand, based on Senator Stevens' question,
exactly the construct.
Mr. Barksdale, my understanding is this--and correct me if
I'm wrong. You would propose to take 12 MHz that is reserved
for public safety, combine it with the purchase, in auction--
presumably a winning bid in auction--of 10 MHz, and have a 22
MHz system. You don't pay for the 12 MHz. You do pay for the 10
MHz. Is that correct?
Mr. Barksdale. Actually, it's--the 12 MHz becomes 10 MHz,
because 2 MHz are guard bands and are not----
Senator Dorgan. Right.
Mr. Barksdale.--usable. So, it's really 20 MHz, yes, sir,
10 MHz of which would be public safety's part, 10 MHz of which
we would bid at auction. Yes, sir.
Senator Dorgan. OK, 10 MHz of which you purchase at
auction. You take the public safety piece, 12 MHz--or 10 MHz.
You don't pay for that. And then you have 22 MHz, and from
that, you build out a system and use it commercially, with a
caveat that the public safety is going to have certain
preferential rights and so on.
So, I think I understand that. Now, the question is, at
what price do you lease back that system to public safety? Or
does public safety access that without cost?
Mr. Barksdale. No, sir, public safety would agree to a
lease price, based on usage, that would be part of this
agreement, agreed to by the public safety spectrum trust----
Senator Dorgan. And you're leasing back----
Mr. Barksdale.--over time.
Senator Dorgan.--you're leasing back to the public safety
use, that those that would use it for revenue for your for-
profit enterprise, and the reason that you're extracting
revenue from them, even though it was their spectrum, is
because you spent $10 billion creating the infrastructure----
Mr. Barksdale. Correct.
Senator Dorgan.--that allows the system to exist. All
right. I think I now understand what it is you're doing. I
suspect that if the FCC sets aside the 10 MHz, I suspect that
there's less value to it, because you have fewer bidders. So, I
don't know what that ``less value'' is, but I think that's one
of the questions that Senator Smith was asking. What ``less
value'' will we have? Now, you might say, ``We'll gain value on
the other side, to the extent that we have an interoperable
network nationally to be used by public safety.''
Mr. Barksdale. Right.
Senator Dorgan. So, you have one consideration of how much
less revenue with fewer bidders for the 10 MHz, number one.
Number two, what is the cost to public safety, and will
they be able to afford it? And under what conditions will you
be restricted in determining reasonable cost, as opposed to
saying to the folks in Fargo, North Dakota, ``Look, here's the
system, we built it, here's what we charge. If you don't like
the charge, tough luck.'' You'll be the only system out there,
so you'll have a substantial amount of power with respect to
what you decide to charge public safety. Is that covered in the
contractual relationship----
Mr. Barksdale. Yes, sir, it would be. And, obviously, as
the anchor tenant would--of any development, the anchor tenant
gets a better deal than anybody else, and would be probably
based on the cost of the system as deployed, and not a retail
price. It would probably be based on a very favorable deal. We
understand an obligation to public safety.
As to your first question, the taxpayer is benefited,
because the taxpayer gets the auction money, plus they don't
have to pay for the network. They're the same taxpayers. So,
you add the two together, and that's the value of the auction.
To the third part of your question, I think that it is
vitally important that the agreement that--whoever wins the
agreement, that they sign with the public safety trust, that it
be a good, well-thought-out, agreed-to proposition that is in
favor, on most--in most every area, toward public safety and
not toward the commercial interest.
Senator Dorgan. Mr. Barksdale----
Mr. Barksdale. But there has to be a written agreement,
yes, sir.
Senator Dorgan. Mr. Barksdale, you made the point about it
increasing concentration, I should say, in all of these areas,
and that's a point that I'm concerned about. I did read The
Wall Street Journal piece that you referred to, and I think it
raises, also, policy questions.
I'd like to ask, with respect to the commercial side of
your business, because--you're doing this because you're
creating a commercial national network, and you're using the
public----
Mr. Barksdale. Right.
Senator Dorgan.--safety piece in order to create a
commercial national network that'll have private sector
investors, it'll have stockholders and so on.
Mr. Barksdale. Yes.
Senator Dorgan. And so, it's a profit-motive system, and
with respect to that piece of what you're doing, I'd like to
ask your intentions with respect to the issue of open access,
for example, as a policy matter.
Mr. Barksdale. It is our intention that it be an open-
access system.
Senator Dorgan. And how would you provide that guarantee to
the FCC and to the Congress?
Mr. Barksdale. That there are certain--there are about
three or four requirements of what ``open access'' means. And
that would be identified in our agreement with the FCC. It's
part of the rules--it would be part--hopefully, part of the
rulemaking that the FCC will provide, here in the next few
weeks, that will drive the auction, because it needs to be
identified. ``Open access,'' to some means something different
than ``open access'' to others.
Senator Dorgan. Well, it does, and it's a particularly
important policy choice, at this point, given--I mean, you
reference it in your----
Mr. Barksdale. Yes.
Senator Dorgan.--testimony, and show us The Wall Street
Journal article of this morning.
Mr. Barksdale. Right.
Senator Dorgan. The other that will cause an apoplectic
seizure here on the Committee whenever I mention it is the
issue of network neutrality. We've had some pretty aggressive
discussions on this Committee about the policy of network
neutrality.
Have you taken a look at those discussions? And how do you
see your commercial enterprise with respect to those issues?
Because we've had some suggest that they'd like to be
gatekeepers.
Mr. Barksdale. Right. Well, I'm not an expert on net
neutrality. I'll give you a written response.
But, in general, all of this service will be wholesaled,
other than that provided to public safety, which will be,
basically, at cost. And the wholesale purchaser of this can run
it however they choose to run it. If it's open access, they can
use whatever technology they want to run. So, the issue of net
neutrality, it seems to me, is a lot less on a system like this
than it is for an ingrained incumbent carrier.
Senator Dorgan. And, finally, you indicated that your
service would cover 99 percent of the country. One hopes that
the 1 percent isn't in Hettinger County, North Dakota, or----
[Laughter.]
Senator Dorgan.--similar area. You were careful to point
out that----
Mr. Barksdale. Senator, I can assure you----
Senator Dorgan.--you cover Hawaii and----
Mr. Barksdale.--it won't----
Senator Dorgan.--Alaska.
[Laughter.]
Mr. Barksdale. I guarantee it won't be.
[Laughter.]
Senator Dorgan. Mr. Chairman, thank you. I think, you know,
these questions are really interesting and important, and I
think we're understanding much more about these policy choices.
Thank you very much.
And I thank the rest of the witnesses, as well.
Senator Stevens. Mr. Chairman, just one comment, if I may.
Senator Inouye and I battled for two Congresses to get the
right to auction spectrum, to start with. And we earmarked, in
existing law, the first billion dollars for public safety. I
think we should amend the existing law and increase it to, say,
$5 billion, whatever is required, to build out the public
safety needs, and let the spectrum continue to be auctioned on
the basis of who will pay to get a system. They're all going to
build out broadband. As a practical matter, this is the new
broadband frequencies that we're talking about. As I understand
it, there will be broadband built out.
Mr. Barksdale. Right.
Senator Stevens. And what the public safety really needs is
the money to organize and do what New York has tried to do, but
they haven't had enough money to even complete there, right,
Mr. Cosgrave I said I wouldn't ask you any questions. But----
[Laughter.]
Senator Stevens.--the concept we have here, as far as I'm
concerned, is splitting off from our original concept that
we're going to auction all this spectrum. This 10 MHz would be
auctioned only to people who would comply with the Frontline
plan, and I think that will lower the value of it, and will
lower the value of the other spectrum. Much better to raise the
value of it all and let public safety have what they need now,
and depend upon the Treasury for the future. We could give them
as much as $5 billion out of this one, I'm sure. The original
bid was estimated to bring in, what, $250 million. Did you know
that? It brought in $18 billion.
Mr. Barksdale. I was a bidder.
Senator Stevens. I hope you were successful--you were
successful, yes.
Mr. Barksdale. Yes, sir.
Senator Stevens. You profited very greatly off of it, as I
understand, and I congratulate you for that. There's no reason
why this should not go into the private sector and be
profitable, too. And future income from all of that will assist
the development beyond what we could do with the initial bid.
So, I'm going to look at increasing the allocation to
public safety on the original bid.
Mr. Barksdale. All I'm saying is, it'll take a lot more
than $5 billion.
Senator Stevens. I agree. But $5 billion for the first
initial part of it, that would cover at least 4 or 5 years.
Thank you.
The Chairman. Thank you.
Senator Thune?
Senator Thune. Thank you, Mr. Chairman.
I appreciate you holding the hearing. I don't have any
questions for this panel. I'll wait until we--let you get the
next panel started.
Thanks.
The Chairman. It is obvious that the issue of the proposal
submitted by Frontline will be the determining factor in the
outcome of this measure. And this measure, this part, concerns
first responders and public safety officials. And we haven't
heard from them.
So, Ms. McCarley, what do you think of this proposal of
Frontline?
Ms. McCarley. Thank you, Chairman Inouye.
The Frontline proposal is very interesting, and it's very
innovative, and it points us in a direction that I think leads
us to a solution.
Now, a thing, I think, that needs to be stressed more fully
here is that a critical component is the public safety trust,
and what public safety would suggest to you is, through that
trust, both the public safety spectrum and the commercial
spectrum could be combined to create a system, a broadband
system, with control, leaving that in control of public safety
agencies through the trust. And we have even explored how we
would put that trust together. And, you know, we would suggest
that ownership would be public safety. It would be
representative of public safety, under the advisement of public
safety, and under the control of public safety at all times.
Many of the issues that have been put on the table here could
be solved by a strong single licensee, if you will, who could
negotiate a very good contract.
So, I think we've heard some very interesting dialogue
here, and it reinforces, even more, the principle that we need
a very strong single licensee to address the issues.
The Chairman. Well, I'd like to thank the panel.
Mr. Barksdale, you should get time-and-a-half for your
performance here.
[Laughter.]
The Chairman. And, if I may, I'd like to submit my
questions to you, and would look forward to receiving your
response.
Thank you very much.
Our next panel consists of the Executive Vice President and
Chief Technical Officer of Verizon Wireless, Mr. Dick Lynch;
the Chief Executive Officer, Centennial Communications
Corporation, Mr. Michael Small; and the Chief Executive Officer
of Txtbl, Dr. Amol R. Sarva.
May I call upon Mr. Lynch.
STATEMENT OF RICHARD J. LYNCH, EXECUTIVE VICE
PRESIDENT AND CHIEF TECHNICAL OFFICER, VERIZON WIRELESS
Mr. Lynch. Yes, thank you, Senator.
Good morning to you, Chairman Inouye and Co-Chairman
Stevens, and members of the Committee.
It's a privilege to be with you this morning to discuss the
700 MHz auction. Thank you for affording me this opportunity to
share with you the views of Verizon Wireless on this,
obviously, very important topic.
Congress, the Administration, and the FCC have all declared
that the deployment of broadband services to the American
public is a critical goal. The auction has the potential to
make a major contribution to delivering the benefits of
broadband to consumers and businesses, while helping to sustain
America's leadership in the world economy. However, I did use
the word ``potential,'' because to achieve these benefits, the
auction must make the spectrum available in ways that will
promote, not cripple, broadband deployment. My years of
experience in building wireless networks tell me that the 700
MHz auction can unlock even more benefits, but only if it's
done correctly.
I'd like to discuss what I see as two critical actions that
the FCC should take to help deliver on the 700 MHz promise for
broadband.
First, the FCC should adopt a band plan that will enable
rapid deployment of next-generation wireless broadband
networks.
Second, the FCC should decline to impose eligibility,
wholesale, open access, or net neutrality requirements on the
band. Those requirements are unwarranted, would deter
innovation, and would not benefit consumers.
The upcoming auction will enable the development and
deployment of new fourth-generation, or 4G, wireless
technologies and set in place the platform for services that
will yield tremendous benefits to consumers, businesses, and
first responders, alike.
Verizon Wireless believes firmly in the broadband future,
as envisioned by Congress, the FCC, and the Administration. We
have spent billions of dollars over the past several years to
deploy wireless broadband across this Nation. The FCC has
offered a variety of band plans for auctioning the 700 MHz
spectrum.
Verizon Wireless supports FCC proposal number 3, with
regional licenses in the upper band. We believe that this plan
is the only one that meets the government's goals for this
spectrum. It would make available a wide variety of licenses to
meet varying bidders' needs, including a 20 MHz spectrum block
that will enable very high data speeds for broadband. It would
also include public safety's need for spectrum alignment along
the Canadian border.
Now, let me talk for a minute about open access and net
neutrality. These terms have been subject to much discussion,
but, I'd submit, with little or no real specificity.
Frontline offers some vague requirements that the licensee
must permit a wireless device to connect to the network, and
that the licensee operates solely as a wholesale service
provider. Many public safety agencies have raised doubts about
how much such open-access requirements would impact them. And,
as an operator, I can tell you I have similar concerns.
Saddling the spectrum with these open access obligations would
reduce interest in the spectrum at auction, positioning
Frontline to acquire the spectrum at a price substantially
below market value.
I have similar concerns about a net neutrality mandate, as
I do open access. Generally, proponents of the concept focus on
issues involving traffic routing and management. If what the
proponents are talking about are the rights of users to access
the public Internet, and access applications of their choice,
wireless customers can already do that. If, however, they want
to preclude wireless carriers from offering their own value-
added products and services, then I disagree.
The reliability of our wireless network and its ability to
serve over 60 million customers, including hundreds of
thousands of public safety users, is directly tied to our
ability to manage the devices, ensuring that they do not
monopolize all available capacity, block other users, or allow
spam and viruses to invade the network. Open access and net
neutrality regulations would strip away our ability to manage
our network for the benefit of all of our customers.
So, in conclusion, Verizon Wireless urges the 700 MHz
auction be held as soon as possible, utilizing proposed band
plan 3, and without rules that would foreclose bidders or
impose unfounded and ill-advised requirements.
And, if I might add, Senator Stevens, I believe you focused
us, this morning, on a very important issue. Focusing on the
dollars necessary to equip public safety at the terminal end,
as well as the network end, is a very significant part of what
public safety really needs. And I think one clear way to do
that is to maximize the auction proceeds that we could achieve
with this auction.
With that, I'd like to thank you for the opportunity to
appear today, and look forward to your questions.
Thank you.
[The prepared statement of Mr. Lynch follows:]
Prepared Statement of Richard J. Lynch, Executive Vice President and
Chief Technical Officer, Verizon Wireless
Good morning, Chairman Inouye, Co-Chairman Stevens, and members of
the Committee. It is a privilege to be with you this morning to discuss
``The 700 MHz Auction: Public Safety and Competition Issues.'' Thank
you for affording me this opportunity to share with you the views of
Verizon Wireless on this important topic.
Introduction and Summary
Congress, the Administration and the FCC have all declared that the
deployment of broadband services to the American public is a critical
goal. The 700 MHz auction has the potential to make a major
contribution to expanding broadband and to delivering the many benefits
of broadband to consumers, businesses, and America's leadership in the
world economy. I say, however, the potential--because to achieve these
benefits, the auction needs to make the spectrum available in ways that
will promote, not cripple, broadband. My years of experience in
building wireless networks tells me that the 700 MHz auction can unlock
even more benefits--but only if it's done right.
I thus want to discuss what I see as two critical actions the FCC
should take to help deliver on 700 MHz's promise for broadband.
First, the FCC should adopt a band plan for 700 MHz that will
enable rapid deployment of next generation wireless broadband networks.
Second, the FCC should not impose eligibility, wholesale, open
access or net neutrality requirements on the 700 MHz band. Those
requirements are unwarranted, would deter innovation, and would not
benefit consumers.
The 700 MHz Band Plan Should Promote Broadband Deployment While Making
Available a Mix of License Sizes, and FCC Proposal 3 Does That
The upcoming auction will enable the development and wide
deployment of new fourth generation--or ``4G''--wireless technologies
and services that will yield tremendous benefits to consumers,
businesses, and first responders alike.
In 1997, when Congress adopted the DTV transition plan, wireless
data services were very limited--typically providing only about 15-20
kilobits per second. Today, broadband wireless technologies like CDMA
EV-DO have been widely deployed, supporting data rates of hundreds of
kilobits per second and a wide variety of mobile applications. Verizon
Wireless' mobile broadband network, the first in the nation, is
available to more than 200 million people who can access broadband
services on their laptops, e-mail on their PDAs, and V-CAST Video and
Music on their wireless phones. We are now deploying the latest
enhancement to CDMA technology, EV-DO Revision A, which will increase
data speeds further and support new broadband applications.
New ``4G'' technologies are being developed that will support
mobile data rates of tens of megabits per second. They will unleash a
host of new broadband applications that will rival anything available
today on wired broadband networks. Doctors will be able to access
medical records and CAT scans wirelessly; firefighters will have
wireless access to images of building interiors and floor plans. These
wireless broadband technologies promise to improve the lives of
American citizens in many ways.
Verizon Wireless believes firmly in the broadband future envisioned
by Congress, the FCC and the Administration. We have spent billions of
dollars over the past several years to bring wireless broadband to the
nation, participating in spectrum auctions and investing many billions
more on technology and infrastructure. We believe we are the most
efficient spectrum user in the nation--and perhaps the world--and proud
of it. We serve more customers with less spectrum than any other
operator.
However, the ability of Verizon Wireless--and the entire industry--
to continue to deliver on this broadband vision requires access to
additional spectrum, auction rules that are open and competitive, and
service rules that are flexible and market-based. The 700 MHz spectrum
will enable qualified and committed operators to make a real difference
in expanding the reach of broadband services, if it is auctioned in
ways that will facilitate, not hamper, deployment of those new 4G
technologies.
The FCC has offered a variety of band plans for auctioning the 700
MHz spectrum. Verizon Wireless supports FCC Proposal 3, with regional
licenses in the upper band. A copy of this band plan is attached to my
testimony. We believe this plan is the only one that meets the
government's goals for this spectrum.
By using regional area licenses in the upper band, coupled
with smaller area licenses in the lower band, it makes
available the right mix of license sizes and creates
opportunities for a variety of applicants, business plans, and
technologies. More than 900 licenses would be available for
auction.
It provides adequate contiguous spectrum--22 MHz--to support
very high data speeds for 4G broadband deployment.
It accommodates public safety's need for useable narrowband
spectrum along the Canadian border.
Let me elaborate on why this band plan should be adopted. First, it
is important to keep in mind that the entire 700 MHz commercial band
should be considered as a whole. With the DTV transition, Congress
provided a total of 84 MHz of new commercial spectrum, including 24 MHz
that has already been auctioned. This leaves 60 MHz--30 MHz in each of
the upper and lower bands--left to be auctioned. Thanks to technical
rules the FCC already put in place, both bands are well suited for
mobile broadband services. Any band plan should reflect what has
already been auctioned.
Second, we agree with the FCC that the 700 MHz band should include
a mix of different license sizes. The FCC has already achieved part of
that goal by licensing a significant amount of 700 MHz spectrum in the
lower band in small blocks to smaller wireless companies, and it plans
to license all remaining ``paired'' spectrum in the lower band based on
smaller markets, including another 700-plus licenses in the smallest
areas, cellular market areas, which can be as small as one county. The
lower band will thus provide 36 MHz of spectrum licensed on a small
market basis, providing ample opportunities for smaller carriers.
What the FCC has not done to date is to auction larger 700 MHz
licenses. It can accomplish this by including a 20 MHz paired block of
spectrum, to be licensed across wide geographical areas, such as the
Regional Economic Area Groupings (REAGs) used by the FCC in last year's
auctions for the Advanced Wireless Services (``AWS''). This band plan
will help ensure the near-term deployment of next generation wireless
broadband networks and to provide the best opportunity for the United
States to lead the world in 4G wireless development and deployment.
A contiguous 20 MHz block is important because it will encourage
optimized use of that spectrum for 4G technologies and the services it
can provide. It is essential that the 700 MHz band plan include at
least one spectrum block of at least 20 MHz in total bandwidth, as it
did in the band plans for cellular, PCS and AWS.
Larger regional licenses such as REAGs are important because, for
over a decade now, we have witnessed the benefits of wide area licenses
in promoting nationwide deployment of new technologies. Consumers
demand nationwide service and carriers must meet that demand. History
has shown, almost without exception, that smaller-sized licenses wind
up becoming aggregated so that carriers can achieve economies of scope
and scale and operate as viable businesses, enabling them to compete
and deliver better products at lower prices to consumers. Aggregating
spectrum post auction takes many years and is expensive to carriers and
costly to consumers. If Congress wants next generation wireless
networks to be a near-term reality, the FCC must auction and license
sufficient spectrum on a REAG basis.
The 700 MHz Rules Should Provide Spectrum Opportunity for All Without
Unjustified Constraints That Will Undermine Innovation and Harm
Consumers
Beyond questions of technology lies the critical need to maintain
integrity in the auction process. The Commission should set auction
rules that allow for full and fair competition by qualified bidders,
without artificial and unwarranted constraints.
Spectrum auctions for commercial spectrum licenses have been one of
the great success stories of communications policy. Over the past 10
years, these auctions have raised many billions of dollars for the U.S.
