Assemblage, the box of Joseph Cornell.

Although no one in the wider world seems to have seen a copy of the document, Chairman Martin is known to be circulating draft rules for the 700 MHz auction.   It sounds as if it's a collection of elements with which no one will be fully satisfied. 

To review for a moment:  This auction has been triggered by the statutorily-required release of spectrum by broadcasters (as part of the nation's transition to digital televion).  The Deficit Reduction Act requires the FCC to start this 700 MHz spectrum auction no later than Jan. 28, 2008 and deposit the proceeds of that auction (which may be as much as $20 billion) in the Digital Television Transition and Public Safety Fund by June 30, 2008.  The date by which the DTV transition must be completed is February 17, 2009 (just after the Super Bowl).  Bidders have said they need six months to prepare for the end-of-January auction, so we're running out of time for these auction rules to be released.  (It seems that time is getting so short that someone will ask for more of it.)

This is, people say, the last great auction of spectrum we'll see for a long time.

This chunk of 700 MHz spectrum includes 60 MHz to be auctioned to commercial users and another 24 MHz to be set aside for public safety agencies. Frontline had wanted a nationwide license of 10 MHz of commercial spectrum to be auctioned with 12 MHz of public safety spectrum to add up to a 22 MHz-wide network that would have both public safety and commercial users. Frontline's proposal included other elements that it wanted added to the auction rules, such as ensuring that whoever ran this 10+12 MHz would be required to operate a wholesale network (while being treated as a small business for bidding credit purposes, if the winner was in fact a small business); would be required to build (for free) a network for public safety use; would allow commercial uses of the 22 MHz to be preempted in case of an emergency; would not block the use of any application on the network (with some caveats); and would allow certified devices to attach to its network (without the device manufacturer having to ask specifically for the carrier's permission).

Google, meanwhile, asked the Commission to verify that any wholesaler of access would be allowed to provide for dynamic spectrum auctions among retailers.  Google has also made clear that it is interested in open access conditions being applied to some portion of the auctioned spectrum.

What's in the draft rules?  Again, no one knows except the people who have seen them.  I understand that some of the elements of the Frontline proposal are still in play, in modified form:  the idea of a nationwide license for 10 MHz, and the idea that the winners of the other, regional blocks of spectrum would be obligated to allow certified devices and not block applications. 

Importantly, however, the idea that the winner of the nationwide chunk would be obliged to operate on a wholesale basis seems to have been defeated.  That's a big deal, because some people think this 10 MHz could provide a competitive wireless broadband alternative to the existing incumbents.  (But 10 MHz by itself wouldn't have been enough, even with a wholesale requirement -- you'd need a lot more spectrum to create a real competitive force.  Even the 22 MHz that was proposed by Frontline probably wasn't enough.)

Also importantly, the notion that the winner would have to "use it or lose it" - build an actual network using the spectrum on a geographic basis - is gone. That's a big deal, because the incumbents don't really need this spectrum.  They already have a lot of spectrum. So if Verizon wins this auction, it can just breathe a sigh of relief and build out just enough to satisfy some light population requirements.  The foreclosure value of the spectrum - the value of blocking a potential competitor - may be greater to an incumbent than its actual market value.

And also importantly, whoever wins the 10 MHz national license has to share with public safety.  This is easy for Verizon, but won't support the business model of any new entrant.  Poof.

Interestingly, the word is that anonymous bidding will apply to the commercial parts of this auction.  That's interesting because there's ample evidence that the mere presence of an incumbent (deep pockets, willing to spend anything) in an auction scares away new entrants.

Just three take-aways:

1.  If the rules come out the way predicted, they will protect incumbents against a new nationwide entrant in the wireless broadband access market.  First, it will be very easy to block a new entrant from buying all of the regional licenses they'd need to piece together a nationwide presence.  Second, the absence of a wholesaling requirement will mean that no real competition will emerge.

2.  The no-locking-device and no-blocking-application moves are welcome, but I predict they will end up being so narrowly implemented and so unenforceable as a practical matter that we will end up mired in details - and still years behind Europe.

3.  It's unclear that public safety will get what it wants and needs.