25 January 2008

Reports of Corruption in FCC D Block Auction

Once again, I would direct you to Harold Feld's "Tales of the Sausage Factory", here, and here, with a backup from Morningstar and News.com.

The short story is as follows, a company was formed, Frontline, to bid on the portions D block auction.
Frontline actively lobbied for the partnership with public safety agencies, and based its entire business model on such a network.

The idea was that whoever built the network would then sell access at a discounted basis to the public safety community. Any spare capacity would then be sold to the commercial wireless industry.

Frontline was expected to bid for 10 megahertz of spectrum, which would give the winner a national license with which they could build a next-generation wireless broadband cellphone and communications network.


O'Brien also told Frontline that in addition to negotiating for public safety agencies, Cyren Call intended to become the "monopoly buyer" of broadband service on the network once it was complete.

Under this arrangement, Frontline would be obliged to negotiate with Cyren Call when discussing terms of how the network would be built, and then be forced to sell the bulk of the access to Cyren Call once it was up and running.
OK, this seems straightforward, if a bit involved, but the FCC added something else, "In order to ensure the winner of the D-block license cooperates with the public safety community, the FCC rules say if it is deemed the licensee wasn't negotiating in "good faith" it could be forced to forfeit more than $100 million and lose all rights to the spectrum it had acquired."

But the FCC gave no direction as to what it meant. So it was completely vague.

It gets worse, Cyren Call, an organization set up by Morgan O'Brien (the Billionaire who founded Nextel) was negociating "on behalf of the public safety community", but it is clear that his end goal was that he be the one of control of this spectrum, and so he was throwing around outrageous demands, such as a $500 million dollar fee.

He deliberately scared off Frontline's investors so that he could be in control, despite the fact that he was representing the public safety providers and had a fiduciary responsibility to them.


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