Treasury and accelerated the roll-out of new and innovative services
for consumers. The resulting competition in the mobile marketplace has
provided a broad range of digital offerings, extensive coverage,Email
high quality, and low prices. In short, competitive spectrum auctions
have been a good deal for American consumers. The government should not
depart from that success.
1. Auction Eligibility Restrictions. Some parties have sought to
game the auction process by proposing to exclude or restrict local
exchange carriers, cable operators, and wireless carriers from
eligibility for licenses in the 700 MHz band. Such discriminatory
eligibility restrictions are aimed at the companies most ready to
deploy next generation broadband networks. Restricting participation
would depress revenues needed by the Treasury, and delay introduction
of new services.
The FCC has repeatedly found that open competitive bidding will
ensure that scarce, valuable spectrum resources are put to the highest
and best use. Restricting bidding to a limited class of entities
strongly suggests that the license may not be granted to the highest
and best use. It increases the risk that spectrum would go to entities
incapable of putting it to timely, effective use. The Commission should
maintain its policy of rejecting all calls for closed bidding.
Restricting eligibility would unquestionably reduce the economic
benefits of the auction. Proceeds from the 700 MHz auction will fund
multiple programs for the DTV transition and the deployment of
interoperable communications systems for public safety. By limiting
eligibility, the resulting reduction in competition will ensure that
the spectrum will be auctioned at a price lower than its true market
value. As a result, the viability of these valuable and necessary
programs will be at risk.
Existing carriers have proven track records of designing and
deploying highly sophisticated networks. Every year in its CMRS
competition reports, the Commission has pointed to vigorous competition
in the CMR market through the competing networks built by Verizon
Wireless and our competitors. There is no basis for barring current
providers from the auction; doing so would deprive companies of the
additional spectrum they would want to acquire to expand their offering
of high quality, spectrum-intensive advanced services.
2. Wholesale Only Requirement. Frontline Wireless has proposed that
a portion of the 700 MHz spectrum be licensed subject to several
onerous conditions. The first of these is that the licensee cannot use
the spectrum itself but must operate as a wholesale-only provider. This
is, frankly, an absurd requirement. It makes sense only if you are
trying to foreclose any existing carrier from acquiring the spectrum.
Verizon Wireless provides both wholesale and retail services, as do
many other carriers; and the FCC has consistently found that the
industry is robustly competitive. There is simply no credible basis for
the FCC to accept Frontline's proposal to strip the very carriers who
have built a competitive industry from serving retail customers in the
700 MHz band.
3. Open Access Requirement. Frontline also proposes something it
calls ``open access.'' This term has been the subject of much
discussion but little or no definition or specificity. Frontline
provides almost no meaning to this concept, other than vague
requirements that the licensee permit any wireless device to connect to
the network, and that the licensee operate solely as a wholesale
service provider. Frontline claims that these requirements are
important components of its proposal to build public safety a broadband
network. However, many public safety agencies have raised doubts about
how Frontline's open access requirements would impact them. Moreover,
saddling the spectrum with these obligations would reduce interest in
the spectrum at auction, positioning Frontline to acquire the spectrum
at a price substantially below market value.
Frontline's request for ``open access'' should be viewed as
defining requirements for physical access to existing networks. These
requirements disregard the way wireless networks are designed and
operated to meet the needs of subscribers. On Verizon Wireless' and
others' networks, the cell phone or PDA is in fact part of the network.
It is constantly communicating with the network, and we are responsible
for its operation under our FCC licenses. This is why we put all
wireless devices through rigorous quality testing. Further, and just as
importantly, customers see their service as inclusive of the device
they use and have come to expect the carrier to ensure its performance.
Imposing physical access conditions would risk harm to the network
and undermine the quality of service provided to our customers.
Moreover, experimenting with such an uncontrolled regime for a system
that is specifically designed to be used for public safety
communications, as Frontline proposes, would be particularly dangerous.
Frontline's plan contains no safeguards to ensure that customers'
untested devices and novel uses of spectrum would not reduce the
quality of service provided to public safety or commercial users, or
cause harmful interference to other users operating within the licensed
spectrum or others operating in adjacent spectrum. For example:
E-911 Service could be compromised. A mandate that carriers
allow customers to attach any device to the network would make
it more difficult for carriers to comply with their E-911
obligations. The handsets that customers would attach to the
network would not necessarily be E-911 capable; and even if
they were, the network might not be able to communicate with
the handset to determine the caller's location.
Handset prices will likely increase. Handsets designed to
operate with multiple, or all available, wireless networks will
require additional hardware and software to ensure basic
operability. Some applications may need to be loaded in
multiple formats. Think of a computer that has to be both Apple
and Windows capable and must support game-playing on
Playstation, Xbox, Game Boy, and Nintendo platforms, etc.
Interoperability has a price, with very few practical benefits.
You generally use only one network at a time.
Harms to wireless users would occur. Because wireless
devices share a network's spectrum resources, every device has
an impact on the spectrum available to other users. An
unapproved device can impact the network and its capacity to
serve the maximum number of customers. It can also cause
interference to other users, blocking their access to the
network. Wireless operators today ensure that every device is
subject to rigorous testing and meets certain quality standards
to guard against these risks. An open access regime would
deprive operators of that ability and thereby protect their
customers.
4. Net Neutrality. Perhaps encouraged by Frontline's proposal,
several groups want to seize on the 700 MHz auction as a way to impose
broader ``net neutrality'' rules on wireless carriers. They are
demanding that the FCC somehow dictate net neutrality, even though each
of these groups would appear to define it in different way. I have the
same concerns about a broader net neutrality mandate as I do for open
access. Generally, proponents of the concept focus on issues involving
traffic routing and management along proprietary networks. If what the
proponents are talking about are the rights of users to access the
public Internet and applications of their choice, wireless customers
can already do just that. If, however, they want to preclude wireless
carriers from offering their own value-added products and services, or
to require wireless carriers to permit customers to download any
application they want onto their handsets, I have the same fundamental
disagreement. On a wireless network, applications have the potential to
cause serious harm. For example:
The user experience could be compromised. In the wireless
context, air interface signal-to-noise conditions vary by user
with time. More packets can be delivered to the user when the
signal-to-noise ratio is good than when it's bad. The wireless
industry uses sophisticated queuing and scheduling algorithms
at each base station to optimize throughput by sending packets
to users during times of good signal-to-noise conditions. Would
these practices be precluded? These practices improve the user
experience for all subscribers.
Users could find network access more difficult. In the
wireless broadband context, users on-line within a certain
geographic area share the available spectrum resource;
therefore, the bandwidth requirements of one user can affect
those of all users in the same geographic area. A few users
operating ``bandwidth hog'' applications can actually prevent
other users from obtaining access to the network. If the
wireless operator cannot manage the bandwidth hog applications
in some principled way, it cannot achieve a fair allocation of
the available resources for as many subscribers as possible.
Just as Internet content and applications vary in size, they
also vary in their sensitivity to latency, or delay. E-mail
delivery and web searches are generally not overly sensitive to
latency. On the other hand, certain applications are very
sensitive to latency, and require ``fast lane'' delivery of
packets. An operator must have the flexibility to provide
priority transmissions if the quality of service requires.
Security risks would increase. Hostile content and
applications are common on the Internet in the form of viruses
and denial of services attacks, among others. Network operators
address and deal with such risks by filtering them out, thereby
ensuring improved user experiences for all subscribers on-line.
Beneficial content filters could be jeopardized. Broadband
networks can establish filters that protect children from adult
content, or some computers from any specified content. There is
no reason why consumers should not be able to subscribe to
filters of their own choosing, whether by subject matter or
size or point of origin, if the technology is available. Again,
the network operator would have to manage against certain
packets to benefit consumers.
Having spent many years building and operating wireless networks, I
strongly believe that open access and net neutrality requirements would
do a huge disservice to wireless industry and our customers. Wireless
companies have delivered enormous benefits to the economy and consumers
by being free to innovate and differentiate their products. It is bad
enough that there is no problem that could justify such regulation.
Worse, imposing open access and net neutrality would cause real harms
to one of the Nation's most successful industries, to innovation, and
to our customers.
Conclusion
Verizon Wireless urges that the 700 MHz auction be held as soon as
possible, without rules that foreclose bidders or impose unfounded and
ill-advised requirements. The 700 MHz auction, if conducted fairly, and
without the sorts of risky and counterproductive conditions discussed
above, holds the promise of raising billions for the U.S. Treasury
while delivering the benefits of the most advanced wireless technology
to the American public. There will be plenty of winners, in the form of
innovation, job creation, economic growth, and increasing U.S. global
competitiveness. But if we get it wrong, and use this auction as a
platform for forcing unjustified and risky spectrum policy onto the
wireless industry, the only losers will be the American public.
The Chairman. I thank you very much, Mr. Lynch.
May I now recognize Mr. Small.
STATEMENT OF MICHAEL SMALL, CHIEF EXECUTIVE OFFICER, CENTENNIAL
COMMUNICATIONS CORPORATION
Mr. Small. Chairman Inouye, Vice Chairman Stevens, members
of the Committee, thank you for allowing me this opportunity to
appear today.
For the last 9 years, I have served as the CEO of
Centennial Communications, a regional provider of wireless and
integrated communications services with over 1 million
customers across parts of six states in the Midwest and South,
as well as Puerto Rico and the U.S. Virgin Islands. Previously,
I worked for larger and smaller providers of wireline,
wireless, and cable TV services.
At Centennial, we have been in business for almost 20
years, and succeed in the competitive wireless industry by
focusing on the needs of customers in small cities and rural
markets. We get off the highways and provide coverage in
communities often underserved by national carriers. In many
markets, like Paw Paw, Michigan, or Eunice, Louisiana, we are
the only carrier with a retail presence. Centennial's well-
trained associates are ``the'' source for wireless advice on
service and assistance in these markets.
Yet, our business is coming to a crossroads. Consumers are
now demanding 3G broadband services. To deploy these services,
carriers like Centennial need more spectrum.
The 700 MHz spectrum is the critical element to furthering
broadband deployment of services to rural America. With its
outstanding propagation characteristics, 700 MHz spectrum will
help bring wireless broadband to areas where terrain,
technology, and economics make the provision of wireline
broadband service difficult or impossible.
The buildout cost differential between existing PCS or AWS
spectrum and 700 MHz should be at least three to one, making
buildout in rural America uneconomical without 700 MHz
spectrum.
I would like to address three issues regarding the 700 MHz
auction, including the appropriate mix of band plans, the
potentially harmful nature of the proposed geographic buildout
mandate, and why additional regulatory encumbrances are
counterproductive and unnecessary.
First, with regard to the band plans, Centennial agrees
with the Commission, that providing a mix of CMA, EA, and REAG
licenses will maximize competition and geographic reach. We
support the Commission's proposal for the lower 700 MHz band.
In the upper 700 MHz band, Centennial opposes the Frontline
plan and strongly urges adoption of a band plan that includes
at least one CMA license.
Licenses awarded on the basis of large geographic areas
unreasonably favor large national carriers and handicap
regional carriers like Centennial. Using the recently completed
AWS auction as an example, CMA licenses align well with our
existing U.S. footprint of 8.6 million POPs. But, to cover our
territory with larger EA licenses would have forced us to
purchase four times as many POPs, including expansion to cities
like Detroit and Chicago. The resulting cost increase of more
than $200 million is an insurmountable hurdle for a company
like Centennial, with under $1 billion in revenue.
Currently, carriers like Centennial provide the best, and
sometimes only, service in many small and rural markets.
National carrier coverage is often limited to major highways in
rural areas, like I-10 in the Southeast, where Centennial and
our roaming partners each have excellent coverage. But, off the
interstate, in places like Kinder, Louisiana, and Prentiss,
Mississippi, Centennial provides the best coverage. The best
way to make sure that future 3G and 4G services make it to
rural America is to allow regional carriers to compete for
spectrum, that spectrum needed to bolster our service
offerings.
Ensuring rural markets have comparable service to urban
markets is not only in Centennial's customers' best interests,
but serves the public interest by providing robust networks for
local public safety and for customers of national providers who
roam in our area.
Second, Centennial shares the Commission's desire for
widespread provision of mobile wireless services, but we oppose
the Commission's proposal to impose a geographic buildout
mandate based on arbitrary deadlines. Centennial is not alone
in this view, and we agree with many commentators who have
demonstrated that arbitrary geographic buildout rules are
contrary to this objective, and will undoubtedly chill interest
in the auction, particularly for licenses that include large
rural areas.
And, finally, Centennial opposes unnecessary, untested, and
often self-serving proposals to encumber all or part of the 700
MHz band with regulatory obligations such as wholesale-only
business obligations or open access or net neutrality
requirements.
The Commission's nearly 15-year evolution toward a
flexible-use policy has been a tremendous success. These
poison-pill proposals, including Frontline's, should be
recognized for what they are and rejected as solutions in
search of a problem if the tremendous success of the AWS
auction is to be replicated and the huge success and innovation
of the wireless industry is to be perpetuated.
Thank you for the opportunity to appear before the
Committee today. I look forward to answering your questions.
[The prepared statement of Mr. Small follows:]
Prepared Statement of Michael Small, Chief Executive Officer,
Centennial Communications Corporation
Chairman Inouye, Vice Chairman Stevens, and members of the
Committee, thank you for the opportunity to testify at today's hearing.
I am Michael Small, and I serve as the CEO of Centennial Communications
Corporation, headquartered in Wall, New Jersey. I also serve on the
Executive Committee of CTIA--The Wireless Association.
Centennial is a provider of regional wireless and integrated
communications services in the United States and the Caribbean. In the
United States, we operate GSM-based wireless networks in parts of six
states in the Midwest and South. Our midwestern service area covers
parts of Michigan, Ohio, and Indiana, including mid-sized cities such
as Grand Rapids, Lansing, South Bend, and Ft. Wayne. Our southern
service area covers parts of Texas, Louisiana, and Mississippi,
including mid-sized cities such as Beaumont, Lafayette, Alexandria, and
Natchez. Centennial's Caribbean business owns and operates CDMA-based
wireless networks that provide both mobility and residential broadband
services in Puerto Rico and the U.S. Virgin Islands. In total,
Centennial serves approximately 1.1 million wireless subscribers. We
also operate a fiber-based CLEC in Puerto Rico, bringing state-of-the-
art, high-bandwidth solutions to many Fortune 500 companies with
operations there.
Since our creation in the 1980s, Centennial has focused on serving
small cities and rural America. Today, we are successful in a highly
competitive marketplace because we are intensely focused on serving the
local needs of the people who live, work, and play in our small city
and rural markets. To succeed, we must serve these regional areas much
better than our national competitors.
At the outset, I would like to thank the Committee for its work on
the DTV Act, the legislation that made the 700 megahertz auction
possible by facilitating the DTV transition. It is critically important
that the Federal Communications Commission meet the auction schedule
set forth by Congress in the DTV Act, and that it promptly issue simple
and straight-forward service and technical rules that will ensure that
the wireless industry has the spectrum it needs to continue to innovate
and serve the needs of more than 230 million existing wireless
subscribers, as well as the tens of millions of new subscribers that
the industry is projected to add over the next several years.
At Centennial, we view the 700 megahertz auction as an opportunity
to augment our spectrum holdings in a way that will enhance our ability
to bring robust, high-quality broadband service to our customers. The
700 megahertz spectrum is ``rural-front'' spectrum with propagation
characteristics that make it orders of magnitude more efficient than
the recently auctioned AWS spectrum for serving very rural areas. The
700 megahertz spectrum will help us to make wireless broadband access
available in areas where terrain, technology, and economics render the
provision of wireline broadband access difficult or impossible.
I would like to address three issues, including:
the appropriate mix of band plans for the 60 megahertz
intended for auction to commercial service providers;
the harmful nature of the proposed geographic buildout
mandate; and
why additional regulatory encumbrances are counterproductive
and unnecessary.
The Commission's Service Rules Should Provide for a Mix of Licensing
Opportunities
Centennial agrees with the Commission's conclusion that ``by
providing a mix of CMA, EA, and REAG licenses in the 700 MHz Commercial
Services spectrum, we provide a more balanced set of initial licensing
opportunities that provide an effective means of access to spectrum
especially in rural areas, while effectively meeting other Commission
goals.'' Centennial, whose licensed service areas are regional and
often rural in nature, applauds the Commission's commitment to
providing continuing opportunity for regional carriers to expand their
product offerings to customers living, working and traveling outside of
the large metropolitan areas of the country.
The existing band plan for the lower 700 megahertz band divides the
spectrum into five blocks: three 12 megahertz paired blocks (consisting
of two 6 megahertz segments each) and two unpaired 6 megahertz blocks.
One of these 12 megahertz blocks and one of the 6 megahertz unpaired
blocks have already been auctioned. In a prior notice, the Commission
announced a preference to retain this band plan because of its mix of
geographic market sizes and spectrum allocations.
The upper 700 megahertz commercial services band plan now consists
of 30 megahertz of spectrum currently divided into two blocks: a 10-
megahertz paired block consisting of two 5-megahertz segments (C Block)
and a 20-megahertz paired block consisting of two 10-megahertz segments
(D Block). In the 700 MHz Commercial Services Notice, the Commission
sought comment on the band plan and whether it should reconfigure the
size of these spectrum blocks. As a result, five proposals for the
upper 700 megahertz band are now before the Commission.
To ensure the optimal mix of licenses, Centennial strongly urges
adoption of a band plan for the upper 700 megahertz band that includes
at least one CMA license. Licenses awarded on the basis of large
geographic areas favor the large, national wireless carriers and
handicap regional and rural carriers, like Centennial, whose service
areas tend to be defined by CMA boundaries. This is not an issue of
favoring small companies in the spectrum policy; rather, it is an
acknowledgement that an auction with only large licenses effectively
forecloses participation by small carriers, while an auction with CMA-
sized licenses permits carriers of all sizes an opportunity to compete.
From the beginning of telephone service, the large
telecommunications companies have focused on metropolitan areas with
smaller companies providing service to the small and rural markets of
the country. Data provided to the Commission by the national carriers
shows that they place their emphasis on high-density markets. Ten years
after the original PCS licenses were granted, national carriers had
covered less than 70 percent of their MTA POPs in states like Alaska,
Arkansas, Kansas, Mississippi, and New Mexico. Even when constructing
in less-populated areas, the national carriers tend to build along
major thoroughfares without venturing far into the less populated
hamlets. For example, Centennial and its roaming partners all have
excellent coverage along major thoroughfares like I-10 in Louisiana,
but off the interstate, it is companies like Centennial that are
providing coverage in places like Kinder, Louisiana and Prentiss,
Mississippi. Through roaming arrangements with Centennial and other
carriers like us, customers of nationwide carriers are able to enjoy
all of their regular wireless features when business or pleasure takes
them to these remote areas.
In addition, Centennial frequently is the only carrier to have a
retail presence in these markets. In places like Paw Paw, Michigan;
Peru, Indiana; and Eunice, Louisiana, we operate company-owned retail
outlets for wireless service that are not merely points of sale, but
also full-service operations designed to meet all of the needs of our
customers, including bill payment, customer support, and post-sale
technical assistance.
To roll-out high-speed broadband wireless services, regional
carriers like Centennial need additional spectrum to enable the
delivery of these new and exciting capabilities. If the only additional
spectrum available is limited to blocks of large geographic service
areas, it will be uneconomical for Centennial to acquire the spectrum
we need because we would be forced to vastly expand our footprint
rather than focusing on improving services in our existing territory.
For example, using the license areas defined in Auction 66, acquiring
spectrum covering our existing domestic footprint of 8.6 million POPs
would require the purchase of 41 CMAs with 9.7 million POPs. To cover
the same footprint on an EA basis would require 18 EAs with over 34.3
million POPs. This is an insurmountable hurdle for a company the size
of Centennial.
By bidding for CMA-based licenses, we can continue the important
work of providing modern, state-of-the-art service in the less-
populated and remote areas of the country. In doing so, we can ensure
the continued and expanded availability of modern wireless
communications in the markets we serve, benefiting not only those who
live there, but everyone who travels to those areas as well. Ensuring
this level of service in small markets creates economic and educational
opportunities for those who live there, consistent with the Nation's
long-standing commitment to Universal Service.
The most logical way for the Commission to ensure that the service
rules provide for CMA licenses in the upper band is to reject the
proposal submitted by Frontline. As I will discuss later in my
testimony, the conditions sought by Frontline are inappropriate and
would needlessly constrain the number of parties likely to compete at
auction for the spectrum in the upper band. Frontline's proposal is not
necessary to meet the needs of public safety, and it inappropriately
and unlawfully converts public safety spectrum, licensed to a qualified
public safety organization, into a resource that Frontline plans to use
to provide for profit commercial service. By dismissing Frontline's
proposal, the Commission can adopt a plan that supports CMA licenses
with paired spectrum in the upper 700 megahertz band.
The Commission Should Not Impose a Geographic Build-Out Requirement on
700 MHz Licensees
Centennial shares the Commission's desire for widespread provision
of mobile wireless services, and as our long history demonstrates, we
are firmly committed to serving rural markets. Nonetheless, we have
serious concerns about the Commission's proposal to impose a geographic
buildout mandate based on arbitrary deadlines.
