Public-safety spectrum auction DOA, Yankee Group predicts

"Horrendous" ownership costs doomed D-Block auction from start

Although the FCC's 700MHz spectrum auction is wrapping up, no bidder has yet met the reserve price for the block of spectrum set aside for public safety.

That block of spectrum, dubbed the "D Block" by the FCC, was originally reserved for the construction of a high-speed public safety network that would bring America's emergency response system up to date with next-generation technology. With the auction winding down, the top bid for the D Block is still less than half its $1.3 billion reserve price. Analysts for the Yankee Group say that bids are highly unlikely to reach the reserve price and that the spectrum will go unlicensed for the time being.

The chief reason why bidding for the D Block hasn't met its reserve price, says Yankee Group research fellow Roberta Wiggins, has been the recent demise of Frontline Wireless, which was initially heavily favored to win the auction for the block. While no one factor led to Frontline dropping out of the running, Wiggins says the rules the FCC had placed on the D block were prohibitive for companies interested in running services on the spectrum.

For instance, the FCC has mandated that the D-Block licensee will be responsible for building out a national public safety network with 75% population coverage within four years of getting the license, and 99% population coverage within 10 years. Frontline estimated that the network would cost roughly $10 billion to build out, in addition to the $1.3 billion or more the company would have to pay for the spectrum rights. The high build-out costs combined with the FCC's stringent time requirements make it difficult for any company to feel enthused about bidding for the block, Wiggins says. "The total cost of ownership for the D Block is horrendous," she says.

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Although the FCC's 700MHz spectrum auction is wrapping up, no bidder has yet met the reserve price for the block of spectrum set aside for public safety.

That block of spectrum, dubbed the "D Block" by the FCC, was originally reserved for the construction of a high-speed public safety network that would bring America's emergency response system up to date with next-generation technology. With the auction winding down, the top bid for the D Block is still less than half its $1.3 billion reserve price. Analysts for the Yankee Group say that bids are highly unlikely to reach the reserve price and that the spectrum will go unlicensed for the time being.

The chief reason why bidding for the D Block hasn't met its reserve price, says Yankee Group research fellow Roberta Wiggins, has been the recent demise of Frontline Wireless, which was initially heavily favored to win the auction for the block. While no one factor led to Frontline dropping out of the running, Wiggins says the rules the FCC had placed on the D block were prohibitive for companies interested in running services on the spectrum.

For instance, the FCC has mandated that the D-Block licensee will be responsible for building out a national public safety network with 75% population coverage within four years of getting the license, and 99% population coverage within 10 years. Frontline estimated that the network would cost roughly $10 billion to build out, in addition to the $1.3 billion or more the company would have to pay for the spectrum rights. The high build-out costs combined with the FCC's stringent time requirements make it difficult for any company to feel enthused about bidding for the block, Wiggins says. "The total cost of ownership for the D Block is horrendous," she says.

And there are other problems as well. First of all, Wiggins says no one knows whether WiMAX or LTE will be the next-generation technology that will be deployed on the network. Additionally, Wiggins says more work needs to be done to determine how public safety organizations will pay for access to the network. Until these factors are decided, she says, it will be difficult to find a good match.

In its analysis, the Yankee Group proposes several solutions to get the D Block eventually auctioned off. First, they say the government should do more to ease the significant financial burdens any company will take on while building out a nationwide public safety network. Since the other four spectrum blocks up for auction have raised more than $19 million – or roughly double their combined reserve price – then it would make sense for the government to take some of that money and put it toward building out a next-generation network on the D Block, Yankee Group says.

"Financially, the auction has been a great success, and they've raised nearly twice the amount they needed to return to the treasury," says Yankee Group CSO Berge Ayvazian. "But there have been some serious criticisms in how the auction has been run, and we've seen that frustration expressed by congressmen and senators."