‘Fungible’ Spectrum Blocks in Incentive Auction Seen as Major Question Mark

The FCC analysis shows operating white space devices in the NPRM’s proposed configurations “could, in the worst-case scenarios, cause harmful interference to wireless devices whenever they are within even seven meters of each other,” Pai said. “That would mean that white space devices could interfere with wireless handsets whenever they are in the same room.”

The issue arose repeatedly at the Competitive Carriers Association annual meeting in Las Vegas last month. At a panel on the incentive auction, carrier officials acknowledged that the incentive auction blocks may not be fungible and making them so could prove almost impossible (CD Sept 10 p1). AT&T Vice President Joan Marsh suggested that after the auction is over, the FCC may have to devise a plan for deciding who gets which block in a particular market, potentially through a second payment. The less fungibility between blocks, “the more important potentially that assignment round becomes,” Marsh said.

In the last major FCC spectrum auction, of 700 MHz in 2008, the commission offered spectrum in blocks. In that auction, A-block spectrum, subject to potential Channel 51 interference, brought in lower prices in markets where there’s a Channel 51 transmitter relative to other blocks. B-block spectrum in general fetched much higher prices than A-block spectrum, industry officials note.

The unlicensed spectrum NPRM approved by the FCC Tuesday (CD Oct 1 p6) specifically proposes rules that would prevent harmful interference from unlicensed devices to adjacent LTE blocks, an FCC official said Thursday. The FCC is expected to divide the auction into a “clock phase” and an “assignment phase” for matching bids with specific frequency blocks, the official said. The FCC is aware of potential differences among frequency blocks in the auction and the agency’s objective is not to make all the blocks identical in their interference profile, the official said. In the assignment phase, bidders will be allowed to adjust their bids to account for differences in values they may place on specific blocks, for example, offering more for blocks not adjacent to unlicensed operations.

But Rick Kaplan, NAB executive vice president and former Wireless Bureau chief, questioned how the FCC would be able to provide fungible blocks under its current approach to the auction. “First, if the commission insists on overcrowding the duplex gap with unlicensed devices, the blocks closest to the uplink and downlink will be less valuable,” Kaplan said. “Second, because of potential significant variability among markets in terms of spectrum recovered, you are going to see some blocks with additional significant interference, and others with none. If you treat all of those the same, you will be forcing bidders to adjust their valuations downward to account for a surprise they may get at the end of the auction when they are finally assigned their blocks."

Even if the FCC builds in protections against unlicensed interference, blocks next to unlicensed devices “would be less valuable due to the FCC’s proclivity to change its rules once an auction is over,” said Fred Campbell, executive director of the Center for Boundless Innovation in Technology, and a former Wireless Bureau chief. “The very real possibility that the FCC would relax its initial protections at a later date means the mere existence of unlicensed operations would lower the value of adjacent blocks in the 600 MHz band."

Economist Coleman Bazelon of The Brattle Group said he looked at the issue closely. Carriers will be concerned that spectrum blocks adjacent to unlicensed devices are more at risk for interference, he said. “When you're bidding on the generic block, you don’t know whether you're going to end up with an impaired block or a nonimpaired block because they're not really all substitutable.” Carriers “will bid on all the blocks as if they're impaired,” he said. “That lowers the amount of revenue."

"If the commission did fungible blocks and market variability or duplex interference, you might be depressing prices for all blocks because wireless carriers will have to factor that into their bids,” said Paul Gallant, analyst at Guggenheim Partners.

A wireless carrier executive agreed that putting unlicensed in the guard bands poses real challenges. “The FCC staff is very aware of the issue and the importance of fungibility, so we've generally held off on this until we see what they have in mind as a way to provide protection,” the official said.

Goldin Associates Managing Director Armand Musey questioned why the FCC is putting so much emphasis on fungible spectrum blocks. “The complications around fungibility seem to make it far more complicated than just letting people bid on the blocks they want and consider the differences themselves when they make those bids,” he said.