From where I work in New Jersey, I cannot effectively and do not
dictate on-the-ground investment decisions in Pineville, Louisiana, or
Angola, Indiana. I need my associates in the field to determine the
best and most economical way to meet the needs of our customers. A
build-out requirement that limits our ability to focus on places where
demand and need are greatest could in fact have the opposite of its
intended effect--consumers might see lower quality and less service.
Being forced to build to meet arbitrary deadlines might force companies
like Centennial to make decisions to purchase equipment based on what
is available now, rather than on the basis of what might be available
in the near future. As a result, many consumers will have to wait to
enjoy full 3G and ultimately 4G technology. Further, if we fail to meet
these arbitrary deadlines, we could be forced to return spectrum that
we have every intention of using in the future. This outcome would hurt
Centennial, and it cannot help consumers.
Less than 3 years ago, the Commission considered the issue of
performance requirements in the Rural Wireless Order and affirmed the
current trend in favor of substantial service. The Commission rejected
calls to revert back to geographic- or population-based buildout
requirements and instead concluded that mandated buildout was
economically counterproductive and inconsistent with a reliance on
market forces. Commissioner Copps echoed this point in his separate
statement accompanying the Further Notice, saying that ``[W]e also need
to make sure that we do not unfairly punish licensees--especially in
rural areas--who cannot engage in aggressive build-out for perfectly
good economic reasons.''
The notion that every hertz of licensed spectrum must be put into
use throughout each licensed area does not make sound economic sense. A
policy of government-imposed, forced investment would result in
uneconomic and unsustainable deployment. The stringency of the proposed
build-out requirement is even more objectionable when coupled with the
proposed cap on CETC support proposed recently by the Federal-State
Joint Board on Universal Service.
There are numerous examples of Universal Service being used to
extend networks to areas that would be bypassed without access to
universal service support. In some cases, wireless carriers have used
high cost universal service support to deliver service to areas that
previously had no access to telecommunications--wireless or wireline.
Universal Service support has been important to Centennial in
places like Louisiana. Centennial used support from the Universal
Service program to bring service to two Concordia Parish communities--
Shaw and Blackhawk--that did not have any telephone service at all
until we made it available a little more than 2 years ago.
Centennial also used support from the Universal Service Fund to
deploy facilities that performed reliably during and after Hurricane
Katrina. The resiliency of the Centennial network allowed us to provide
critical recovery services to other wireless providers whose networks
failed, the U.S. Coast Guard, FEMA, and the Red Cross, and to help
those in shelters to call and text message loved ones to let them know
they were safe.
The proposed cap on CETC access to universal service support
threatens the progress that has been made in bringing high-quality,
reliable wireless service to rural America, and it would do harm to the
rural communities Centennial serves or aspires to serve. Neither the
proposed cap nor the proposed geographic build-out requirement serve
the interests of rural consumers, and neither should be adopted.
The Commission Should Not Impose Additional Regulatory Encumbrances on
700 MHz Bidders
The Commission's nearly 15-year evolution toward a flexible use
policy has been a tremendous success, and there is no evidence to
suggest that a return to the command-and-control spectrum regulation of
the 1980s is warranted. Accordingly, Centennial opposes unnecessary,
untested, and often self-serving proposals to encumber all or parts of
the 700 megahertz band with regulatory obligations such as wholesale-
only business obligations or ``open access'' or ``net neutrality''
requirements. These ``poison pill'' proposals should be recognized for
what they are and rejected.
The proposals by Frontline, the Ad Hoc Public Interest Spectrum
Coalition, and the Media Access Project to impose an ``open access''
regime would require 700 megahertz licensees to enable any customer to
attach ``any compatible device'' subject to minimal do-no-harm rules
and to permit such devices to reach any website, post any information,
provide any service and access or provide any application, without
regard to the need for a carrier to manage its network efficiently and
for the benefit of its entire customer base. The Ad Hoc proposal also
advocates for a wholesale-only business plan with an exception for the
provision of retail service through a structurally separate affiliate,
subject to further limits if the licensee currently holds spectrum in
the market.
These proposals are deeply misguided. As CTIA observed in response
to the Skype petition seeking wireless Carterfone and ``open access''
policies, ``exposing wireless networks to untested mobile handsets and
applications would degrade network performance, create harmful
interference, prevent carrier compliance with important social policy
obligations, and open networks to greater security threats.'' Carrier
management and certification of phones must be permitted because these
steps ensure that network elements work in tandem with handsets to
provide the highest quality voice and data services. Moreover, in order
to maximize spectral efficiency, carriers must be able to manage the
use of applications that require large amounts of bandwidth or near-
constant connection to the network, such as streaming media and peer-
to-peer services.
There is no economic basis to impose open access or other intrusive
forms of regulatory intervention on the wireless industry. Indeed, in
light of the competitiveness of the U.S. mobile wireless service and
equipment markets, which will only become more competitive as a result
of the 700 megahertz auction, the Ad Hoc proposal represents the very
definition of a solution in search of a problem. It, along with the
Frontline and Media Access Project proposals, should be rejected and
the government should refrain from imposing any single business plan--
including those that are novel and untested--or any other departure
from the Commission's successful flexible use policies on the 700
megahertz spectrum. Instead, the auction should proceed with few, if
any, encumbrances, and the market should determine which business plans
and competitors will prevail. The Commission must avoid calls to
substitute its judgment for that of the marketplace if the success of
the AWS auction is to be replicated.
* * * * *
Mr. Chairman, I thank you again for the opportunity to appear
before the Committee, and I thank you and your colleagues for your
attention to the 700 megahertz auction process. With proper execution,
the 700 megahertz auction holds great promise for Centennial, for other
wireless carriers, and, most importantly, for America's consumers.
I look forward to answering any questions you may have.
The Chairman. Thank you very much.
Dr. Sarva?
STATEMENT OF AMOL R. SARVA, CEO, Txtbl
Dr. Sarva. Thank you, Chairman Inouye, Vice Chairman
Stevens, and distinguished mmbers of the Committee, for the
opportunity to address a critically important topic for the
future of the wireless industry.
As a leader of a group of wireless entrepreneurs and myself
among the founders of one of the prominent companies in this
industry, I'm here to bring a different perspective. My
colleagues and I have taken new ideas to market. We've built
things from scratch. We've created thousands of jobs and
billions of dollars in value. We've even done this in
collaboration with the ``big guys.'' Virgin Mobile was one of
my first ventures. It has over a billion dollars in revenues
today, and this year it's gone--it's filed to go public.
I'm currently working on my third wireless startup, Txtbl.
I'd love to tell you all about it, but today I'll focus on what
you can do to make more stories like mine possible in America.
Fifteen of us wrote a letter, last week, to FCC Chairman
Martin in support of an open access ``E Block.'' We believe the
wireless industry is full of opportunities for innovation.
There are billion-dollar ideas all over the place. But today,
the large wireless carriers have the keys to the castle.
Getting your innovation into the national market is difficult
and a lot more time-consuming than it should be. These
negotiations add months or years. They make it harder to raise
initial capital. They force you to bet big, early, instead of
betting small, the trial-and-error approach essential to the
entrepreneurial process.
An open-access framework in part of the 700 MHz band, by
contrast, would enable innovation at Internet speed. My own
experience at Virgin Mobile is a good example. My colleague
John Tantum was the Founding President, and I was the second
person he hired.
Virgin is a success story, but it was risky in the early
days. We spent nearly 2 years traveling around to all the
carriers to see if anyone would deal with us. In general, the
answer was no. And at numerous points, I thought we were
finished. By far, the scarcest commodity in this process was
network access. It was far easier to raise capital. Once the
network deal was done, we had offers for hundreds of millions
of additional investment.
In the end, only Sprint, one of the lagging large players,
was willing to deal with us. And all this with the high profile
backers and major capital that Virgin had provided. The young
Steve Jobs, despite all of his visionary ideas, would never
have had a chance.
Even still, we had to make compromises to get a deal done
with Sprint. We agreed to market a prepaid product that would
not directly compete with Sprint's contract plans.
Unsurprisingly, the door to new ideas is only open when you
serve the network partner's self-interests directly.
So for much of what the typical marketing departments
required of us the engineering departments of carriers get
their say, too. Only approved devices or applications are
permitted, lest one is unsafe for the network. It's a
reasonable constraint. But the U.S. operators are notorious for
running the longest and most difficult certification processes
in the world, around 9 months for a new device. These days, it
can take only 3 months to design a new device from scratch, but
9 months to certify it. Top-class carriers in other countries
around the world need much less time, sometimes just a few
weeks. Big device makers have told me this privately; they
wouldn't say it here.
On the other hand, the carriers seem to get their devices
done faster than their partner's devices, ours. With one
carrier, we changed the ring tones on the phone that had
already been approved, and were told this would require a 45-
day recertification process.
And the marketing department gets a vote here, too. You
need their authorization to even submit a device. I think
carriers sometimes confuse ``safe for the network'' and ``safe
for the bottom line.'' The old Ma Bell monopoly used the same
line to keep competition and innovation out for years. When the
FCC finally called their bluff, consumers got inventions, like
the fax machine, the cordless phone, the modem, and billions of
dollars in economic growth.
In closing, as entrepreneurs we are pragmatic. We are not
here asking for changes regarding existing spectrum. It's out
there. We want to open a portion--10 MHz--of the upcoming
auction, less than 3 percent of the licensed mobile spectrum.
Here's why. It'll be a sandbox for entrepreneurs. I can tell
you this, my colleagues and I will be out there creating new
services in spectrum like this. ``Open access'' means three
things. We think it has a clear meaning. Number one, open
devices. And, number two, open services. It means the freedom
to connect any compatible device with published safety rules
that let users access any complying device or service. And,
number three, an open auction, requiring the license holder to
auction off a portion of network capacity through an open and
transparent auction mechanism. That's the market at work.
Finally, we applaud Congress and the Commission for paving
the way with the DTV transition. Now is the chance to capture
the upside by setting aside a portion of the public's airwaves
for use by the public--innovators, startups, entrepreneurs.
Broadband, the mobile, Internet, next-generation wireless,
we've been talking a lot about it, and they're all coming soon.
Let's set up America to lead the way.
Thank you very much.
[The prepared statement of Dr. Sarva follows:]
Prepared Statement of Amol R. Sarva, CEO, Txtbl
I. Background
Thank you Chairman Inouye, Vice Chairman Stevens, and distinguished
Members of the Committee for the opportunity to address the Committee
on a topic that I see as critically important to the future of the
wireless industry in America. I am here today as a leader of the
Wireless Founders Coalition for Innovation, which is a group of
seasoned wireless industry entrepreneurs who have founded wireless
companies that now generate billions of dollars of revenue and have
created thousands of jobs. We have brought innovation to the wireless
industry by creating new business models, launching new services, and
addressing pressing consumer needs that were previously overlooked by
the large wireless carriers.
I am what is sometimes referred to as a serial entrepreneur.
Currently I am Co-Founder and CEO of Txtbl, a startup wireless company
based in New York which is just leaving the ``garage stage'' and
closing its first round of venture financing. I would like to say more
about Txtbl, but the U.S. Senate is no place for free advertising and
besides we are still in ``stealth mode.'' Let's just say for now that
we have ambitious plans to change the way millions of Americans
communicate. This is my third wireless startup. In 2000, I was among
the first four team members of Virgin Mobile USA, my first wireless
venture. The first and most successful mobile virtual network operator
(MVNO) in the United States, Virgin Mobile pioneered pre-paid calling
plans and has made wireless service accessible to millions of
customers--especially younger people, lower income and low-credit
people and ethnic minorities--who were previously underserved by the
major operators. In just the 5 years since our launch, Virgin Mobile
has gone from zero to nearly 5 million customers and achieved over $1
billion in revenues. It recently filed for its initial public offering.
In addition to my entrepreneurial experience, I was also a management
consultant with McKinsey & Company, where I provided strategic advice
to large telecommunications companies. I attended New York City public
schools including Stuyvesant High School, received my B.A. in Economics
and Philosophy from Columbia University and my Ph.D. from Stanford
University in Cognitive Science.
Other members of our Coalition are also responsible for a number of
``firsts'' in the U.S. wireless market. For example:
Fabrice Grinda founded Zingy, one of the first mobile
content companies, which built the market for ringtones and
mobile entertainment in the United States. Zingy grew from $0
to over $50 million in revenue in 4 years.
John Tantum, mentioned above, co-founded Virgin Mobile USA
as its first President and has been my partner in subsequent
ventures.
Jason Devitt was the founder of Vindigo, which publishes
more than twenty different applications for mobile phones
including its famous city guide.
Pat McVeigh was CEO of Omnisky, one of the first service
providers to market a national wireless data product. He was
CEO of PalmSource, the company that created the revolutionary
Palm operating system.
Sam Leinhardt founded Penthera, which has created one of the
world's first software platforms for mobile television
broadcasting, as well as founding three prior technology
companies and having served as CEO of a mobile e-mail software
maker acquired by Nokia.
Alex Asseily founded Aliph, which created revolutionary,
military-grade audio technology for wireless phones and the
Jawbone wireless headset.
Martin Frid-Nielsen founded Soonr, a novel service that very
flexibly gives consumers access to their PC data from any
mobile device or network, and holds four patents in wireless
data synchronization.
These are just a few examples: the full group of 15 founders is
listed in Appendix A. Most of us are now working on our second, third,
or fourth wireless startups, many of which are still in the ``garage
stage.'' We continue to seek new applications for wireless technology
and to push the envelope to help Americans be more productive, save
money, feel more secure, and--not to be ignored--have more fun by using
wireless services.
Additionally, I want to emphasize that several other very
successful and ambitious entrepreneurs have shared their support for
this approach with us in private as colleagues, but are stifled from
articulating these views publicly for fear of reprisals by the large
carriers who control access to national wireless networks today. I can
sympathize with their position. I've been there too.
II. Executive Summary
Last week the Wireless Founders Coalition for Innovation wrote a
letter to FCC Chairman Martin in support of an Open Access E Block, as
described in Frontline's proposal. We believe the wireless industry is
ripe with opportunities for innovation and economic growth, but the
large wireless carriers currently act as gatekeepers to block or deter
many of these opportunities. From firsthand experience we know that
negotiating with the large carriers for access to their networks can be
a difficult and time-consuming process that can add months if not years
to the launch of a new venture and hinder the ``trial-and-error''
process intrinsic to the entrepreneurial process. An Open Access
framework, by contrast, would enable innovation at ``Internet speed.''
My personal experience working with the large carriers as an MVNO
is instructive on these points. Virgin Mobile USA was successful in
spite of a huge number of hurdles raised by the wireless incumbents. We
almost failed to get a network deal with any carrier. We almost failed
to navigate the arduous device certification process. Who knows how
many other ventures have failed to pass through the ``star chamber'' of
the wireless incumbents' technical and business requirements processes?
As entrepreneurs we are not only visionaries, we are pragmatists.
We know it is difficult too for the FCC to force the large carriers to
open up their existing networks retroactively. Nor do we ask the FCC to
apply Open Access rules to the entire 700 MHz band. However, we think
it is eminently reasonable for the FCC to designate a single 10 MHz
block in the upcoming auction--a small fraction of the 700 MHz spectrum
allocated to commercial use--as a sandbox for entrepreneurs or an
incubation tank where young, fragile ideas have a chance to live. We
applaud the Commission for paving the way for the DTV transition and
freeing this valuable spectrum for new and exciting services. We
believe, however, that this effort will have been wasted if it does not
create opportunities for entrepreneurs to freely explore new ideas,
services, and business models.
The 700 MHz auction could prove to be a pivotal event in the
history of the wireless industry, marking the transition to the age of
the ``wireless Internet''. But this will only happen if the FCC makes
the right decisions, if it seizes the entrepreneurial opportunity and
gives the American people a chance to participate in the upside from a
new and improved approach to wireless policy.
III. Protecting Network Harm vs. Prohibiting Network Uses
For decades prior to the FCC's seminal Carterfone decision,
consumers were prohibited from attaching any device to the telephone
network unless it was expressly sanctioned (and sold) by Ma' Bell.
Basically, the phone company kept competition at bay by arguing that it
couldn't keep phone service running without ``absolute control'' over
the network. Finally, in I968, the FCC called their bluff, and said
that so long as a manufacturer shows that its device won't harm the
network, there's no reason to keep it out of the hands of the public.
As a result, we got the fax machine, the answering machine, the modem,
and billions upon billions of dollars of new economic productivity.
Yet today, wireless carriers control subscribers' wireless devices
much as AT&T once controlled the wireline experience. One can get a
sense of the operators' proprietary control over the networks by
looking at the restrictions they place on their retail customers. By
way of example, here is an excerpt from the Terms of Service that
currently apply to Verizon Wireless's data services (emphasis included
in the original):
Data Plans and Features
Data Plans and Features (such as NationalAccess,
BroadbandAccess, GlobalAccess, Push to Talk, and certain
VZEmail services) may ONLY be used with wireless devices for
the following purposes: (i) Internet browsing; (ii) e-mail; and
(iii) intranet access (including access to corporate intranets,
email, and individual productivity applications like customer
relationship management, sales force, and field service
automation). The Data Plans and Features MAY NOT be used for
any other purpose. Examples of prohibited uses include, without
limitation, the following: (i) continuous uploading,
downloading or streaming of audio or video programming or
games; (ii) server devices or host computer applications,
including, but not limited to, web camera posts or broadcasts,
automatic data feeds, automated machine-to-machine connections
or peer-to-peer (P2P) file sharing; or (iii) as a substitute or
backup for private lines or dedicated data connections. This
means, by way of example only, that checking e-mail, surfing
the Internet, downloading legally acquired songs, and/or
visiting corporate intranets is permitted, but downloading
movies using P2P file sharing services and/or redirecting
television signals for viewing on laptops is prohibited. A
person engaged in prohibited uses, continuously for 1 hour,
could typically use 100 to 200 MBs, or, if engaged in
prohibited uses for 10 hours a day, 7 days a week, could use
more than 5 GBs in a month.
As you can see, Verizon spills quite a bit of ink telling users
what they are not allowed to do using their wireless data connections.
You may use your wireless connection for simple e-mail or web browsing,
or corporate applications but not for ``any other purpose.'' Not for
instant messaging. Not for Voice over IP. Not for Internet video. Not
for downloading games. Not for any other lawful consumer Internet
application invented in the past 15 years, really. Customers are on
notice that using the network in lawful but non-approved ways puts them
at risk of having their service terminated.
Like the old AT&T monopoly, wireless carriers argue that unless
they dictate exactly how and with what device a consumer uses the
wireless network, it will all come tumbling down. Indeed, in response
to the Coalition's call for an open access network on the E Block, one
of the incumbent carriers responded that just four Slingboxes can take
down a cell site. But is a Slingbox, or any other device designed to
allow consumers to remotely watch video, inherently ``unsafe''? And are
other prohibited services--like VoIP or free text-messaging services--
inherently harmful to the network? Of course not.
Instead, like any use of the network, some applications may make
more use of the network than others, and regardless of the use, some
consumers will use the network more intensively than others. This is
not a new problem. Carriers deal with the issue of voice capacity by
charging for minutes of use on the network. Customers who use lots of
minutes pay more than those who do not, and the price mechanism gives
customers an incentive to ration their usage. Equally important, the
pricing mechanism gives carriers an incentive to increase capacity so
that they can generate more minutes and hence more revenue. What if
carriers simply charged data users for the amount of capacity they use,
just as they charge voice users for minutes of use? In that case,
streaming video users would pay more for using more network capacity
and, if the price was too high, they might reduce their use of
streaming video applications.
Carriers also argue that they need absolute control over the
consumer experience, lest the consumer should stumble upon a device or
use that provides a lesser quality or otherwise different experience
than that offered by the carrier. But if a consumer wishes to use a
free instant messaging service, instead of the carrier's own paid
messaging service, how is that a ``harm'' to the network? It simply
means that the consumer is free to make their own decision as to a
tradeoff between price, quality and a host of other variables. Maybe
the consumer is an ``early adopter'' who is willing to try out a new
product on the leading edge of technology. Early adopters are
notoriously willing to accept tradeoffs in product quality in order to
have the ``newest thing''. Fortunately for the rest of us, it is these
early users who allow innovative products to ``cross the chasm'' from
laboratory to the mass market.
Simply put, there is no reason, apart from commercial self-
interest, why a carrier needs to ban streaming video devices, webcams,
Voice over IP, or any other such application. These prohibitions are
akin to telling subscribers what conversations they can or cannot have
on their mobile phones (e.g., quick chats about what to pick up for
dinner are OK, long conversations with old friends are not). The only
devices and uses that shouldn't be allowed are those that would
actually harm the network. For example, a device that would operate
above acceptable power limits would cause interference to other users,
and certainly it is reasonable for a carrier to ban it. But
particularly as we move to an all-IP wireless world, there is no
inherent reason that one byte of traffic should be allowed while
another byte is deemed ``harmful''. Similarly, if a device meets a
published technical specification of acceptable ``behavior'' (or, for
that matter, if it is type approved by the FCC), there is no reason to
require special permission from the carrier before it can connect to
the network.
