Digital Spectrum Auction Expected to Raise Billions for Treasury

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So far, the decade-long transition to digital broadcasting has mostly been about pain. Beginning Thursday, the public will start to see the gain.

That's when the government will begin auctioning off the airwaves that are being made available thanks to the transition. The auction will raise billions for the U.S. Treasury and the transition will free up badly needed space for emergency communications.

It's "probably the most important auction we've had to date and the most important one we're going to have in the foreseeable future," because of the quality of the spectrum, Federal Communications Commission Chairman Kevin Martin told The Associated Press.

The airwaves are currently occupied by television UHF channels 52 through 69. The spectrum can carry lots of information across long distances and easily penetrate walls. It is so desirable that analysts have taken to calling it "beach-front property."

"It's because of the unique characteristics of the spectrum, it's going to have the most significant impact on consumers we've seen in a while," Martin said.

He calls it the "key building block" in making wireless Internet service competitive with cable and DSL (digital subscriber line) offerings. Customers could do things like watch TV shows and transmit loads of data "wherever and whenever" they want.

Skeptics say Martin is overly optimistic.

The chairman's upbeat view of the auction persists despite the unexpected withdrawal of a new wireless firm that was expected to bid more than $1 billion and construct a national public safety network.

The government-mandated shift to digital broadcasting is being done for the long-term benefit of the public, though most American's don't understand it. A survey by the Association of Public Television Stations found that even among those who are aware of the transition, 77 percent said they do not know why it is taking place.

Congress first ordered an end to old-technology, analog broadcasting in 1997. But it wasn't until 2005 that it set a hard sunset date. All full-power television stations must stop broadcasting an analog signal by Feb. 18, 2009.

The Congressional Budget Office has estimated the auction will bring between $10 billion and $15 billion, though some estimates range to $20 billion and higher.

A total of $7.4 billion in proceeds will go to the general fund of the U.S. Treasury, which will help offset the federal budget deficit. Another $1.5 billion will pay for a coupon program that is subsidizing converter boxes that will be needed by over-the-air viewers who don't have digital televisions.

More of the funds will go to grants for emergency communications, including $1 billion to improve communications among different public safety agencies.

Public safety was always a prime selling point for the transition. Back in 1997, Congress mandated that a portion of the television spectrum — 24 megahertz — be set aside for emergency communications.

In July 2007, the commission approved new rules that would dictate the way the spectrum could be used, including a much-debated "open access" provision pushed by Martin.

Supported by search-engine giant Google Inc. and opposed by existing wireless carriers, it will allow customers to use whatever phone and software they want on about one-third of the spectrum being auctioned.

The commission also approved a plan to combine 10 megahertz of commercial spectrum with a portion of public safety spectrum to create a shared public safety communications network. The plan relies on a private bidder to pay for and construct the network.

A new company stacked with former government officials and Silicon Valley investors, Frontline Wireless LLC, was expected to make the minimum bid of $1.3 billion for the public safety portion of the spectrum but failed to qualify. To be eligible to bid, the company was required to submit a $128 million upfront payment.

If no bidder emerges for the public safety airwaves, the commission will have to decide whether to re-auction that 10 megahertz with conditions that may not include construction of a new public safety network.

Martin declined to speculate on what will happen if no bidder emerges.

"What I would say is that the plan we put in place wasn't designed around any particular company," he said. "Verizon actually brought this to our attention with proposals that they had put forth about how to build a public-private network as well."

Michael Calabrese, director of the Wireless Future Program at the New America Foundation, said, "It's quite likely the D block will have to be re-auctioned without the reserve price."

The qualified bidders include the nation's two largest cell phone providers, AT&T Inc. and Verizon Wireless; a host of smaller, regional phone companies; several cable providers and one very large newcomer: Mountain View, Calif.-based Google.

The company has become more involved in wireless technology as Internet searches have gone mobile. Google lobbied hard for the open-access provision that will allow so-called "smart phones" to more easily use Google's search engine and other products.

To retain the open-access conditions on the spectrum, a minimum $4.6 billion bid is required. Google will probably bid that much, but no more, says Blair Levin, a telecommunications analyst and former FCC chief of staff.

"They want to protect the openness on the C-block," he said, referring to the open-access spectrum block. "I expect them to bid up to the $4.6 (billion) and not to be a big bidder after that."

Martin's assertion that the auction will lead to a new broadband competitor has met with skepticism.

"'Building block' could mean we have a full, real competitor next year or we have a full, real competitor in 30 years," said Ben Scott, policy director for public interest group Free Press.

Scott said the spectrum at auction, while desirable, isn't being auctioned in large enough blocks to support Internet traffic speeds that will compete with cable and DSL service.

"In my opinion, the 700 megahertz auction does not bring you a third-pipe competitor with DSL and cable," Scott said. "We've known that for a long time."

Second, incumbents like Verizon and AT&T are unlikely to compete with divisions within their own companies, he said.

"If an incumbent won the C block, they are not going to use it to cannibalize their DSL market share," he said.

Martin said even if an incumbent telephone company does win the spectrum, when it operates out of its own area, it will still be providing competition.

Bidding starts Thursday, but the winners may not be known for weeks or even months. To ensure there is no collusion among bidders, their identities will not be revealed until the auction is over.