Westminster eForum Keynote Seminar: Emergency Services & Public Safety Spectrum
11 June 2009
Remarks as edited.
Good morning. I would like to begin by thanking David Happy and the Tetra Association for inviting me here to speak to you. I would also like to thank Thomas Raynsford for doing everything in his power to get me here today. I would like to not thank the London Underground for doing everything in its power to not get me here today.
My name is Kenneth Carter. I am an American who works for WIK-Consult in Bonn, Germany. Our firm advises both public- and private-sector clients on issues related to network economics, strategy and policy. Previously, I was Senior Counsel in the Office of Strategic Planning at the US Federal Communications Commission and the Deputy Director of the Columbia Institute for Tele-Information at Columbia University. I hold both juris doctorate and a master’s of business administration degrees.
It is a great pleasure for me to be here in London today to talk about amber light and blue light spectrum. To be absolutely honest this is my second choice. I wanted to go to Amsterdam to talk about “red light” spectrum. I can assure you they would be talking about a different type of “siren call” at the other event.
I am here to talk to you about the US experience in trying to create a dedicated band for public safety networks and its attempt to auction that spectrum to the highest bidder.
In 2007, the US Federal Communications Commission commenced proceedings to create an auction for the spectrum in the 700 MHz band for use in a nation-wide network public safety. This part of the auction was called the D Block. The spectrum was being released as part of the US transition to digital terrestrial television. The FCC paired a single 10 MHz wide license with an adjacent 12 MHz wide public safety block in the band. The auction rules specified a $1.3 billion reserve price for the auction based on 110% of the estimated cost of relocating incumbent federal users of the spectrum in order to clear the band. The commercial winner of the license at auction would be required to negotiate with a Public Safety Spectrum Trust organization to build such a network in a private-public partnership. The commercial licensee would be permitted to use the 12 MHz of public safety spectrum on a preemptable basis. The license came with a build out requirement to provide coverage of 75%, 95%, and 99.3% of the population in four, seven and ten years respectively.
Two prime potential candidates for this license emerged. One was named Cyren Call, the other Frontline Wireless. Shortly before the auction, Frontline lost the backing of its investors and was forced to withdraw. The auction proceeded and a single bid of $472 million was placed by Qualcomm. This bid was only 35% of the $1.3 billion reserve price set by the FCC. The auction concluded without a license being assigned.
The auction was immediately decried as a failure by the industry and the blogisphere.
Well, what went wrong? We don’t know for sure, since we cannot really ask Frontline’s investors. However, at least four reasons have been put forth.
1. Writing on the blog Wetmachine, Harold Feld lays out the case that the head of Cyren Call Morgan O’Brien may have tried to scuttle the plans with Frontline’s investors. Cyren Call had become an advisor to the Public Safety Spectrum Trust. This presented a certain conflict of interest. Mr. O’Brien is alleged to have informed Frontline’s investors that the Public Safety Spectrum Trust would charge the commercial licensee $500 million in spectrum usage fees for the preemptable spectrum, over the course of the license. These fees would be over and above what Frontline would have to pay in terms of spectrum license fees and the costs of constructing and maintaining the network.
2. Under the FCC’s rules, there was a certain amount of ambiguity regarding the rights and responsibilities of commercial licensee vis-à-vis the Public Safety Spectrum Trust. In the event of a disagreement in negotiations between the commercial licensee and the Public Safety Spectrum Trust, the FCC had the power to intervene and determine the outcome of that disagreement. In the wake of the September 11th Terrorist Attacks, no public official, either elected or appointed, can be painted to look weak on public safety. So, if the Public Safety Spectrum Trust were to request something which is perhaps unnecessary and unprofitable, but not irrational, it is likely that Commission officials would side with the Trust and against the commercial licensee.
3. This problem may have been compounded by issues of personality. FCC Chairman Kevin Martin’s pick to lead the newly formed Public Safety Homeland Security Bureau was Derek Poarch. Chief Poarch was previously head of the police department of the University of North Carolina, Chairman Martin’s undergraduate alma mater. Given, that Chief Poarch had no track record in Washington spectrum policy matters, Frontline’s investors had no means to anticipate whether he would handle matters equitably in regard to the negotiations with the Public Safety Spectrum Trust.
4. Finally, the commercial licensee could potentially be exposed to unlimited liability for tort claims arising from the operation of its network. During the September 11th Terrorist Attacks, the New York City firefighters inside the Twin Towers perished because they did not receive the evacuation order due to the fact that their radio equipment did not function properly inside the high-rise buildings. Many police officers heard the call over their radio system and evacuated safely. The prospect of that type of law suit and the associated liability is something that most investors would reasonably shy away from. This is especially true when coupled with the fact that there is some chance that the preemptable spectrum would not “fail safe”, allowing commercial uses to interfere with public safety uses.
In the D-Block auction, it is not necessarily the market which failed. Rather the outcome was determined by the decisions of a few handfuls of investors in a single firm. Or maybe even the actions of a single individual. In sum, there was probably too much uncertainty and too many restrictions for Frontline to conclude it could earn a positive return on its investment in order to bid for this spectrum.
The result is that today, June 11th, is the last full day of analog terrestrial broadcasting in the United States and tomorrow, when the US switches to DTV and the analog frequencies become available, Americans will still be waiting for their national public safety network.
So, what are the lessons for the United Kingdom? If a nation is to pursue market-based or price-informed spectrum policy for public safety, it must do so extremely judiciously. It must be aware of how all incentives and uncertainty might affect or distort the outcome.
Generally, I am a proponent of price-guided spectrum policy. Market forces are generally highly effective at allocating rights to their highest monetary value recipients. They can rationalize administrative determinations of who, what, and how much. However, they do not work particularly well for public safety concerns.
In fact, markets run the risk of creating perverse incentives for public safety. This is because, unlike other economic goods, there are no good substitutes for the inputs or outputs. An actuarial can calculate a value of a lost life. But, if it is your life, the value is infinite, perhaps a little more for your children. Similarly, public safety can have no substitute for its radio communications. You can really long telephone cord on the back of each fire truck, ambulance, and police car?!
Since we cannot leave it to the market to decide how much of the good ” public safety” to produce, we must address as a policy matter the trade-off between the possibility of administratively allocating a block of spectrum which is in some way too much or too little. The cost of getting a determination which is “suboptimal” may pale in the face of the possibility of a failed allocation. Thus, it may instead be more efficient to make an administrative determination about the spectrum assignment award it to a government entity which will take responsibility for construction and operation of the network. Now, some part of that might be outsourced, but still the Government maintains the responsibility.
In the UK, you will soon have to make an allocation for the next generation public safety networks – the “son of Tetra”. Ofcom will have to comment the production of a business case for that allocation. Perhaps it is preferable not to let the perfect be the enemy of the good and may an acceptable, albeit suboptimal allocation.
A year ago, I coauthored a White Paper for Motorola and EADS urging the allocation of two additional 15 MHz wide blocks from the Digital Dividend to a pan-European, dedicated band for mission critical broadband networks for public safety. This is inline with the US allocation from its Digital Dividend; however, the US already has 97.2 MHz nation-wide for public safety. Europe, by comparison, has only 10 MHz.
It would seem to me that commonsense alone tells you that additional spectrum is needed since the principal duty of the State is the protection of its citizens, and for the UK to be at the very forefront of developments.
I thank you for your time and attention, and look forward to your questions.