IV. Obstacles to Innovation in Wireless
Wireless entrepreneurship is not for the faint of heart. The
wireless industry is dominated by four large nationwide carriers:
Verizon, AT&T, Sprint, and T-Mobile, a.k.a., ``The Big 4.'' Members of
our Coalition have dealt extensively with the Big 4, as partners,
suppliers, customers, and competitors. We have developed business
relationships at all levels of management and some of these
relationships have even grown into friendships. The Big 4 counts among
its ranks many bright and talented people, including more than a few
visionaries and technical wizards. Dealing with these people is often a
pleasure; dealing with their organizations is more difficult. The Big 4
are large, generally risk-averse companies which exercise very tight
control over their networks.
An entrepreneur looking to create a new device or service that
somehow touches one of these networks typically has to get some measure
of approval from the carrier. For a new device this might involve
waiting 6 months or longer while it undergoes ``device certification,''
even when the device is merely a cosmetically-altered variant of some
previously tested device. For a new software application this might
involve lengthy negotiations over ``deck placement'' of the software,
which may compete with an inferior product offered directly by the
carrier itself. For an MVNO, the approval often requires convincing the
carrier's wholesale arm that a new retail service targets an under-
served market niche and will not compete for customers with the
carrier's retail arm. And as discussed above, the carriers' Terms of
Service also prohibit many cutting edge applications that involve
passing data traffic ``over the top'' of carrier networks. Each of
these barriers significantly raises the cost and risk of bringing a
mobile product or service to market.
My own experience starting Virgin Mobile USA is instructive. Virgin
Mobile is a success story, but one whose fate was by no means assured.
While any new venture must confront the slings and arrows of outrageous
fortune, we faced the additional risk of having to find a Big 4 carrier
that would support, if not endorse, our business plan. We started in
late 1999 with the idea for a product that addressed youth and other
segments of the market that the incumbents saw as ``unattractive''
because they were too poor, too low credit, and too hard to serve with
existing models. We spent nearly 2 years traveling around to all the
carriers to see if anyone would deal with us. In general, the answer
was ``no'' and for a long time we were uncertain whether anyone would
let us get off the ground. By far the scarcest commodity in this
process was network access--it was far easier to raise capital (Virgin
invested millions)--and once the network deal was complete we had
offers for additional investment from outside investors for hundreds of
millions more. In the end, only one of the weakest large players was
willing to deal with us: Verizon and Cingular were dominant, T-Mobile
had a powerful corporate parent, but Sprint was a lagging #3 player.
We had to compromise away many degrees of freedom to get a deal
done with the network partner, Sprint. We agreed to market a prepaid
product that would not directly compete with Sprint's products nor
compete for Sprint's mainstream customers. At the time we launched, 95
percent of the market was postpaid. Sprint was 100 percent postpaid.
Virgin markets only to youth, only offers prepaid, only runs on the
Sprint network, and Sprint has significant representation on the board
of directors. We were only able to create the Virgin service by
operating within the direct self-interest of a weaker player that
needed help, by avoiding any direct competition with what they do, and
by giving them a measure of control in our company. In general, this
frame of ``complementarity'' applies to almost every wholesale-style
relationship that the major carriers have done. Moreover, the
additional frame of ``credible partners'' with track record and capital
also widely applies. Few pure upstarts gain the privilege of access to
carrier networks. Of course, this limits the potential for innovation
by new firms with new ideas. After Virgin Mobile paved the way, the
large carriers have done additional MVNO deals, but who knows what
great new idea is sitting in wireless purgatory, waiting for approval
from the Big 4.
A wholesale deal with Sprint was only the beginning of our
treacherous journey for Virgin Mobile. We had to navigate many arcane
business processes in order to get our phones into the market. One of
the best examples is the device certification process mentioned above.
Device certification is a big deal. It is always the subject of major,
detailed negotiation in the MVNO relationships I have been a part of (I
have negotiated Virgin's, several as a McKinsey consultant, and one for
each of my subsequent ventures Blue and Txtbl). Almost all MVNOs end up
taking ``table scraps'' from the big carrier, i.e., they use devices
that have already been approved by the big carrier but which the
carrier has cast aside. We followed this pattern at Virgin Mobile,
simply releasing devices that Sprint had already certified months
before and wasn't currently marketing. We did this because
certification is so tedious. It is estimated to take 6-9 months for a
new phone. These days, the state of phone technology is such that a new
phone can be designed in less than 3 months. Yet the carriers take
three times as much time to certify. Most non-U.S. networks take much
less time--any device maker will tell you--which is why many cutting
edge devices are introduced in Europe or Asia before the U.S. For one
of my other companies, a different large carrier made us go through a
45-day process to get approval for changing the wallpaper and ringtones
. . . on a phone that had already been certified.
The certification process is also inequitable. One's position in
the certification queue is influenced by the carrier's marketing staff.
MVNO devices get pushed down the queue for later approval. Exceptions
are not usually made for wholesale partners but I have often heard of
partially-certified, not-properly-working devices being released by the
retail carrier for ``marketing impact''.
Of course, it is possible to navigate through these obstacles. We
have done it before. Our experience tells us, however, that the path
can be arduous, especially when compared to our experiences in other
sectors of the telecom industry, especially the Internet. Experience
also tells us that these efforts often do not succeed or do so slowly
or at substantial costs. For every Virgin Mobile there are several
other ventures that were not able to navigate the carrier maze.
V. Requirements for Innovation in Wireless
Wireless entrepreneurship would take a huge step forward if
wireless was more like the Internet. What makes the wireline Internet
so friendly from an entrepreneur's perspective is its Openness. One
does not have to ask Comcast or Time Warner Cable or even Verizon's DSL
division for permission to launch a new product, service, or device. To
borrow the Nike slogan, you can ``just do it.'' In wireless, on the
other hand, you can ``just ask the Big 4.'' If you are skillful--or
lucky--enough to make it through to the other side, the upside can be
large. Yet entrepreneurship is an iterative, trial-and-error process.
Having to engage with the Big 4 at each cycle in the process can slow
time to market and increase risks and costs for the entrepreneur. One
should not have to negotiate with an access provider to offer a product
elsewhere in the value chain. Based on my experiences and those of my
fellow Coalition members, I would like to offer a few observations
about what it takes to innovate in wireless.
First, innovation requires small bets with real customer feedback
and iterations. This is the ``try, try again'' rule. Entrepreneurs need
``laboratory'' settings to commercialize ideas that may initially look
small but turn out to be quite big. This means access to real, live
customers using real, live networks. The bar was very high for us when
we launched Virgin Mobile in the U.S.--we spent $40 million simply to
put together the basic systems to run the service and meet Sprint's
integration requirements. This was quite a high bar to trial our ideas.
By contrast, most Internet services can be developed, trialed, refined,
and redeployed multiple times in a fraction of the time and at a
fraction of the cost. This is one reason the Internet is such a great
breeding ground for innovation.
Second, freedom to enter the market is essential. It is very
difficult to know, a priori, where the good new ideas will come from or
the magnitude of their impact on the market. For example, IBM gave up
the rights to the Microsoft operating system. Yahoo! declined to
acquire Google's search engine. And of course AT&T believed the cell
phone would never become a ``mass market'' product. Innovation often
happens from the edge of a market. Some of the most important
inventions in telecommunications, including the Hayes Smartmodem,
online services, the answering machine, and speakerphones were all
commercialized by outsiders to the Bell System. Yet these new products
and services were only made possible by the FCC's Carterfone decision
and Part 68 rules, which removed the Bell companies from their
traditional role as gatekeeper of the network.
Third, the most disruptive innovations are typically the ones most
easily dismissed by market incumbents. Some innovation is merely
incremental and accretive to the existing business franchises of the
incumbents. But the big changes are often disruptive (or appear so
initially) and threaten them. When we started Virgin, the only carrier
who was willing to deal with us was also the only big carrier with no
prepaid mobile phone service and the distant number three player with
little hope of catching the top spot. More fundamentally, it is easy to
see why a market leader such as Verizon Wireless so fiercely opposes
opening up its networks. They have a closed business model that makes a
lot of money and they fear that a loss of network control will mean a
loss of their position.
The upshot is that America is not innovating in wireless at nearly
the rate it could be. While all the ingredients for innovation--
wireless broadband networks, IP networking stacks, advanced multimedia
devices--are readily available, the incumbent operators are too
hesitant to try a new recipe for change. We think the industry needs a
good test kitchen.
VI. The Open Access Solution
Our Coalition believes that an Open Access requirement on the E
Block provides a concrete and actionable way to carve out a portion of
the wireless market for entrepreneurial activity. Specifically, we
believe the FCC can unlock a wave of entrepreneurial energy if it
implements three forms of Open Access in the E Block: Open Services,
Open Devices, and Open Auction.
Open Services
An Open Services rule would require that the E Block service
provider allow customers to access ``over the top'' Internet-style
applications of all kinds. These would include many kinds of services
currently prohibited under the Big 4 subscriber contracts. Verizon
Wireless, for example, prohibits the use of VoIP, webcams, and other
media services. Under the Open Access rule, these kinds of Terms of
Service would not be allowed. Entrepreneurs would be free to create a
low-cost voice offering or, say, a mobile social network with
videoblogging capabilities. The only limits on new service ideas would
be the entrepreneur's imagination, not the wireless operator's Terms of
Service.
Open Devices
The Open Devices rule would ensure that users can connect any
device of their choosing to their wireless network, provided it meets
certain publicly specified technical standards. The consumer device
industry has undergone a revolution in the past few years. Modular
design and contract manufacturing now make it possible for even an
upstart to sell sophisticated, purpose-built devices. In particular, RF
technology is becoming increasingly commoditized, which means that it
is now possible to embed wireless capabilities into devices using off-
the-shelf component parts. We envision a wave of opportunity in the
device space, including the evolution of cell phones toward ``broadband
communicators'', the addition of wireless community features to
portable media and gaming devices, and even using wireless to provide
cheap connectivity to otherwise ``dumb'' appliances. We are starting to
see these kinds of devices emerge with local area WiFi capabilities,
but the possibilities are even greater once the devices can access the
sort of wide area 4G networks that will operate in the 700 MHz band.
Bringing a new product to market is always a risky proposition, but it
is made more risky by the need to pass a carrier's certification
process, which as noted above is filled with uncertainty, is non-
transparent, and can take many months. Under the proposed Open Devices
rule, entrepreneurs would be free to bring new devices to market, gauge
customer reaction, and evolve the product all in the time that it
otherwise would have spent languishing in a Big 4 lab somewhere.
Especially when the underlying RF components have been shown to meet a
``do no harm'' technical standard, there is no reason to subject the
entrepreneur--or her customers--to needless bottlenecks.
Open Auction
Finally, we applaud the recent suggestion made by Google and
Frontline that a portion of the E Block network capacity be made
available to all comers via an auction. This will ensure a range of new
MVNO opportunities at fair and transparent market-clearing prices.
Moreover, we can envision the connectivity being used in some non-
traditional ways. For instance, someone could offer an inexpensive
wireless service subsidized by location-based advertising. Or, in
another example, an entrepreneur starting an ``over-the-air'' online
music store could include the cost of wireless connectivity in the
price of the song download, so that the customer never has to subscribe
to a wireless service to gain access to the music store. And of course
there are many more ideas that we haven't even thought of yet (if the
proposal is adopted).
VII. Pragmatic Considerations: the E Block as Starting Point
Perhaps the best aspect of the E Block proposal, in our view, is
that while it is forward thinking, it is also realistic. We believe it
would be an eminently reasonable approach to apply Open Access only to
the E Block. We observe that 10 MHz is a relatively small portion of
the commercial 700 MHz spectrum and only about 2.7 percent of more than
350 MHz that will have been allocated for CMRS use following this
auction and last year's AWS auction.\1\ Over time, the provision of
Open Access services by at least one carrier in the market could apply
competitive pressure to the others to open up as well. A slight
regulatory nudge could result in a major push by market forces.
---------------------------------------------------------------------------
\1\ After the 700 MHz auction there will be approximately 358 MHz
allocated for CMRS. This includes 50 MHz for cellular licenses, 120 MHz
for Broadband PCS, 14 MHz for ESMR, 90 MHz for AWS, and 84 MHz at 700
MHz. This does not include nearly 200 MHz of EBS/BRS spectrum and over
50 MHz of MSS/ATC spectrum becoming available for CMRS-like services.
---------------------------------------------------------------------------
Finally, we want to point out that the Open Access proposal also
raises the possibility that entrepreneurs like us can bring new ideas
and energy to the public safety market. Open Access would create new
opportunities for specialized public safety devices and services, just
as it would for commercial uses. Indeed, we note that the openness of
the Internet has spawned many important and vital technologies such as
firewalls, VPNs, routers, and other products geared toward network
security. An Open Access regime, by unbundling network functionalities,
allows for the development of ``best of breed'' security tools that
bring state-of-the-art thinking to each layer of the network stack.
Openness increases competition to meet public safety's unique
requirements, by enabling customers to assemble an end-to-end framework
using the best available component piece parts.
As entrepreneurs, we subscribe to the old maxim, ``nothing
ventured, nothing gained.'' In our opinion, an Open Access E Block is a
venture worth pursuing, because the gains are potentially enormous.
Appendix A: Wireless Founders Coalition for Innovation Members
Amol Sarva, Ph.D.
Co-Founder, Virgin Mobile USA
Co-Founder, Blue Mobile
Co-Founder and CEO, Txtbl
John Tantum
Co-Founder and former President, Virgin Mobile USA
Co-Founder and former Managing Director, Blue Mobile
Co-Founder and Chairman, Txtbl
Fabrice Grinda
Founder and former CEO, Zingy
Founder and CEO, OLX
Alex Asseily
Co-Founder and CEO, Aliph
Pat McVeigh
Former CEO, Omnisky
Former CEO, PalmSource
Early employee of Palm
DP Venkatesh
Founder and CEO, mPortal
Jason Devitt
Co-Founder and former CEO, Vindigo
Founder and CEO, Skydeck
Ram Fish
Founder and CEO, Fonav
Joel Jewitt
Co-Founder and VP of Business Development, Good Technology
Early employee of Palm
Martin Frid-Nielsen
Co-Founder and CEO, Soonr
Dr. Sam Leinhardt
Co-Founder and CEO, Penthera
Co-Founder of Leinhardt-McCormick Associates, FORMTEK, and STORM
Dennis Crowley
Co-Founder and former CEO, Dodgeball.com
Kent Thexton
Chairman and former CEO, Seven Networks
Peter Semmelhack
Founder and CTO, Antenna Software Founder and CEO, buglabs
Russell Cyr
Founder and CEO, BitWave Semiconductor
Appendix B: Attributes of Closed vs. Open Networks
``Closed'' ``Open''
Devices Carrier New devices
certification required do not have to be
before new device approved by carrier
allowed to operate on as long as they meet
the network published technical
specification
Services Carrier limits Users may
content and access any content or
applications that may service just as they
be accessed over the can with the Internet
network Public APIs
Carrier hides allow independent
protocols needed to developers to create
access network services using
features (e.g., network ``hooks''
geographical
positioning data)
Access Carriers very Any service
selective about which provider may purchase
companies may buy network capacity via
wholesale network an open auction that
access, look for prevents favoritism
``complementary'' and ensures price
(i.e., non- transparency
threatening) business
models
The Chairman. I thank you very much.
If one of the goals of this auction is to encourage better
participation, would the establishment of a smaller block size
help? May I ask the panel?
Mr. Small?
Mr. Small. Clearly, smaller block sizes are determinative
to our ability to participate in the auction. We can bid on
virtually all CMAs, occasionally an EA, and the REAGs are
totally out of the question. And we believe--we make our money
by serving rural and small cities, and we think licenses should
get in the hands of the people who want to do that, not be put
in the hands of national players only, who then have to be
induced, or forced, to kind of serve the rural areas.
The Chairman. Mr. Lynch?
Mr. Lynch. Senator, the band plan that I mentioned in my
opening remarks--band plan 3--provides for licenses of all
sizes, from the very smallest licenses that Mr. Small's talking
about, to the regional areas, which I'm a significant proponent
of.
I think that you have to balance, in assigning license
sizes, two different drivers here. Number one, to entice the
smaller companies to participate in the auction, I think you
need the smaller license sizes. That's a given. I would agree
with Mr. Small on that. But when you look at our business plan,
at Verizon Wireless, my goal is to deliver a 4G experience
across the country. And historically, because of many of the
smaller licenses that we have had to aggregate over time, it
takes many years. In fact, we're going to close, in July, on a
couple of licenses that have been out there for years and
years, that we've been trying to fill in a piece of the upper
west part of the country.
So, to us, a REAG, or the larger license, provides us a
more expeditious opportunity to deploy 4G services than would
an attempt to aggregate in the secondary market, which is, in
fact, what we would end up having to do, over years.
So, I believe there's a need for both.
The Chairman. Dr. Sarva?
Dr. Sarva. I don't have a strong view about the large or
the small size of the auction, about the blocks, but I do have
a view about the value of openness in that context.
If there's a band of the spectrum which is open for many
different types of providers, innovators, and entrepreneurs,
but also smaller carriers to use, it provides them an immediate
access to a national coverage area using that open band.
I believe the open-access band actually increases the value
of every individual block whether it's large or small, because
it makes the winner of a block able to offer a service that
runs nationally. And that's a very important aspect of the
open-access proposal.
The Chairman. Because of the complexity before us, I'll be
submitting my questions to you, and I hope you can respond to
them.
Senator Stevens?
Senator Stevens. Well, I, also, will submit some specific
questions.
But let me ask one.
There are some who argue that we should have a buildout
based on population, others argue we should have a geographic-
based buildout. And I have the opinion that one size doesn't
fit all. Is there any way we could develop a sliding scale to
ensure that rural America is not left out, but, at the same
time, that the demands of the major markets, such as New York,
would be met?
What do you think? Anyone have an opinion?
Mr. Lynch?
Mr. Lynch. Yes, Senator. I believe that that can best be
achieved in the following way. And what I mean by that is that
I believe a POP-based regime is the correct one to use on the
overall basis. However, what's important, beyond that, is the
amount of years that the carrier who wins that license has to
build-out the footprint. And to entice build-out over a fairly
rapid period of time without making it inordinately--let's say,
financially impossible, maybe a better term--I think you need
to think in terms of 5 years to a reasonable percentage of the
POPs to be built. That would certainly, based upon how you
achieve that percentage, would drive the carrier who won that
spectrum to have to go into the rural areas. I mean, as an
example, Senator, we, today, go into many areas that you would
consider to be very rural. If we define ``rural'' as under 100
POPs per square mile, much of the territory that Verizon
Wireless already covers would be considered rural. But I will
also be the first to admit to you that there are parts of the
country where we're down to one and two people per square mile
that we have not, at this point in time, managed to reach yet.
The new spectrum, because of its propagation
characteristics, I believe, will allow us to get there much
more quickly.
Senator Stevens. Thank you.
Mr. Small, any comment?
Mr. Small. I would add to that, that I believe geographic
buildout requirements are wrong, in general, but they're
extremely detrimental to rural areas, because it'll become
uneconomic to cover 25 percent, even, of your State in total
geography. And I believe a recent letter was sent by 55 rural
companies to the FCC stating exactly that. So, it will have the
perverse action of making it uneconomic to even accept a
license--or bid for a license in a rural area.
Senator Stevens. Thank you.
Dr. Sarva? I take it you are supporting, Dr. Sarva, the
position that was presented by the last panel, on Frontline.
Now, let me ask you, in addition to that question, of geography
versus population, don't you believe that if we agree with you,
that that would reduce the overall bid for all spectrum?
Dr. Sarva. The element that we're here to support, that I
believe very strongly in, is the open access element. The
comment I made just a moment ago, Senator, is that I think the
open access proposal increases the value of any individual
block of spectrum, because the winner in a State like Alaska or
Hawaii is willing to bid more to own that particular block,
because they know they have access to a national coverage area
around the rest of the country. They can build a franchise in
their locality, and offer their customers national reach
whenever they travel. It's an important aspect that's not
available today. It's a very expensive roaming regime of
interconnection fees that are paid. Those are difficult. And I
think Mr. Small can comment on that.
So, I believe open access enhances the value of the
spectrum, for that reason, number one. Number two, I think----
Senator Stevens. Well, that's not quite the answer----
Dr. Sarva.--innovation leads to----
Senator Stevens.--to the question.
Dr. Sarva. I'm sorry.
Senator Stevens. Will it decrease the total receipt of the
Federal Government for the spectrum?
Dr. Sarva. Sir, my hunch is that you'd get more money as a
result, because in localities, folks are willing to pay more
for their particular piece of that spectrum instead of just
having one or two bidders who can play at the national scale.
Mr. Lynch. Senator, if I might, I respectfully disagree
with Dr. Sarva, and I agree with you. The geographic
requirement will, in fact, dictate a lower auction bid, because
there would be a more immediate and more apparent obligation to
make more investment into that property early on. So, the total
net value that we would be willing to pay isn't going to
change. But what will happen is that we would put less into the
auction because we knew we were going to have to put more into
the buildout.
Senator Stevens. That was my opinion.
Thank you very much.
Dr. Sarva. Oh, I'm sorry. I'm sorry, Senator, I didn't
actually mean to suggest that I disagreed with Mr. Lynch there.
I think population's very important, and building the biggest
national market as quickly as possible creates the most
opportunities to take services to market.
The Chairman. Thank you.
Senator Thune?
STATEMENT OF HON. JOHN THUNE,
U.S. SENATOR FROM SOUTH DAKOTA
Senator Thune. Thank you, Mr. Chairman.
For a state like South Dakota, having access to needed
technology is a critical issue. And I guess the question I have
is that--many of you have stated your opposition to buildout
requirements. And the question is, if the FCC does not include
buildout requirements in its rulemaking, what incentive is
there to serve rural areas?
Mr. Lynch. Senator, if I might, first of all, I don't think
that Verizon Wireless is positing a position that we disagree
with all buildouts. We are willing to step up to the obligatory
buildout that goes with the license. The point that we were
making before to Senator Stevens' question, of course, was, the
amount we would bid on that license would be very different
depending upon what the buildout requirements were.
But I happen to believe that, particularly in your State,
I'm familiar with the buildout that we've been doing in your
State over time, and we've still got more to go--but that has
as much to do with the spectrum that we've used to deploy that
as anything else.
But, as we continue to deploy--and I've spent about $6
billion a year expanding the network--every year, we move
further and further into the very rural part of the country.
And I believe that 700 MHz--regardless of the buildout
requirements, the business opportunities will drive us to
utilize the better propagation characteristics of that spectrum
to move further out into the rural markets than we can do with
any of the spectrum we have today.
Mr. Small. And, Senator, I feel strongly that allowing
regional players to have spectrum in bite-sized chunks that we
can deal with is what drives investment in rural America. For
us to compete against the larger national players, we have to
differentiate ourselves, and that's by taking better care of
our local communities and in building more cell sites, opening
stores with our associates in communities that wouldn't
otherwise be there, and even seeking universal service funds to
do that. For example, we just built, about 2 years ago, cell
sites in Shaw and Black Hawk, Louisiana, which brought
telephone service to those communities for the first time.
There had been no landline, there had been nothing, despite all
the perceived universal service requirements that have been in
this country for, you know, dozens of years.
So, I think, incentivizing regional providers is the best
way to accomplish your objective.
Senator Thune. If--and you all seem to be in favor of
offering both small and large licensing blocks, but I guess my
question is--and you, sort of, gave an answer to that, Mr.
Small--but is that regulation, alone, enough to ensure that
smaller telecom providers are going to be able to competitively
be engaged in the process?
Mr. Small. I think having the two CMA blocks gives us a
good opportunity. And you need to balance the interests of all,
but we would be pleased with that outcome. I know Centennial
will be in the auction, and, I do believe, other regional
providers as well. Will that answer the needs of every
community everywhere? No. In many cases, large national
carriers will buy the smaller licenses. They've done that in
past auctions, and I would expect that would happen in the
future. When you look at your real policy choices, the best way
to get more coverage to rural areas is, first and foremost, to
get the 700 MHz out there, because of its better propagation,
and, second, to give a diversity of owners to that spectrum.
Mr. Lynch mentioned 100 POPs per square mile. They go down
as far as that, and that's our average. And we serve areas with
two and three POPs per square mile.
Senator Thune. Mr. Chairman, I may have a statement to
include in the record, and I will yield back. I understand we
have a vote underway. So, I yield back.
Thank you.
The Chairman. Thank you very much.
Senator Kerry?
STATEMENT OF HON. JOHN F. KERRY,
U.S. SENATOR FROM MASSACHUSETTS
Senator Kerry. Thank you, Mr. Chairman. And I know we do
have a vote on, and I'll try to go through this.
First of all, thank you for doing this hearing. This is a
critical hearing, and I appreciate your leadership on it, and
getting the Committee involved, at this stage.
I have a couple of questions, but I'd like to just make a
few comments, if I can, Mr. Chairman.
First of all, this upcoming auction of spectrum in the 700
MHz band has profound implications beyond just the question of
revenue. And I know revenue is something some people are
concerned on. And we had a discussion here in this Committee, I
guess about the level we could anticipate on the sale. I think
we set it somewhere in the twelve and a half billion or
something, with many people suggesting more may come. But I
want to emphasize that the profound implications of this--for
consumers, for schools, for businesses, small businesses, for
emergency first responders, and for the rural communities we
just heard about--can't be underestimated at all that this is a
unique opportunity.
The Chair and the Vice Chair have been here through a long
developing stage of America's communications systems, and we've
seen a lot of promises made, a lot of promises broken, and
we've seen a huge transformation. When we sat here in 1996 and
talked about what we were going to do in that bill, the entire
discussion was telephony, and not many people thought about
data. And, within a matter of months, it was obsolete, and we
didn't see the promises fulfilled by the Baby Bells and others
as to market entry. So, we have to, sort of, think about this
with the history that we've traveled on in this Committee.
And with this auction, we stand at a crossroads. We can
either provide extraordinary benefits to millions of Americans,
or we can tilt bandwidth policy to improve the already
significant position of a few powerful deliverers of this
service.
I think there's a clear path that we have to take. The
airwaves belong to the American people, and their use must
always, even as we serve the marketplace that we are, it must
also serve the public interest. So, the rules of this auction
are critical. We've got to encourage competitive entry into the
wireless market. We have to spur innovation. We have to
increase affordability. And we have to increase the
availability of broadband services.
The fact is--and there's no argument about this--we're
lagging in deployment. More than 60 percent of Americans do not
subscribe to broadband services, primarily because they don't
have access or they can't afford it.
In my own State of Massachusetts, which is a recognized
leader in innovation and technological advancement, we have a
49 percent broadband penetration rate. And, guess what? We're
the fourth best in the country.
So, this auction of very valuable spectrum--some people
have called this the beachfront property of communications--the
key is, how do we serve this importance? How do we ensure that
it works for the American people?
And, I think, first the Commission must promote the
broadest level of participation in the auction, as a guiding
rule; encourage competition; and enable entrepreneurs to think
innovatively and provide affordable highspeed wireless
broadband services.
Auction rules must be directed at promoting additional
market entrants, not just serving those most powerful, capable
of winning the auction bid based on their purchasing power
today. Open access proposals and innovative bidding rules have
got to be closely considered.
And, second, I believe the FCC must settle on a strict
buildout requirement that compels auction winners to offer
services. I understand the fears of the industry about this.
Some say that if you're forced to build a network, it can delay
service and innovation. I'm absolutely confident that the
Commission can find the appropriate balance. The spectrum has
to be deployed in a reasonable time, but also in a reasonable
manner. And what would be unacceptable is a set of rules that
allow large companies to scoop up and warehouse this spectrum.
I've been very, very encouraged, Mr. Chairman, by your
attention on this matter. And I'm confident that you, also,
want to seek strong requirements.
I'm also encouraged that the Commission is taking a close
look at solutions for public safety. And I see our friends,
first responders, here in the room. We've been working on
interoperability for quite some time, Mr. Chairman; and,
despite our efforts, interoperability remains one of our most
vexing policy challenges, despite the lessons of 9/11 and
Hurricanes Katrina and Rita.
So, providing an effective public safety communications
network is of paramount importance, and I'm encouraged that the
industry leaders are thinking about this, also, in an
innovative way.
Every American has an opportunity to benefit from this
auction. And I, once again, emphasize, the long-term revenue
stream that will come by adequately fostering the market growth
that can come with this, and the market penetration that can
come with this, far exceeds that, sort of, up-front quick hit
that you look at in the auction itself, and we need to keep
that in mind. When you look at the 60 percent of penetration,
if we can get that, and get small businesses and parts of our
rural States that suddenly become places where business can
move and get into this fourth-generation world, we're going to
be a much stronger economy, with a stronger tax base, with a
stronger job base, and more competitive than the global
community. And I think we need to look to that long-term
strength.
So, for schools, for our economy, for our families, for our
first responders, this is a pretty critical process, and I
appreciate the attention of the Committee to it.
The big question--I have just one or two questions, if we
have time, quickly--Mr. Lynch, is, if Verizon and other
incumbent broadband service providers win most of the spectrum,
is there any guarantee, then, that a third-pipe provider is
going to be able to enter the market; a guarantee?
Mr. Lynch. Senator, I'm not sure exactly how to answer your
question with a very few words, but let me say this. With 900
licenses at auction in the band plan that we've been
recommending, which is band plan 3, I think that there is a
tremendous opportunity for new entrants, as well as existing
providers, who, like us, have a commitment to putting fourth-
generation out there.
Again, I'm saying I'm not sure exactly how to answer the
question that you've asked.
Senator Kerry. Well, maybe rather than be rushed like this,
because I know we've got a vote, and I don't want to tie us up,
maybe I could pursue this, Mr. Chairman, in a couple of written
questions, and just follow up in a way that would develop the
record on it, which I'd like to do, and that would serve all of
us, perhaps, more effectively.
Mr. Lynch. Thank you. We'll do that.
Senator Kerry. I really thank the Chair.
[The prepared statement of Senator Kerry follows:]
Prepared Statement of Hon. John F. Kerry,
U.S. Senator from Massachusetts
Mr. Chairman, the upcoming auction of spectrum in the 700 band has
profound implications for consumers, schools, businesses, emergency
first responders, and rural communities. We are presented with a unique
opportunity to shape the future of wireless communication and
innovation in America.
With this auction, we stand at a crossroads--we can either provide
extraordinary benefits to millions of Americans or tilt bandwidth
policy to line the pockets of a privileged few.
There is a clear path I believe must be taken: the airwaves belong
to the American people, and their use should serve the public interest.
We must establish rules in this auction that encourage competitive
entry into the wireless market, spur innovation and increase
affordability and availability of broadband services.
There is no argument that we are lagging in deployment. More than
60 percent of Americans do not subscribe to broadband service--
primarily because they don't have access or can't afford it.
My own state of Massachusetts, a recognized leader in innovation
and technological advancement, has a 49 percent broadband penetration
rate. And it is 4th best in the country.
So this auction of very valuable spectrum, takes on heightened
importance. How do we ensure it works for the American people?
First, the Commission must promote the broadest level of
participation in the auction, to encourage competition--and enable
entrepreneurs to think innovatively, and provide affordable, high-speed
wireless broadband services. Auction rules should be directed at
promoting additional market entrants. Open access proposals and
innovative bidding rules must be closely considered.
Secondly, the FCC must settle on strict build out requirements that
compel auction winners to offer services. Now, I understand the fears
of industry in this area. If we are forced to build networks, it delays
service and innovation.
I am confident the Commission can find the appropriate balance--The
spectrum must be deployed in a reasonable time. What would be
unacceptable is a set of rules that allow large companies to scoop up
and warehouse this spectrum. I have been encouraged by the Chairman's
attention to this matter, and I will be looking for a strong set of
requirements.
Finally, I am encouraged that the Commission is taking a close look
at solutions for public safety. We have been working on the
interoperability for quite some time. And despite our efforts, Mr.
Chairman, interoperability remains one of our most vexing policy
challenges--despite the lessons of 9/11 and Hurricane Katrina.
Providing an effective public safety communications network is of
paramount importance, and I am encouraged that industry leaders are
thinking about the topic in an innovative way.
All Americans have an opportunity to benefit from this auction.
This is more than an issue of Government revenue--it is also about
expanded access to revolutionary new technology for every American. Our
economy, our schools, our families and our first responders are
counting on the FCC to conduct a fair auction in the spirit of
competition and innovation that drives our country.
I, for one, will be watching closely.
Mr. Lynch. Thank you.
The Chairman. With that, we thank the panel, and we've got
to go to vote.
[Whereupon, at 12:15 p.m., the hearing was adjourned.]
A P P E N D I X
Prepared Statement of Pam Montanari, Radio Systems Manager, Pinellas
County, Florida; Chairperson, Tampa Bay Urban Area Interoperable
Communications
Mr. Chairman and Members of the Committee, my name is Pam Montanari
and I am Radio Systems Manager for Pinellas County, Florida. I also
serve as the Chairperson for Interoperable Communications for the Tampa
Bay Urban Area. Thank you for this opportunity to share with you the
views of Pinellas County and the Tampa Bay urban area on the pending
decision by the Federal Communications Commission (FCC) to establish
rules and policy for the auction of 700 MHz spectrum. This is an issue
of great importance to public safety organizations throughout the
Nation and will determine our ability to provide life saving services
to our citizens for many years to come.
Pinellas County, Florida is among the largest counties in the
United States and serves a permanent population of over 925,000 in west
central Florida. We are dedicated to providing state-of-the-art radio
communications for over 9,500 public safety personnel. The Pinellas
County Emergency Communications Department is committed to providing
high quality, efficient service to the citizens of Pinellas County.
Pinellas County embraces new technology and has a history of
leading field tests for advanced high speed data and video
communications. Starting in 2001, Pinellas County conducted the first
test of wideband technology, using an experimental license on wideband
channels in the 700 MHz band and it performed well for the exchange of
public safety data and video. Currently, Pinellas County is also
conducting tests of various broadband technologies in the 4.9 GHz
public safety broadband spectrum. Pinellas County is actively involved
with neighboring public safety agencies in the Tampa Bay urban area to
achieve interoperability in both voice and data communications
solutions.
Pinellas County and the Tampa Bay urban area support the concept of
a nationwide broadband network designed to meet public safety
communications requirements, however, it would be unfortunate if public
safety is unnecessarily restricted to this one technology for future
data services. We have filed comments at the FCC stating that public
safety should be provided the flexibility to deploy either wideband or
broadband data solutions in the 700 MHz band.
If a nationwide broadband network-only proposal is adopted without
allowing for wideband deployment in the 700 MHz band, there will not be
sufficient public safety frequencies available in the Tampa Bay area
for implementing both regional voice and high speed data solutions. Our
public safety agencies must have the flexibility to implement these
advanced high speed data communications technologies, whether broadband
or wideband. We support using the 700 MHz data spectrum to provide the
best combination of public and private high speed data systems that
meet our coverage and operational requirements.
Pinellas County strongly agrees with the many comments filed by all
public safety representatives that overwhelmingly urged the Commission
to ensure flexibility of solution choices in this band. As we noted
above, Pinellas County is evaluating several technology solutions, both
broadband and wideband, and we must continue to have the ability to
choose the technologies that best fit our local requirements. To our
knowledge, no public safety organizations filing comments at the FCC
objected to having the flexibility to choose between broadband or
wideband solutions.
Pinellas County notes that while a nationwide broadband network
built and operated by a commercial provider should be explored, there
are a number of details that must be decided before public safety
organizations can place the lives and property of our citizens in the
hands of a commercial communications provider with no other allowed
options. The FCC must guarantee certain minimum standards will be met
by any commercial licensee who acquires through auction the adjacent
commercial spectrum and commits to build out a nationwide broadband
network targeted for both public safety and commercial use.
The FCC must ensure that commercial communications providers and
public safety leadership and agencies participate equally in defining
the specifics of a proposed nationwide broadband network. For example,
we propose that the specifications include the following minimum
benchmarks:
1. When fully built out, the nationwide network should cover at
least 95 percent of the jurisdictional area of the public
safety agencies on the broadband network. This means that a
city fire department must have city-wide coverage, a county
sheriff must have county-wide coverage, and a state police
department must have state-wide coverage. Each agency must have
at least 95 percent coverage at a minimum specified data rate
and level of reliability. Further, in order to provide mutual
aid and interoperability with neighboring agencies, these
coverage requirements should extend into the jurisdictional
areas of our neighboring agencies. Previously, the Commission
recognized the need for coverage into adjacent jurisdictions
when it established rules for the 800 MHz public safety band
regional planning. For a broadband network to be nationwide
when fully built out, coverage requirements tied to population
alone are not sufficient.
2. Incident commanders and first responders must have immediate
access to communications resources in times of emergency
incidents and disasters. This includes adequate channel
capacity and operational control over the system, both the
commercial as well as the public safety channels. We cannot
wait for a national licensee or associated commercial
carrier(s) to be contacted for a decision. On-scene command and
control is responsible for orchestrating resources as needed to
control the emergency. These resources today include local
responders, assisting agencies, equipment and mission critical
voice communications. Going forward, agencies and incident
commanders will also need control of high speed data and video
communications resources at the incident as well.
3. Reliability and security of the high speed data
communications must be assured by the commercial provider.
Public safety, especially law enforcement, must have the
capability to encrypt sensitive communications, including
imaging and video transfers and to control who has access to
this information. These requirements are of special concern for
a network which is proposed to accommodate both public safety
and commercial traffic. Today's dedicated public safety
networks are not open to the public to use, however, this may
not be the case under the Commission's proposed concept for a
nationwide broadband network in the 700 MHz spectrum. Also,
reliability requirements would dictate that the network must be
built to provide transmission redundancy, back-up power in case
of electric outages, and site, as well as network, security.
4. The nationwide broadband network must have provisions for
high speed data applications that meet local and regional
public safety needs. For nationwide broadband interoperability,
public safety applications on the network must have some degree
of uniformity across all public safety agencies. At the same
time, applications must meet the different requirements of
functional agencies (law enforcement, fire, EMS), as well as
the differing requirements of agencies in varying demographics
across the country. This includes interfaces with existing
local networks and databases, some of which are not compatible
today.
Regardless of the governance structure the Commission provides for
the nationwide broadband public safety network, local and regional
public safety entities must have input into the development of the
requirements for such a network. The concept of a nationwide broadband
network funded by commercial licensees in adjacent spectrum is
appealing. However, given the many outstanding unknowns, there is
currently no certainty that this proposed network would meet the
operational and monthly cost requirements of Pinellas County and the
Tampa Bay urban area agencies. In addition, the proposed build out
schedule for the broadband network is 8-10 years, and it is likely that
there could be geographic areas that still would not be covered by this
network.
Under the Commission's tentative conclusion, public safety agencies
would have no option to deploy their own system if the promise of the
nationwide network were not realized or if it were delayed in their
area. Pinellas County and the Tampa Bay urban area believe that we must
be able to implement a high speed data solution while we are waiting
for the nationwide broadband carrier to roll out the network to cover
our jurisdictional region. Further, we need the option to maintain that
network at least until there is certainty that the nationwide broadband
network as built in our area meets our specific operational
requirements.
Mr. Chairman, Pinellas County commends you for holding this
hearing. It is important that the Congress, which first promised 700
MHz spectrum to public safety a decade ago, maintain oversight over the
implementation by the Commission. Available spectrum in these most
desirable bands draws the attention of many who would like to gain
access to public safety's resources. The promise of a nationwide
broadband network constructed and paid for by a commercial licensee is
appealing, but we must remember the adage that ``there is no such thing
as a free lunch.''
Pinellas County and the Tampa Bay urban area request the Committee
to urge the Commission to provide local and state agencies the
flexibility on at least a portion of the public safety data spectrum to
implement the solution that best meets our high speed data requirements
and budget. The options must include the ability to choose a local or
regional network, whether broadband or wideband, especially while we
await the nationwide roll out of a commercially-based broadband
network. Public safety agencies can work through their regional
planning committees to enable implementation of these choices on a
local and regional basis.
Again, Mr. Chairman and Members of the Committee, Pinellas County
and the Tampa Bay urban area thanks you for the opportunity to testify
today on our concerns about the 700 MHz auction and its potential
impact on public safety.
______
Response to Written Questions Submitted by Hon. Daniel K. Inouye to
Wanda S. McCarley
Question 1. All parties appear to agree on the need to build a
broadband network for public safety. However, the cost of building such
a network and the length of time it would take to complete varies
significantly, depending upon the approach that is taken. There are
essentially 3 options. Option 1 is that public safety can try to build
and operate this network itself at the local and regional level, as has
traditionally been the case. Option 2 is similar to what was proposed
in the FCC's ninth Notice of Proposed Rulemaking, where a national
public safety licensee would partner with a commercial operator to
build a shared public safety commercial network using the 12 megahertz
of spectrum already allocated to public safety. Option 3 follows the
Frontline proposal, where a national public safety licensee would
partner with a commercial operator to build a shared network that not
only uses 12 megahertz of existing public safety spectrum but also 10
megahertz of commercial spectrum that will soon be put out for auction.
Under each of these scenarios, what is your best estimate as to how
much it will cost public safety to build and operate a next-generation,
broadband network, and how long will it take to build out this network
across the nation?
Answer. The actual cost to public safety would depend on numerous
factors--many of which are out of our current control. It's safe to
say, however, that construction alone of a network such as this, that
meets public safety's needs will cost many billions of dollars. Some
estimates place the amount in the range of $22 billion. The cost is
generally the same under each of Options, though the decentralized
approach in Option 1 could be higher due to the lack of economies of
scale. The primary difference is whether and how those costs are paid.
Under Option 1, the costs would be localized for each separate
broadband system, as is currently the case with state/local public
safety systems. We believe the result of this approach for broadband is
that wealthy areas, or those few areas with special access to Federal
funds (e.g., National Capital Area), will ultimately build systems, but
much of the Nation will be left unserved as the cost of a broadband
network will be well-beyond the means of most local agencies. Under
Option 2, there would be a single licensee, and theoretically a
commercial partner. However, with only 12 MHz available, there would
not be sufficient capacity to address both public safety requirements
and sufficient commercial use to justify commercial investment and
partnership. The national licensee would also lack tax and bonding
authority, leaving it without any means to construct the national
network. Option 3, or some variation of it, is what we favor, and what
the FCC appears to have adopted in its order adopted on July 31. This
approach provides sufficient spectrum for a joint system that meets
public safety broadband requirements and a viable commercial network.
We believe that Option 3, or a variation thereof, is the only way
to build a broadband network ``across the nation''. We have advocated
that the network be built to cover 99.3 percent of the Nation's
population within 10 years, with significant interim benchmarks that we
believe are addressed in the FCC's July 31 order.
Question 2. One of the elements of proposals to create a public
safety-private sector partnership is the creation of national public
safety licensee to negotiate a network services agreement with a
private operator. In your view, how should this national public safety
licensee ensure that the needs of local first responders are met?
Answer. We believe that the national licensee must be
representative of local first responders. Thus, nine national public
safety organizations have formed a nonprofit corporation that intends
to apply for the FCC license. Each of the organizations shall select
board members to the entity, and there will also be advisory committees
of additional organizations and regional representatives.
Question 2a. What benefits would result from the creation of a
public safety licensee?
Answer. A national public safety licensee could more effectively
negotiate a national network sharing agreement with a commercial
partner. It could also coordinate standards and interoperability
procedures to ensure seamless interoperability across the Nation.
______
Response to Written Questions Submitted by Hon. Bill Nelson to
Wanda S. McCarley
Question 1. Current 700 MHz proposals seem to contemplate 24 MHz of
spectrum for public safety. Is that enough to meet future needs--
particularly in light of new broadband applications?
Answer. It is not sufficient. Even when the 24 MHz was first
allocated (per legislation passed in 1997), we knew it would not be
sufficient to address all future data requirements. Half of the 24 MHz
is dedicated for narrowband voice systems, for which there is
substantial demand and existing deployments in some areas. The
remaining half, standing alone, would not address all public safety
requirements for broadband, especially in urban areas. It is also
insufficient for a public-private partnership approach as there would
not be ``excess'' capacity for commercial operation.
Question 2. Does the additional 10 megahertz of public-private
spectrum in the Frontline proposal help solve any shortage?
Answer. Absolutely. It provides additional capacity when needed for
major emergencies, and it provides the capacity needed for a viable
public-private partnership. We note, however, that there are some
aspects of what Frontline proposed that we do not support. Based on
what we believe is in the FCC's July 31 order, the FCC appears to have
found the right balance.
Question 3. As you are all aware, one of the biggest problems
facing public safety is interoperability. All too often, we see
jurisdictional and technological barriers that inhibit public safety
officials in one area from speaking to officials in an adjoining area.
Of the solutions currently before the FCC, which solution does the most
to foster interoperability?
Answer. We support approaches that promote viable public-private
partnerships to build a nationwide, interoperable broadband network. A
national network can be built with a single standard and provide the
widest possible coverage to ensure seamless service and
interoperability for first responders. There will still need to be a
need for many years to tie together existing public safety radio
networks operating in various frequency bands.
Question 4. If a public-private partnership--of some sort--is
formed to manage a portion of the spectrum, how should disputes between
public safety users and private entities be resolved?
Answer. Clearly, public safety must be the primary factor in
resolving disputes. We do not believe that the license for the relevant
commercial spectrum should be granted unless and until a network
sharing agreement is reached with the national public safety licensee.
There should not be mandatory third-party mediation, as the disputes
are likely to involve non-commercial, public policy issues regarding
public safety communications. Thus, if there is to be dispute
resolution, it should be managed by the FCC.
______
Response to Written Questions Submitted by Hon. Daniel K. Inouye to
James L. Barksdale
Question 1. All parties appear to agree on the need to build a
broadband network for public safety. However, the cost of building such
a network and the length of time it would take to complete varies
significantly, depending upon the approach that is taken. There are
essentially 3 options. Option 1 is that public safety can try to build
and operate this network itself at the local and regional level, as has
traditionally been the case. Option 2 is similar to what was proposed
in the FCC's Ninth Notice of Proposed Rulemaking, where a national
public safety licensee would partner with a commercial operator to
build a shared public safety commercial network using the 12 megahertz
of spectrum already allocated to public safety. Option 3 follows the
Frontline proposal, where a national public safety licensee would
partner with a commercial operator to build a shared network that not
only uses 12 megahertz of existing public safety spectrum but also 10
megahertz of commercial spectrum that will soon be put out for auction.
Under each of these scenarios, what is your best estimate as to how
much it will cost public safety to build and operate a next-generation,
broadband network, and how long will it take to build out this network
across the Nation?
Answer. While the figures that follow are only our best estimates,
the one thing that is certain is that Frontline's proposal for a
public-private partnership will guarantee the construction of a
nationwide, interoperable public safety network at no cost to public
safety and the American taxpayers. Frontline approximates a cost of $10
billion or less to construct a shared network with public safety, and
all costs will be borne by the commercial licensee. Further, this
option is the most economical, approximately doubling the spectrum
available for public safety during peak capacity while dramatically
reducing the need for cell splitting. This translates into a need for
at least 40 percent fewer towers, which is pure savings of what
economists call ``deadweight loss.''
In contrast, under ``Option 1,'' public safety and the taxpayers
will bear the cost of constructing a public safety network. This option
is by far the most expensive, and will cost somewhere between $15-$20
billion (or possibly more) to construct, because it will require far
more towers than the shared network proposed by Frontline. Further,
public safety will be forced to fund the construction itself, which it
has stated time and time again will not be possible. Similarly,
``Option 2'' will also cost at least $15 billion to construct. While
``Option 2'' does alleviate some of the concerns about where public
safety will receive funding to construct a network, the lack of a
sufficient amount of spectrum for a shared network will certainly limit
public safety's ability to secure a commercial partner and that
partner's willingness to fund the build-out will be significantly
reduced. Further, it will not provide public safety with additional
spectrum in times of emergency.
In terms of the time frames for construction of a nationwide,
interoperable public safety network, a 10 year buildout requirement is
very achievable under Frontline's Plan. Under ``Option 1'' and ``Option
2,'' however, it is very difficult to estimate how long construction
will take. Option 1 is likely to take decades because of the need to
use taxpayer funding, likely generated at the state and local level.
Moreover, under Option 1 with different networks being build at the
state and local level, interoperability is likely to be a major
problem. The construction will also take longer due to the additional
cell towers required.
Only Frontline's Plan will guarantee the construction of the much-
needed nationwide, interoperable public safety network within 10 years
and without any cost to public safety and taxpayers.
Question 2. Some opponents of the Frontline proposal have argued
that placing conditions on the auction of certain commercial
frequencies should be rejected because it would reduce potential
auction revenues. How do you respond to this charge?
Answer. The conditions proposed in the Frontline plan--open access
and wholesale requirements on a nationwide license block--will
encourage new entrants in the wireless market to bid in the auction,
thereby increasing auction revenue. Open access will promote bidding by
entities with diverse business plans, some of whom will have no
intention to provide retail service or otherwise bundle access,
software and services. Even entities that already operate wireless
networks may choose to participate. Indeed, in recent days both Verizon
and AT&T have indicated their intention to bid actively in the upcoming
auction, so claims that such conditions are a ``poison pill'' to
artificially set bid prices lower by keeping incumbent bidders away
have proven to be false.
A wholesale requirement would have a similarly positive effect on
auction revenue. By unbundling network connectivity and retail service,
a wholesale only requirement reduces the significant barriers to entry
that have caused two wireless broadband incumbents to control more than
half the market. If barriers to entry into wireless broadband service
are not mitigated through measures such as open access and wholesale
requirements on a small part of the spectrum up for auction, incumbents
will have no competitors against whom to bid--resulting in a deflated
price paid for that spectrum, and reduced funds to the Treasury.
Frontline's plan also seeks to encourage auction participation by
new entrants by allowing eligible entities to qualify for bidding
credits. Previous FCC auctions demonstrate that where new entrants and
small businesses participate, greater revenues result. To take just one
example, in the Commission's PCS auction, bidding preferences for
eligible businesses increased the government's revenues by more than 12
percent--an increase in total revenues of nearly $45 million. Giving
bidding credits to designated entities created extra competition in the
auctions and induced established firms to bid higher. By contrast, past
auctions also show that where incumbents have the opportunity to bid on
spectrum without any limitations on its use, other potential bidders
stay home, and incumbents--those entities with the most ability to
pay--win their spectrum at a reduced price.
Finally, regardless of the merits of the by-now-discredited
position that auction rules reduce bidders' flexibility, which in turn
reduces auction revenue, Section 309(j)(7) of the Communications Act
clearly bars the Commission from basing a finding of public interest,
convenience and necessity on the basis of such revenues. Congress
should make sure the FCC follows that provision of the law.
Question 2a. Would there be benefits that might outweigh any
potential costs?
Answer. As noted, the benefits of the Frontline Plan already
outweigh potential ``costs'' to the Treasury, since new entrants'
participation in the auction has been shown to increase auction
revenues, and there is every reason to believe that this truism will
hold in the 700 MHz auction. To the extent the Commission considers
other benefits associated with the Frontline plan--as the
Communications Act requires it to do--it should find that open access,
wholesale and promoting small business opportunities are all consumer-
friendly policies directly in the public interest.
Simply put, an open network benefits consumers more than a locked
one. Recall the last time you went to a retailer to purchase a cellular
phone. Most likely, your choice of phone was more or less dictated by
your present service provider. Choosing a network circumscribed your
choice of phone. Prior to the Commission's rule on cellphone number
portability--an action Verizon and CTIA vigorously opposed, challenged
in court, and excoriated in the press as unnecessary--the barriers to
choice were even higher.
The wireless broadband market, as presently constituted, results in
even greater costs to consumers. In a highly concentrated market (see
below), companies that control access to both the network and the
consumer collect duopoly rents at the retail level while reducing
choice. Unbundling network access from retail service, however, creates
several new points of entry in wireless broadband delivery to the
consumer. By creating opportunities for new entrants to specialize in
different areas, benefits will inure to consumers due to more
competition and lower prices in services, software and devices. Spurred
by innovation, broadband networks (and the benefits associated with
them) will roll out faster.
Consumers don't participate in auctions. Therefore, the Commission,
as auction designer, must represent the interests of those consumers in
developing auction rules. Frontline's Plan benefits the public
interest. These conditions are not just beneficial, moreover; they are
needed--a point illustrated in more detail below.
Question 2b. In your view why are such conditions needed?
Answer. These conditions are absolutely essential to create
competition and innovation in the wireless market. Incumbent providers
currently operate in a consolidated marketplace that has essentially
become a duopoly. The Commission's most recent CMRS Competition Report,
for example, found that the wireless industry's HHI index, measuring
market concentration, was 2700, up from 2450 in the previous year
alone. To put this in context, the Department of Justice's Antitrust
Division classifies any market with an HHI index above 1800 as ``highly
concentrated.'' Furthermore, the number of national wireless carriers
has dropped from six to four, with the top two--AT&T and Verizon
Wireless--accounting for nearly two-thirds of all new subscribers.
Spectrum is a scarce commodity, particularly 700 MHz spectrum, and
because of market consolidation the incumbent retailers have a monopoly
on this scare resource. Control over this low-frequency spectrum
provides control over network services. Incumbents have every incentive
to leverage this control over the network to corner the market on
retails services. Consequently, these providers will rationally create
vertically integrated businesses that raise prices to super-competitive
levels and thwart innovation and new entry.
The proposed open access and wholesale-only conditions will prevent
incumbents from bottlenecking spectrum and continuing to hinder
competition. If the FCC does not create a ``new build'' national
network open to all content and devices, the likely outcome is that the
United States will fall far behind other countries in wireless
broadband development and deployment. On the other hand, should the FCC
decide to create rules requiring a licensee to operate a wholesale open
access network, the result will be a vibrant industry as dynamic as the
Internet sector, and it will be headquartered on American soil.
______
Response to Written Questions Submitted by Hon. Bill Nelson to
James L. Barksdale
Question 1. Current 700 MHz proposals seem to contemplate 24 MHz of
spectrum for public safety. Is that enough to meet future needs--
particularly in light of new broadband applications?
Answer. Public safety's communications needs reflect the nature of
their job, which is sometimes steady but is frequently punctuated by
huge spikes in demand. That makes it challenging to meet public
safety's needs. On a daily basis, public safety will not utilize all of
its spectrum, let alone additional spectrum. In emergencies, however,
public safety might well need access to additional spectrum. This means
that valuable spectrum will sit unused much of the time but public
safety still may not have sufficient access in times of emergency.
This problem spurred Frontline to propose the creation of a public-
private partnership for a shared network on the public safety broadband
spectrum and the adjacent commercial block. The beauty of Frontline's
proposed public-private partnership is that it efficiently utilizes
scare spectrum resources and simultaneously helps to solve spectrum
shortages that may occur during public safety emergencies.
Question 2. Does the additional 10 megahertz of public-private
spectrum in the Frontline proposal help solve any shortage?
Answer. As mentioned above, public safety will not typically
utilize the entire 12 MHz of broadband spectrum it has been allocated.
During emergencies, however, public safety may need access to
additional spectrum, particularly during national emergencies. Under
the Frontline Plan, public safety will have instantaneous and automatic
access to take over the adjacent commercial spectrum during
emergencies, approximately doubling the amount of spectrum available to
public safety when it needs it most and alleviating concerns about the
insufficiency of the current public safety allocation.
Question 3. As you are all aware, one of the biggest problems
facing public safety is interoperability. All too often, we see
jurisdictional and technological barriers that inhibit public safety
oficials in one area from speaking to officials in an adjoining area.
Of the solutions currently before the FCC, which solution does the most
to foster interoperability?
Answer. Frontline has proposed a solution specifically designed to
address the problems associated with the current lack of
interoperability in our public safety communication networks. Namely,
Frontline has proposed a public-private partnership to facilitate the
construction of a nationwide, interoperable, wireless broadband network
for the public safety community. This network would be built at the
expense of a national commercial licensee who would construct the
network as a condition of the license.
This plan presents the only realistic opportunity to facilitate
much-needed interoperability by creating a solution for the funding of
a such a nationwide network. By working with the National Public Safety
Licensee (``NPSL''), the commercial licensee would be able to construct
a network to public safety standards and ensure interoperability
throughout the nationwide network.
Question 4. If a public-private partnership--of some sort--is
formed to manage a portion of the spectrum, how should disputes between
public safety users and private entities be resolved?
Answer. Frontline recognizes the importance of ensuring that the
NPSL is able to decide whom it chooses as its network sharing partner
and successfully negotiate an agreement with that entity. This is why
Frontline proposed service rules which would give the NPSL the freedom
to negotiate an agreement with any network partner, while having a
guaranteed option via one-way arbitration that binds the D Block
Licensee but not the NPSL.
Under Frontline's proposed rules, the commercial licensee of the
block adjacent to public safety would enter into good faith
negotiations with the NPSL to form a network sharing agreement. Given
the incentives of both parties, an agreement would likely be reached
without Commission intervention.
If there are any remaining disputes, as a last resort, Frontline
has proposed that these be submitted to the FCC for one-way binding
arbitration. The FCC's arbitral decision would only be binding on the
commercial licensee and the NPSL would remain free to walk away and
negotiate with another party. The bottom line is that the decision to
proceed with a partnership would rest solely with the NPSL. If the NPSL
does choose to walk away, provided the commercial licensee has acted in
good faith and is willing to abide by the Commission's decision, the
commercial entity would remain the licensee of the adjacent block.
______
Response to Written Questions Submitted by Hon. Daniel K. Inouye to
Philip J. Weiser
Question 1. All parties appear to agree on the need to build a
broadband network for public safety. However, the cost of building such
a network and the length of time it would take to complete varies
significantly, depending upon the approach that is taken. There are
essentially 3 options. Option 1 is that public safety can try to build
and operate this network itself at the local and regional level, as has
traditionally been the case. Option 2 is similar to what was proposed
in the FCC's Ninth Notice of Proposed Rulemaking, where a national
public safety licensee would partner with a commercial operator to
build a shared public safety commercial network using the 12 megahertz
of spectrum already allocated to public safety. Option 3 follows the
Frontline proposal, where a national public safety licensee would
partner with a commercial operator to build a shared network that not
only uses 12 megahertz of existing public safety spectrum but also 10
megahertz of commercial spectrum that will soon be put out for auction.
Under each of these scenarios, what is your best estimate as to how
much it will cost public safety to build and operate a next-generation,
broadband network, and how long will it take to build out this network
across the nation?
Answer. The question is exactly the right question to ask and,
unfortunately, I am not in a position to give a good answer to it. I
can say that I am skeptical, as my testimony explains, that public
safety can develop, own, and operate such a network itself. As between
the last two options, it is fair to say that, in principle, the second
option would require public safety to put up more of the money itself
insofar as third option uses the encumbered spectrum as a form of
subsidy to support the build-out of a next generation network.
Question 2. Mr. Weiser, in your testimony, you describe some of the
benefits of a next generation architecture for public safety and note
that a partnership with a commercial provider could lead to a more
efficient use of spectrum and to lower costs through greater economies
of scale. Could you describe why a partnership might achieve these
benefits and why the status quo does not?
Answer. The status quo, whereby public safety agencies operate
networks for themselves, involves the inefficient use of spectrum
whereby each locality builds networks that they operate for themselves.
Moreover, under the status quo, public safety agencies are left outside
of the commercial ecosystem whereby large economies of scale accrue to
the users of commercial networks. By partnering with a commercial
entity and developing a network at a higher level, public safety can
address both of these two failings--using a system that is architected
efficiently, uses spectrum more economically as well as benefits from
more options, more enhanced functionalities, and cheaper equipment than
is currently available.
Question 2a. Is it possible to quantify how substantial these
benefits might be?
Answer. Such a study is no doubt possible, but I am in no position
to offer any substantiation of these benefits. By way of anecdote,
however, consider that ``a cell phone with voice, video, and data
capability costs about seven times less than a public safety digital
portable radio that cannot even take a digital photo, much less send it
to another person.'' Robert Rouleau, Connecting Data Networks, Public
Safety Rep., Aug. 2006, at 98, 102. On the spectrum side of the
equation, I cannot quantity just how much more efficiently a shared
network would be (as opposed to individual local networks), but it
would be very substantial and, given the value of spectrum as a
resource, the savings to society from more efficient use of spectrum
would be considerable.
______
Response to Written Questions Submitted by Hon. Bill Nelson to
Philip J. Weiser
Question 1. Current 700 MHz proposals seem to contemplate 24 MHz of
spectrum for public safety. Is that enough to meet future needs--
particularly in light of new broadband applications?
Answer. As I note in my testimony, public safety agencies use
spectrum in bursts, meaning that, for those times of emergencies, 24
MHz is unlikely to be enough. For other times, however, it will be
considerably more than enough--particularly if public safety networks
are architected and operated efficiently. To address the nature of
public safety's usage pattern, a shared commercial/public safety
network capitalizes on a powerful insight--when public safety is not
using its spectrum, it can be used by a commercial operator. By
contrast, when public safety needs access to spectrum, this network
would enable it to receive priority access to additional spectrum.
Consequently, the major policy challenge is not finding public safety
more spectrum that needs to be dedicated exclusively to public safety
agencies, but rather developing a policy strategy that will facilitate
the emergence of a new network that provides public safety agencies
with access to the spectrum they need when and where they need it as
well as with access to modern, Internet-based, broadband technologies.
Question 2. Does the additional 10 megahertz of public-private
spectrum in the Frontline proposal help solve any shortage?
Answer. It does solve a shortage concern insofar as it virtually
guarantees a commercial partner that would be willing to, when
necessary, give public safety agencies access to additional spectrum
when they need it.
Question 3. As you are all aware, one of the biggest problems
facing public safety is interoperability. All too often, we see
jurisdictional and technological barriers that inhibit public safety
officials in one area from speaking to officials in an adjoining area.
Of the solutions currently before the FCC, which solution does the most
to foster interoperability?
Answer. The interoperability challenge has both a longer term and a
nearer term component to it. On the long term front, the development of
a next generation network--say, one spearheaded by a public safety
spectrum licensee in partnership with a commercial provider--can
provide a solution insofar as it promises to equip all public safety
agencies with compatible equipment and network access. Over the nearer
term (i.e., while such a network is developed and deployed), there are
two options I am aware of for addressing interoperability issues. The
first option is to equip all relevant agencies with compatible
equipment--say, Project 25 radio systems. I am, however, very skeptical
of that model because of its considerable costs and the limited
functionality of such equipment. A second, and to my mind more
appealing, option is to encourage all agencies to adopt Internet
Protocol-based connections and interoperate using Internet-based
applications. Such an option can be attained through the use of
Internet gateways accessible through legacy radios or by adopting
broadband, Internet technology directly (say, through a local WiFi
network or EV--DO platform). This solution, to be sure, is imperfect,
but, at least on a near term basis, it appears reasonably promising.
For more details on this concept, see Philip J. Weiser, The Aspen
Institute, Clearing the Air: Convergence and the Safety Enterprise 24-
25 (2006).
Question 4. If a public-private partnership--of some sort--is
formed to manage a portion of the spectrum, how should disputes between
public safety users and private entities be resolved?
Answer. This concern is a paramount question in the development of
any such partnership. As I see it, the public safety licensee and its
commercial partner would need to develop a framework that ensures that
both parties cooperate effectively with one another. Such frameworks
have numerous analogs in commercial relationships and I believe that
such an agreement can be developed in this context as well. Presumably,
the agreement itself will contemplate a dispute resolution mechanism
(say, arbitration) and I would expect that mechanism to be the most
effective and expeditious one. Nonetheless, if the obligations of a
commercial partner with an obligation to serve public safety was at
issue (as contemplated by the Frontline proposal), that obligation
would ultimately need to be enforced by the FCC.
______
Response to Written Questions Submitted by Hon. Daniel K. Inouye to
Paul J. Cosgrave
Question 1. All parties appear to agree on the need to build a
broadband network for public safety. However, the cost of building such
a network and the length of time it would take to complete varies
significantly, depending upon the approach that is taken. There are
essentially 3 options. Option 1 is that public safety can try to build
and operate this network itself at the local and regional level, as has
traditionally been the case. Option 2 is similar to what was proposed
in the FCC's Ninth Notice of Proposed Rulemaking, where a national
public safety licensee would partner with a commercial operator to
build a shared public safety commercial network using the 12 megahertz
of spectrum already allocated to public safety. Option 3 follows the
Frontline proposal, where a national public safety licensee would
partner with a commercial operator to build a shared network that not
only uses 12 megahertz of existing public safety spectrum but also 10
megahertz of commercial spectrum that will soon be put out for auction.
Under each of these scenarios, what is your best estimate as to how
much it will cost public safety to build and operate a next-generation,
broadband network, and how long will it take to build out this network
across the Nation?
Answer. It would be exceedingly difficult for the City of New York
even to begin to estimate the costs and construction times associated
with these options. Among other considerations, the answer depends on
the unique network construction and operational requirements of each
and every jurisdiction to be served by the broadband network. It would
also depend on the nature of the network itself--the technology,
spectrum, coverage, throughput, security, quality of service and backup
power requirements, for example. Finally, in arriving at a cost
estimate, it is important to focus not only on the costs of initially
building the infrastructure, including real estate, but also the costs
of maintenance, network applications and associated end-user devices.
As for New York City, as I testified, we contracted in September
2006 with Northrop Grumman for a $500 million high-speed data network
for public safety that is scheduled for citywide deployment by March
2008. The New York City Wireless Network (``NYCWiN'') will enable a
wealth of mobile and fixed applications, including real-time video,
rapid database lookup and the exchange of rich graphical information.
The cost of NYCWiN covers infrastructure and the integration of certain
applications and end-user devices over 5 years of operation.
Indeed, the uncertainties associated with the cost of building,
operating, and maintaining a national network are among the reasons why
the City is concerned about utilizing a large segment of the 700 MHz
spectrum allocated to public safety by Congress. If the proposed
network does not succeed, then this valuable spectrum could be
``lost.'' Consequently, notwithstanding the FCC's recent Report and
Order, the City believes that the concept of a national network must be
analyzed much more closely, and that a great deal of clarification is
in order.
Question 2. Mr. Cosgrave, you note in your testimony that New York
City recently paid $500 million to develop a high-speed data network
for public safety personnel. How many square miles does this network
cover?
Answer. The system will cover approximately the 320 square miles
that encompass all 5 boroughs of the City of New York.
Question 2a. Is the equipment for this network interoperable with
other broadband networks such as the one here in Washington, D.C.?
Answer. The equipment being used is fully interoperable with all
Internet protocol systems, including Washington, D.C.'s network. The
City of New York required the implementation of architectural elements
that conform to existing standards. The radio system is based on the
international standard known as UMTS, whose footprint currently covers
80 percent of the world's wireless users. Moreover, the entire
infrastructure is based on Internet protocol, which will allow
interconnection of this system with those of other cities using
standards-based protocols.
Question 2b. If other jurisdictions were to contract for similar
systems, what would the cost be of building broadband networks across
the Nation?
Answer. As I suggested in response to Question 1, above, the costs
of even this particular technology would vary greatly from jurisdiction
to jurisdiction depending on such variables as network construction and
operational requirements. New York City is building-out an
infrastructure with approximately 400 sites, with redundant backhaul
and network operating centers. We are requiring demanding coverage,
throughput, quality of service and backup power installations. We also
must contend with a combination of tall buildings (or ``urban
canyons''), on the one hand, and, at the same time, of covering a large
geographical area. A jurisdiction with a different topography and
different requirements would face different costs even using the same
system.
______
Response to Written Questions Submitted by Hon. Bill Nelson to
Paul J. Cosgrave
Question 1. Current 700 MHz proposals seem to contemplate 24 MHz of
spectrum for public safety. Is that enough to meet future needs--
particularly in light of new broadband applications?
Answer. No. To respond to the ever increasing number of anti-crime
and homeland security-related needs, there has been substantially
increased demand for wireless network applications, which, in turn,
translates into a fast growing need for spectrum. New York City, and
other high-risk jurisdictions, are continuing to experience great
spectrum challenges to meet these required public safety services. As I
discussed in my testimony, New York City has actually been required to
go to the ``secondary spectrum market'' to purchase spectrum at
commercial rates. It is unacceptable for our taxpayers to be required
to bear the cost of purchasing publicly-owned spectrum in large measure
to meet national security mandates. Therefore, we strongly urge
Congress to encourage allocation of additional spectrum to local public
safety entities.
Moreover, I should note that, based on the currently available
information about the FCC's recently voted, but yet to be released,
Report and Order, it seems that those local public safety entities who
choose not to participate in the nationwide broadband network would
lose half of the 24 MHz of spectrum that was allocated to them by
Congress. Finally, even for those public safety entities who do sign on
to the network, a portion of their 24 MHz of spectrum will now be
comprised by commercial usage on a secondary basis.
Question 2. Does the additional 10 megahertz of public-private
spectrum in the Frontline proposal help solve any shortage?
Answer. While New York City appreciates every effort to make more
spectrum available for public safety use, it must be noted that public
safety would have access to this spectrum on a shared basis with
commercial providers. Details regarding the nature of the network being
contemplated, and how this sharing arrangement would work, were not
provided in the Frontline proposal (nor in the information that is
available about the yet to be released FCC Report and Order).
Consequently, I am not in a position to assess whether, or to what
extent, this 10 MHz of spectrum might address the shortage of public
safety spectrum.
Question 3. As you are all aware, one of the biggest problems
facing public safety is interoperability. All too often, we see
jurisdictional and technological barriers that inhibit public safety
officials in one area from speaking to officials in an adjoining area.
Of the solutions currently before the FCC, which solution does the most
to foster interoperability?
Answer. Prior to addressing the specific question regarding which
of the proposed solutions might be preferable from an interoperability
perspective, let me first touch upon a misconception about
interoperability in the context of emergency response. Interoperability
does not mean that everyone with a radio or data device must be capable
of communicating on the same frequency with everyone who has a radio or
data device. This would lead to chaotic, rather than interoperable,
communications. Interoperability means managed access via pre-defined
protocols within a disciplined command and control structure.
Designated individuals, including command and control officials,
communicate with each other and, then, to their respective ``ranks.''
Interoperability requires detailed, advanced planning and coordination
between local first responders to implement communications protocols.
Consequently, in looking at any of the proposed solutions, it is
important to bear in mind that having an appropriate network
infrastructure in place (which may not necessarily require having all
users on a common frequency) is just one part of resolving the
interoperability puzzle. A nationwide network is not a ``magic bullet''
to achieving interoperability. Most of the required work involves
planning at the local and regional levels, prior to an event, to ensure
that the appropriate agencies are communicating with one another in a
coordinated manner during an emergency.
Setting aside, for the moment, the practical concerns about
deploying a nationwide network, which I raised in my testimony, I would
suggest that theoretically each of the proposals have the potential to
contribute to improving interoperability. From an infrastructure
perspective, the key to ensuring that interoperability becomes a
reality is to ensure that the true first responders (i.e., the
emergency officials who command incident response) have control in
designing the network in such a way as to meet their needs. Then, the
work of developing the appropriate communication protocols is needed.
Question 4. If a public-private partnership--of some sort--is
formed to manage a portion of the spectrum, how should disputes between
public safety users and private entities be resolved?
Answer. The City does not believe that such a responsibility should
be delegated to nongovernment entities, such as private mediators or
administrators, nor should all such disputes be resolved at the Federal
level without input from local entities. Given that many of the
disputes will involve local or regional matters, any dispute resolution
mechanism must allow for input from the affected local/regional public
safety entities. A ``top down'' approach involving only a national
public safety licensee and a national commercial licensee will not
account for the legitimate needs of local first responders, who are
ultimately the first on the scene in any emergency. The FCC must
establish a process that is both expeditious and allows for local
input.
______
Response to Written Questions Submitted by Hon. Daniel K. Inouye to
Richard J. Lynch
Question 1. What lessons can be learned from the recent Advanced
Wireless Service (AWS) auction about the proper geographic size of
license areas? Should we be concerned that 153 of the 168 eligible
bidders in the AWS auction failed to even bid on large, Regional
Economic Area Group licenses, which are often referred to as REAG
licenses?
Answer. An important lesson to be learned from the AWS auction is
the value of the Regional Economic Area Grouping (REAG) licenses and
the importance of a band plan that includes a mixture of license sizes,
such as that just adopted by the FCC for the 700 MHz band.
In the AWS auction, the demand for REAGs was much more intense than
for the other, smaller license areas. The 40 MHz of spectrum that was
auctioned as REAGs sold for an average of $.66 per MHz-POP. By
contrast, Economic Areas (EA) licenses sold for $0.45 per MHz-POP, and
Cellular Market Areas (CMA) licenses sold for only $0.39 per MHz-POP.
Overall, EA prices were 32 percent below REAG prices, and CMA prices
were 41 percent below REAG prices. These substantial price differences
demonstrate the strong demand for large licenses.
Finally, the 158 bidders mentioned above were primarily small and
rural companies interested in only a few of the more than 1,000
licenses available in that auction. The structure of the AWS auction
was clearly successful in that, of these smaller bidders, more than 100
actually won licenses.
Question 2. Does the AWS auction also demonstrate that bidders can
aggregate smaller license areas to create larger geographic footprints?
Do smaller license areas result in a more aggressive build out of
infrastructure within a license area?
Answer. To a certain degree, bidders may be able to aggregate
smaller licenses into larger geographic footprints. The questions are
how efficient will that be, and will the bidder be able to aggregate
enough spectrum to implement its business plan?
In an auction with only small licenses, bidders wanting to
implement a nationwide or regional strategy would be hampered by the
exposure problem. That is, bidders would not be able to aggregate their
preferred combination of licenses, either winning licenses that they do
not need or not winning licenses they do need. If a band plan includes
a mix of licenses, both large and small bidders benefit.
A band plan of all small licenses could, in fact, impede an
aggressive buildout. At least some large licenses in the mix will help
promote nationwide deployment of new technologies by creating greater
economies of scope and scale, which, in turn, result in lower prices
for consumers.
Band plans of smaller licenses will likely result in an uneven and
even illogical coverage for the consumer. This happens because each
individual licensee will build out to optimize the one specific license
he/she holds. Since the typical consumer knows nothing of license
boundaries and is only looking for contiguous coverage, such ``Swiss
cheese'' coverage will frustrate the consumer. We have experienced this
for years with current licenses and it is one of the big drivers for
why some carriers, attempting to be responsive to consumer frustration,
attempt to buy smaller licenses and eliminate the ``Swiss cheese''
holes. With larger licenses, logical and contiguous build outs can be
achieved much sooner and will minimize such customer frustrations.
History has also shown, almost without exception, that carriers
aggregate smaller-sized licenses so that they can achieve and operate
as viable businesses, enabling them to compete and deliver better
products at lower prices to consumers. Aggregating spectrum post
auction takes many years and is expensive to carriers and costly to
consumers. To avoid these costly delays and ensure that next generation
wireless networks are a near-term reality, the FCC must auction and
license sufficient spectrum on a REAG basis.
Question 3. If one goal of the auction of 700 megahertz spectrum is
to encourage bidder participation, would smaller block sizes help in
that regard?
Answer. The band plan that the Commission just adopted for 700 MHz
should be more than enough licenses to encourage bidder participation.
FCC auction history shows us that there is not as much demand for
CMAs as for larger licenses. Not only did the large AWS licenses sell
for more per MHz-POP than the small licenses, but it took three
separate auctions to sell the 12 MHz CMAs that the FCC sold in the
lower 700 MHz band. At the first auction of these licenses, which the
FCC held the in 2002 at the request of small businesses and rural
telcos, more than one-third of the licenses didn't receive a bid.
Question 4. Given recent testimony before the Committee regarding
the spotty nature of wireless coverage in places like Maine, what
mechanisms can the FCC use to ensure that new operators extend coverage
ubiquitously? What effect would a so-called ``keep-what-you-use''
mechanism have in which a licensee would, over a reasonable period of
time, be required to either provide service or return parts of a
license area to the Commission for reauction?
Answer. Service to rural areas is not blocked by lack of spectrum,
and as such a ``keep what you use'' or benchmark requirements would do
little to extend coverage into more rural areas. In most rural areas,
it is not economically feasible to make use of all spectrum in every
square mile of geography according to a regulatory mandated timetable.
It is unlikely that services to rural areas are being denied or
unreasonably delayed because interested entities lack access to
spectrum. Rather, a lack of market incentives to build-out a network is
the real problem.
We believe that marketplace dynamics--not prescriptive regulation--
have worked to extend service in rural areas. Wireless carriers build
out where people are. Indeed, rural wireless coverage has continued to
expand and investment in rural areas has continued to grow long after
the original cellular licensees were required to build out their
networks or lose parts of their geographic area licenses.
The Commission has other tools at its disposal that are better
suited to encourage rural deployment. The Commission's substantial
service safe harbors, for example, provide increased certainty for how
carriers can meet the substantial service requirement through
deployment in rural areas.
If Congress believes that the current pace of deployment in rural
America still lags behind its goals, then it would be far more
effective to direct the Commission to use the economic tools at its
disposal, rather than a policy of seizing unbuilt spectrum. The FCC
could award bidding credits for carriers who choose to meet their
substantial service requirement through the rural area safe harbor. Or
the FCC could develop a program similar to programs available to rural
utilities, designed to target areas for wireless investment.
Question 5. Are the commercial frequencies that will be made
available in the upper and lower 700 megahertz bands equally viable for
mobile broadband uses? Does the fact that the Commission may allow
high-power operations in certain blocks of the lower 700 megahertz band
frequencies raise any concerns about interference in adjacent blocks?
Would larger license areas in the lower 700 megahertz band be as
attractive as large license areas in the upper 700 megahertz band?
Answer. The upper and lower 700 MHz bands have comparable
characteristics that would enable them to be used for mobile broadband
systems and to provide wide-area and in-building coverage. Both would
also facilitate more economical deployment in rural areas, as compared
to existing spectrum bands used for commercial mobile systems (850 MHz
cellular and 1.9 GHz PCS).
Operation of high-powered broadcast systems can cause harmful
interference to commercial mobile systems if operated in close physical
proximity. This problem is especially acute if both systems use the
same radio spectrum, e.g., operating on the same channel in adjacent
markets. However, there is also a potential for interference if the two
disparate systems operate on adjacent spectrum. The Commission
recognized the incompatibility of mobile and broadcast systems when it
adopted its recent Report and Order in April of this year. At that
time, it modified its 700 MHz rules to prohibit the lower A and B
blocks from being used for high-power broadcast services. (Note: The
lower C and D block licenses, which have already been auctioned, and
the unauctioned and unpaired E block may continue to be used for high-
powered systems). These changes will reduce the potential for
interference in the lower 700 MHz band and will make the band
significantly more suitable for mobile broadband systems.
Verizon Wireless believes that larger license areas provide
significant benefits over smaller areas, regardless of whether they are
made available in the lower or upper 700 MHz bands.
______
Response to Written Questions Submitted by Hon. John F. Kerry to
Richard J. Lynch
Question 1. If Verizon plans to fully use spectrum won in the 700
MHz auction, then why does it oppose ``use it or lose it'' rules?
Answer. Verizon Wireless is committed to rapid roll-out of
services. We believe that micro-managing carrier build-out goes against
everything we have learned about market-based regulation.
In particular, geographic coverage and so-called ``use it or lose
it'' or ``keep what you use'' mandates could be in conflict with the
FCC's market-driven policies for CMRS. That being said, in the recent
700 MHz proceeding, we opposed strict geographic build out requirements
as unnecessary, believing that such rules would skew economic
investment to the ultimate detriment of the consumer, but actually
proposed a build out rule with a ``keep what you use'' component.
Our build-out proposal for the 700 MHz spectrum was more stringent
than any other build-out requirement imposed by the FCC on commercial
market area licenses.
We proposed a population-based build out with a provision that if
the licensee did not reach at least 75 percent of the POPS in its area
at the end of its license term, it would lose the entire uncovered area
of its license.
A population based coverage requirement can promote a faster build
out because the operator is generating revenue from serving people
instead of a designated land mass. The revenue generated helps the
operator fund more build out in the licensed area.
Question 2. Do you think competition in the wireless market has
been good for consumers? Do you think it has been good for the
industry? What do you make of the vertical consolidation in the
wireless industry, can the market still be competitive in these
circumstances?
Answer. Competition has been a boon to consumers. In its annual
report to Congress on the state of competition in the wireless
industry, the FCC has chronicled the positive impact of competition on
the consumer. Most notable is that since 1995, the price of service has
dropped precipitously, from $.43 per minute to $.07 per minute in 2005.
This price drop is only the tip of the iceberg--in 1995, the consumer
had minimal choices in terms of carriers, handsets and services. Now
there is much more available to the U.S. wireless consumers, in terms
of coverage, devices, and advanced services.
There is no vertical integration in the wireless industry similar
to the vertically integrated AT&T/Western Electric relationship at the
time of the FCC's Carterfone decision. In fact, no wireless service
provider in the United States manufactures wireless devices and the
market for those devices is fiercely competitive. Across the United
States, there are currently more than 800 wireless phones and devices
available to consumers, from nearly three dozen manufacturers. The four
national wireless carriers currently offer a total of more than 100
phones, 95 percent of which are unique to a single provider.
A number of innovative new devices, by new manufacturers, such as
Apple's iPhone and HP's iPAQ Voice Messenger are entering the market.
Major handset manufacturers like Motorola are facing an extremely
competitive environment and face strong pressure to keep prices low
while continuing to innovate. Wireless carriers must compete vigorously
to provide consumers with the most advanced and desired devices, given
the carrier's particular business model, technology constraints, and
the competitive availability of various phones.
Question 3. If Verizon and other incumbent broadband service
providers win most of the auctioned spectrum, is there any guarantee
that a third broadband competitor will be able to enter the market?
Answer. Multiple wireless carriers, both with and without ties to
incumbent LECs, are making enormous investment in wireless broadband
infrastructure in various parts of the spectrum today, and will
continue to do so in the recently licensed AWS spectrum and soon to be
auctioned 700 MHz spectrum.
Verizon Wireless invested billions to deploy its EV-DO Rev. A
wireless broadband service on its currently licensed spectrum.
Moreover, CTIA reports that other carriers deploying high-speed
offerings include: Sprint (EV-DO covering more than 200 million people
now and rising to 280 million by the end of next year); Alltel (EV-DO
to more than 44 million people in more than 100 cities); AT&T (HSDPA to
73 of the top 100 markets); T-Mobile (deploying HSDPA).
Sprint has begun constructing a next-generation mobile wireless
broadband network (WiMax) that it claims will reach 100 million
consumers by the end of 2008. It just announced that it would be
joining with startup wireless-Internet firm Clearwire Corp., founded by
telecom pioneer Craig McCaw, in building what would be the Nation's
first mobile network based on fast WiMax technology.
Cable companies, which were major license winners in the 2006
spectrum auction, plan to deploy next-generation wireless services to
complement their current broadband offerings.
Companies such as T-Mobile, Earthlink, Google, and even AT&T are
investing in the deployment of WiFi. It is therefore no surprise that
WiFi is more prevalent in the United States than anywhere else in the
world, with the United States, accounting for approximately one-third
of all WiFi hot spots worldwide.
Question 4. What are your plans to deploy broadband to rural and
underserved communities? How will you build out your network to ensure
all Americans are served?
Answer. Verizon Wireless continues to expand its coverage in rural
America both through aggressive build out of our existing licenses as
well as acquisition of rural licenses and customers.
Nearly half the counties where Verizon Wireless has substantial
coverage (defining substantial as covering more than 25 percent of the
geography of the county) are ``rural'' under the FCC's definition of
less than 100 people per square mile.
We recently acquired several properties in rural West Virginia and
just announced the acquisition of Rural Cellular Corporation, a company
that built its business on serving rural areas across the country.
Not just Verizon Wireless, but all carriers continue to spend
capital and build throughout the United States, including rural
America. The FCC's reports to Congress indicate that carriers spent $25
billion on capital expenditures in 2005, a substantial increase over
2004. That same report documented that 98 percent of the U.S.
population lives in counties with three or more mobile carriers.
Without regulatory mandates, carriers continue to invest in extending
the scale and scope of their networks and those networks--including
advanced services--are reaching the Nation's rural population.
Question 5. Do you think that your customers should be free to use
any device on your wireless networks, provided that the device is
certified to not harm the network?
Answer. We have concerns about attaching subscriber-supplied
devices to the Verizon Wireless network.
Putting aside generally recognized harms such as radio interference
to other users and viruses, snoopware, and malware, we would have
concerns about devices that demand a disproportionate amount of scarce
spectrum resources. Such devices make it more difficult and more
expensive for us to serve other users. We would also have concerns
about devices that are not E-911 compliant, or may not meet other
regulatory obligations that are the carrier's responsibility under the
FCC rules.
Finally, a very important part of our internal device certification
process is achieving a high quality user experience. If use of a
foreign device fails to satisfy a consumer, the network operator may
still be blamed, and for something it cannot fix. That's not how
Verizon Wireless has achieved the high marks for customer satisfaction
that we enjoy today. We provide reliability and a superior user
experience, and we would like to continue to do so, even if subscribers
are allowed to bring foreign devices to the network.
Question 6. How would anonymous bidding prevent anti-competitive
behavior, thereby increasing auction revenue?
Answer. We are pleased that the Commission appears to have adopted
anonymous bidding rules without an ``eligibility ratio threshold'' for
the 700 MHz auction.
Imposing limitations on the release of bidder information prior to
and during the course of an auction ensures that bidders will be
appropriately focused on the licenses and their value, not on other
bidders and their bidding strategies.
Disclosure of bidder information beyond that required to comply
with the Commission's rules is at best unnecessary and, at worst, may
facilitate bid signaling or other collusive behavior.
Anonymous bidding rules will prevent strategies whose sole purpose
is to block a bidder from aggregating licenses at auction.
______
Response to Written Question Submitted by Hon. Bill Nelson to
Richard J. Lynch
Question. Proponents of all open access policy for portions of the
700 megahertz spectrum have noted that open access could bring about
new innovative technologies and applications. Can the members of the
panel provide some examples of these technologies and applications?
Also, are there any pitfalls of an ``open access'' approach?
Answer. I assume that by ``open access'' you refer to the proposal
that a wireless carrier must permit users to attach devices of their
choosing, with applications of their choosing, to the licensee's
network. Open access requirements risk significant harm to the network
which negatively impacts the quality of service provided to our
customers.
Open access requirements could impair the ability of the carrier to
manage its network to accomplish essential tasks such as maximizing
spectrum efficiency and optimizing service quality. Open access will
present the carrier with numerous network operational problems that
must be resolved for the ``open'' regime. Open access could take away
the carrier's ability to use proprietary network applications and
controls that would limit the introduction of viruses, malware and
snoopware, and prevent illegal downloads and invasions of subscriber
privacy.
Currently, wireless devices and networks are designed to work
closely to optimize reliable performance, spectrum efficiency, and
network security. Moreover, the integration of devices and network has
allowed Congress and the FCC to achieve numerous public interest goals,
including deployment of wireless E-911 and wireless number portability,
increased availability of hearing aid compatible wireless devices, and,
most recently, the future availability of wireless emergency alerts
pursuant to the WARN Act. If a user can supply a device to attach to
the network, and can decide what features and functions to download to
the device, there is simply no guarantee that resulting device will not
degrade network performance or will comply with these regulatory
mandates.
Consumers will also likely see increased prices for ``open''
devices. Currently, we offer subsidies to subscribers for handsets that
are designed and certified to work on our network. When consumers buy
handsets from others they will likely pay full retail prices a
significant increase over what consumers pay today.
``Open access'' proposals present significant problems because they
ignore the enormous efforts and resources that a wireless network
operator must expend in order to provide a secure environment and
reliable network performance.
______
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to
Richard J. Lynch
Question 1. You advocate large license blocks and large geographic
areas. Will that approach advantage large companies and disadvantage
new entrants who can't afford to bid on such large blocks or does your
plan have sufficient flexibility to serve both?
Answer. The 700 MHz band plan recommended by Verizon Wireless
contains a mix of licenses for large and small service areas as well as
large and small spectrum blocks. This approach provides opportunities
for companies of all sizes, existing operators or new entrants, to
acquire spectrum and pursue their specific business plans. The
Commission appears to have adopted a plan that takes such an approach.
The FCC's past auctions have demonstrated the benefits of both
large spectrum blocks and large market sizes. The recent Advanced
Wireless Service auction, concluded last summer, used a broad mix of
licenses and was very successful.
Larger spectrum blocks are important to enable operators to use 4G
technologies to provide the greatest possible benefit for consumers. A
20 MHz or larger block, for example, is needed, to provide the fastest
data rates possible.
Larger licenses will help promote nationwide deployment of new
technologies by creating greater economies of scope and scale, which,
in turn, result in less expensive equipment and lower prices for
consumers.
Consumers demand nationwide service and carriers must meet that
demand. History has also shown, almost without exception, that carriers
aggregate smaller-sized licenses so that they can achieve and operate
as viable businesses, enabling them to compete and deliver better
products at lower prices to consumers. Aggregating spectrum post
auction takes many years and is expensive to carriers and costly to
consumers. To avoid these costly delays and ensure that next generation
wireless networks are a near-term reality, the FCC must auction and
license sufficient spectrum on a REAG basis.
Question 2. Some have argued that there should be limits on bids
for spectrum by providers like Verizon Wireless in order to make way
for new market entrants. How would Verizon Wireless use the 700
megahertz spectrum in addition to the spectrum it already controls?
Answer. There is no basis for excluding or limiting participation
of providers like Verizon Wireless. On the contrary, we and other
wireless providers have proven track records of designing and deploying
highly sophisticated communications networks. Every year in its CMRS
competition reports, the Commission has pointed to the vigorous
competition in the CMRS market that has resulted from the competing
networks built by these and many other companies. Although other
entities could obtain the necessary financial resources and technical
experience to deploy such complex networks, there is no basis for
barring current providers of communications services from the auction.
We make the best possible use of the limited cellular and PCS
spectrum we have and believe we are the most efficient spectrum user in
the Nation. In fact, Verizon Wireless uses less spectrum to serve more
customers than any other carrier in the industry, 50 percent more
customers per MHz than the industry average. Such efficiencies will
drive any future use of spectrum.
The upcoming auction will enable the development and wide
deployment of new fourth generation--or ``4G''--wireless technologies
and services that will yield tremendous benefits to consumers,
businesses, and first responders alike.
Verizon Wireless' mobile broadband network, the first in the
Nation, is available to more than 200 million people who can access
broadband services on their laptops, e-mail on their PDAs, and V-CAST
Video and Music on their wireless phones, supporting data rates of
hundreds of kilobits per second and a wide variety of mobile
applications. We are now deploying the latest enhancement to CDMA
technology, EV-DO Revision A, which will increase data speeds further
and support new broadband applications.
New ``4G'' technologies are being developed that will support
mobile data rates of tens of megabits per second. They will unleash a
host of new broadband applications that will rival anything available
today on wired broadband networks. Doctors will be able to access
medical records and CAT scans wirelessly; firefighters will have
wireless access to images of building interiors and floor plans.
______
Response to Written Questions Submitted by Hon. Daniel K. Inouye to
Michael Small
Question 1. What lessons can be learned from the recent Advanced
Wireless Service (AWS) auction about the proper geographic size of
license areas? Should we be concerned that 153 of the 168 eligible
bidders in the AWS auction failed to even bid on large, Regional
Economic Area Group licenses, which are often referred to as REAG
licenses?
Answer. The success of the AWS auction shows that the pool of
potential bidders is largely interested in smaller markets. There are
several reasons for this interest. First, many existing carriers seek
to augment their spectrum holdings in targeted areas to serve
increasing demand for voice and information services. Other carriers
seek incremental additions to their service footprints so they can
exploit population shifts and development related to their existing
licensed service territory. Some carriers seek to exploit markets
connected to their existing businesses or related to their presence in
the service area. These carriers often believe that their close
connection with a particular area gives them an advantage in the
marketplace. Those carriers who seek very large--or even national--
markets are carriers who already have a nationwide presence. By
definition, there are but a few of these carriers and designing
auctions that predominately offer large geographic license areas
necessarily reduces the number of bidders because of the acquisition
costs, development costs, and lack of interest in large licenses by
most bidders.
Question 2. Does the AWS auction also demonstrate that bidders can
aggregate smaller license areas to create larger geographic footprints?
Do smaller license areas result in a more aggressive build out of
infrastructure within a license area?
Answer. There is no doubt that licenses can be easily aggregated.
Since the introduction of cellular service, assorted carriers have
aggregated licenses in various combinations. The four largest wireless
carriers each acquired their extensive service areas through
aggregation of cellular, PCS, and now AWS licenses. Nothing prevents
further aggregation or various sorts of cooperative arrangements among
carriers to extend service areas and product offerings.
Question 3. If one goal of the auction of 700 megahertz spectrum is
to encourage bidder participation, would smaller block sizes help in
that regard?
Answer. Smaller block sizes will encourage more bidders to enter
the 700 MHz auction because these bidders can match territories to
their existing markets, to contingent areas where population growth and
development have spread from the core areas of existing service areas,
or because new bidders can match their financial and business
capabilities to the smaller territories.
Question 4. Given recent testimony before the Committee regarding
the spotty nature of wireless coverage in places like Maine, what
mechanisms can the FCC use to ensure that new operators extend coverage
ubiquitously? What effect would a so-called ``keep-what-you-use''
mechanism have in which a licensee would, over a reasonable period of
time, be required to either provide service or return parts of a
license area to the Commission for reauction?
Answer. The problem of coverage in high cost, low population
density areas like parts of Maine and elsewhere is a financial problem.
The cost of building facilities in these areas cannot be justified by
the amount of traffic available to support them. There is, of course, a
program in place to deal with this problem: the high cost program of
the Universal Service Fund. If the FCC wants to ensure coverage in
these areas, it should continue to make USF support available to
wireless carriers.
Question 5. Are the commercial frequencies that will be made
available in the upper and lower 700 megahertz bands equally viable for
mobile broadband uses? Does the fact that the Commission may allow
high-power operations in certain blocks of the lower 700 megahertz band
frequencies raise any concerns about interference in adjacent blocks?
Would larger license areas in the lower 700 megahertz band be as
attractive as large license areas in the upper 700 megahertz band?
Answer. Yes, we believe that commercial frequencies made available
in both the upper and lower 700 MHz bands are viable for mobile
broadband uses. Some parties have expressed concerns about the
proximity of higher- and lower-power operations in 700 MHz, while other
parties believe that proper coordination among licensees and power
limits will address this concern. We have not taken a position on this
issue. We believe it is important to have a mix of both large and small
license service areas to accommodate a variety of potential licensees
and services.
______
Response to Written Question Submitted by Hon. Bill Nelson to
Michael Small
Question. Proponents of all open access policy for portions of the
700 megahertz spectrum have noted that open access could bring about
new innovative technologies and applications. Can the members of the
panel provide some examples of these technologies and applications?
Also, are there any pitfalls of an ``open access'' approach?
Answer. There are at several pitfalls to the open access approach.
First, if the winning bidders are required to open their networks to
third parties to use any device or application of their choice and/or
on a wholesale basis, potential bidders will naturally find the offered
spectrum of less value as a result of these onerous conditions and bid
accordingly. Second, it is unclear how such a policy would operate. Are
carriers to offer wholesale access to the networks they construct, or
are they to lease the bare spectrum for which they hold what has (up to
now) been an exclusive license? Because wireless networks, in general,
use one of two access modulation schemes, customers are still limited
in the number of networks on which their handsets will work if resale
of network access is what is intended. Moreover, even if wholesale
access to bare spectrum is intended, the result forces a choice between
competing access schemes if a customer is to have nationwide roaming
capability. Finally, wireless networks are unique--and quite distinct
from traditional, circuit-switched networks--in that they dynamically
share limited spectrum and constantly adjust to account for growth and
load factors. Because handsets are a functional part of the wireless
network, introducing additional variables in the form of untested
handsets and applications would harm network performance, create
interference, and potentially limit carriers' ability to comply with
critical obligations such as E-911 and CALEA. It is important to note
that in this shared network environment, a single device or application
can interfere with other users. By the time the interference is
detected, however, the harm to the network and other users has already
occurred and service quality to consumers suffers. In sum, I firmly
believe that an open access approach is deeply misguided, would skew
investment and innovation to the detriment of consumers, and should be
rejected.
______
Response to Written Question Submitted by Hon. Frank R. Lautenberg to
Michael Small
Question. You have expressed concerns that FCC requirements for a
company to ``build-out'' and provide service to their entire spectrum
area may not be economical. How can the FCC ensure that winning bidders
use the spectrum, and do not just hold on to it to prevent competition?
Answer. Current FCC rules require licensees to meet construction
requirements at various points during the term of their licenses. These
requirements are generally focused on covering percentages of
population in the licensed service area and, as such, reflect the
financial constraints of a capital construction program. These rules
should be continued for holders of 700 MHz licenses. This will ensure
that the licenses are put to use (and not warehoused) and provide
service to a large percentage of the population covered by the license.
For construction of facilities in high cost, hard to serve areas, the
FCC should continue to allow wireless carriers access to the Universal
Service Fund's high cost program. Access to these funds requires
carriers to spend the support they receive in the areas for which they
are earmarked.
______
Response to Written Questions Submitted by Hon. Daniel K. Inouye to
Amol R. Sarva
Question 1. How does the current marketplace for wireless services
affect the development of wireless devices and applications?
Answer. The wireless industry is ripe with opportunities for
innovation and economic growth, but the ``Big 4'' carriers currently
act as gatekeepers to block or deter many of these opportunities. An
entrepreneur looking to create a new device or service that somehow
touches one of their networks typically must go through an unduly
burdensome ``certification process,'' which is driven more by the
carrier's own self interest than any legitimate technical
considerations. Consumers have lost out on the benefits of far too many
innovations that failed to pass through the ``star chamber'' of the
wireless incumbents' processes.
Question 2. Is the trend toward wireless consolidation getting
better or worse, and what effect would the adoption of an open access
model have on competition in this area?
Answer. Wireless consolidation is a worsening trend, as the Sprint/
Nextel and Cingular/AT&T, and other ``mega-mergers'' have dramatically
changed the competitive landscape. Today, the top two carriers, Verizon
and AT&T, control over half of the subscribers in the market. More
importantly, they garner two-thirds of the ``net additions'' (i.e., new
customers), so their market power is increasing. The FCC's most recent
report on the subject found that the wireless industry's HHI index--a
key measure of market concentration--has reached 2700, well above the
1800 marker above which a market is considered ``highly concentrated.''
The HHI has increased about 600 points in the past 3 years it has been
measured.
By licensing a slice of spectrum in the 700 MHz band according to
Open Access principles, the FCC could substantially alleviate the
competitive harms of this remarkable consolidation. Whereas today the
Big 4 carriers can choose which devices and applications succeed and
which fail, with Open Access, entrepreneurs would be free to innovate.
The only limits on new service ideas would be the entrepreneur's
imagination, not the wireless operator's Terms of Service.
Question 3. In your view, how would such a model be commercially
viable for a network operator?
Answer. There is great demand among consumers and businesses for a
network operated according to Open Access principles. The incumbents,
and particularly AT&T and Verizon, have resisted an Open Access model
because they are vertically integrated carriers with a legacy business
model to protect. A new entrant with an Open Access network will not be
constrained by these concerns, and will thus be able to generate
substantial revenues from device makers looking to add network
connectivity, rural telephone companies eager for a partner to assist
them in deploying wireless service to rural areas, and consumers who
seek freedom from long-term contracts with costly termination fees (to
name a few). Highlighting the commercial promise of an Open Access
model, Google recently indicated its intention to commit a minimum of
$4.6 billion in the 700 MHz auction if the FCC adopts ``specific,
enforceable, and enduring'' rules for an open platform on a portion of
that spectrum.
Question 4. What consumer benefits would you expect?
Answer. If the FCC allocates a slice of 700 MHz spectrum for Open
Access, we envision a wave of opportunity in services, applications and
devices. These innovations include the evolution of cell phones toward
``broadband communicators'', the addition of wireless community
features to portable media and gaming devices, and even using wireless
to provide cheap connectivity to otherwise ``dumb'' appliances. We are
starting to see these kinds of devices emerge with local area WiFi
capabilities, but the possibilities are even greater once the devices
can access the sort of wide-area 4G networks that will operate in the
700 MHz band. Open Access will also bring wireless consumers a wealth
of choices akin to the services that they currently enjoy via fixed
Internet connections, such as video, user-generated content, VoIP, and
social networking.
______
Response to Written Questions Submitted by Hon. John F. Kerry to
Amol R. Sarva
Question 1. Is there merit to the notion of ``open access'' and
will it increase competition in the wireless market? If so, how? What
companies will bid in this type of system?
Answer. Open Access is an antidote to the sorry state of
competition in the wireless market. Today, consumers are largely
limited to the services and devices handpicked for them by the
vertically integrated carriers like AT&T and Verizon. But if the FCC
allocates a slice of 700 MHz spectrum according to Open Access
principles, entrepreneurs will be free to bring new products and
services to market. This means that a consumer won't be limited to
Verizon's own offering or those of its business partners every time she
wants to watch a mobile video, download a ringtone, or otherwise make a
legitimate use of the network.
In terms of bidders, we expect a vigorous auction for any 700 MHz
spectrum licensed with an Open Access framework Indeed, Google recently
announced that if the FCC adopts a truly open platform, it will commit
no less than $4.6 billion to the auction. Moreover, even a bidder for a
small geographic license will value that spectrum more highly if other
licenses across the country are auctioned on an Open Access basis, as
Open Access ensures that the bidder can access a national coverage area
through roaming and other arrangements.
Question 2. Opponents of open access say that it is a failed
business model. Do you agree? Did it fail in the wireline industry? If
so, why?
Answer. The Open Access principles to which we refer have been
wildly successful in the wireline market. For decades prior to the
FCC's seminal Carterfone decision, consumers were prohibited from
attaching any device to the telephone network unless it was expressly
sanctioned (and sold) by Ma' Bell. Basically, the phone company kept
competition at bay by arguing that it couldn't keep phone service
running without ``absolute control'' over the network. Finally, in
1968, the FCC called their bluff, and said that so long as a
manufacturer shows that its device won't harm the network, there's no
reason to keep it out of the hands of the public. As a result, we got
the fax machine, the answering machine, the modem, and billions upon
billions of dollars of new economic productivity. Carving out just a
small slice of spectrum for a similarly open network in the 700 MHz
band can unlock a wave of entrepreneurial energy for wireless and
broadband users.
Question 3. What benefits do smaller and rural wireless service
providers have to gain from open access, that they will be denied if
there is no open access requirement? What types of services can be
rolled out in urban areas to compete?
Answer. Smaller and rural wireless service providers will
especially benefit from Open Access. As this Committee is aware, the
current inability of many rural carriers to offer a national roaming
service has stifled their ability to compete against larger carriers.
For example, in comments to the FCC supporting Open Access in the upper
700 MHz band, Cellular South noted that ``small and regional carriers
find it increasingly difficult, if not outright impossible, to
negotiate high-speed data roaming agreements with national wireless
providers.'' Also, by attracting a new entrant, an Open Access
framework will further the creation of a ``third pipe'' that will
provide rural consumers with affordable and reliable broadband access.
Open Access also holds promise for urban areas, where ``on-the-go''
consumers will obtain access to the same wealth of choices among IP-
based applications and services that today they can enjoy only at home,
the office or their dorm room. The increased ability to bring new
devices and applications to the wireless market will particularly
benefit the economies of tech centers like Silicon Valley and the Route
128 corridor.
______
Response to Written Question Submitted by Hon. Bill Nelson to
Amol R. Sarva
Question. Proponents of all open access policy for portions of the
700 megahertz spectrum have noted that open access could bring about
new innovative technologies and applications. Can the members of the
panel provide some examples of these technologies and applications?
Also, are there any pitfalls of an ``open access'' approach?
Answer. In short, an Open Access framework can deliver to the
wireless market the same wealth of technologies and applications that
today consumers can only enjoy when tethered to their PCs at home or
work. It means that a consumer won't be limited to Verizon's own,
limited offerings or those of its business partners every time she
wants to watch a mobile video, download a ringtone, or otherwise make
legitimate use of the network. Innovations in the near term include the
evolution of cell phones toward ``broadband communicators'', the
addition of wireless community features to portable media and gaming
devices, and even using wireless to provide cheap connectivity to
otherwise ``dumb'' appliances. And just as no one could predict that
we'd get the fax machine and modem when the FCC adopted similar
principles for the wireline market four decades ago, the wireless
marketplace will experience innovations that today we could barely
imagine.
The only pitfall will come if the FCC adopts an allocation that is
Open in name but which opens loopholes for the network owners to lock
down devices and block content as they do today. As Google recently
explained in comments to the FCC, the commitment to Open Access to
which the licensee will be held must be specific, enduring, and
enforceable.