Cyren Call Under Fire at 700 MHz Hearing

“You wouldn’t make money available without expecting control” or some stake in the winning bid, Dingell said to Cyren Call Chairman Morgan O'Brien. “Who are these good-hearted venture capital firms making capital available?” Dingell asked O'Brien, referring to firms that fund Cyren. O'Brien said the company made no secret of its hopes to profit eventually. But that wasn’t a condition of Cyren’s role as advisor, he said. Cyren played only an advisory role in helping the trust structure talks and review bids, O'Brien told reporters, terming the $50 million estimate a “scenario” discussed with bidders.

“We have nothing to hide,” PSST Chairman Harlin McEwen told Dingell. He agreed to supply documents on the transfer of funds between the two entities. PSST needed money to run, since neither Congress nor the FCC provided any money, McEwen said. O'Brien said that “one scenario” it envisioned was a model in which the winning bidder would obtain the spectrum wholesale and resell it for a profit. “Under the worst case scenario, Cyren Call wouldn’t get paid” back for its upfront service, O'Brien said.

Some members of Congress questioned whether the $50 million estimate alienated potential bidders. Rep. Anna Eshoo, D-Calif., suggested that the company’s advice amounted to “demands” that drove off bidders. O'Brien denied that. “PSST asked us to indicate to bidders where the negotiating position should start,” he said.

Earlier in the hearing, FCC Chairman Kevin Martin said he “didn’t anticipate” that public safety would try to create a for-profit entity. Martin said he and colleagues found that development “troubling” and “something we need to address as we go forward.” FCC Commissioner Jonathan Adelstein said public safety didn’t get clear enough pre- auction guidance on how to structure bidding and negotiate. “It was our mistake… by not properly defining the rules of the game,” Adelstein said.

Concern over the handling of D Block bidding and the sale’s failure “points up the need for strong proactive involvement,” Commissioner Michael Copps said. Commissioner Deborah Tate “assumed” the trust would be a nonprofit, she said: “I agree with my colleagues that it is a concern.” Commissioner Robert McDowell said the agency needs to explore the matter further.

Before proceeding with reauction plans, the commission needs to clarify the rules and “put in place barriers to unjust enrichment,” House Telecom Subcommittee Chairman Ed Markey, D-Mass., said at the hearing.

Calling the FCC “Dickensian” for creating the “best of auctions” and “worst of auctions,” Markey lamented the sale’s failure to draw a third national carrier to enhance competition. Eliminating spectrum caps imposed by then-FCC Chairman Michael Powell was “ill-considered,” he said. The caps ensured that incumbents “couldn’t gobble up all of the available spectrum and effectively box out would-be competitors from reaching the market,” Markey said.

Auction winners Verizon Wireless and AT&T are like “two mega-resorts” solidifying their competitive strength on the prime “beachfront” of the spectrum, Markey said. Copps seconded Markey’s criticism.

Markey raised the idea of dividing the public safety spectrum into licenses allocated regionally rather than nationally, an idea backed by public safety groups. Martin acknowledged the concept’s merit, but questioned whether it would bring the nationwide interoperability Congress wants. He and other commissioners said the agency has the authority to move on the proposal without legislation.

A Republican proposal to auction 10 MHz of spectrum for commercial use, dedicating the proceeds to building a nationwide interoperable network, found little support. That would require new legislation, a difficult proposition given this session’s brief span. The law requires that additional revenue from auctions go to the general treasury. “What is wrong with doing an unencumbered auction and using the proceeds to fund public safety network?” asked ranking member Joe Barton, R-Texas.

“I consider such an approach to be an admission that we are not serious about attaining true interoperability,” Dingell said at the Telecom Subcommittee hearing. “It is more important to me and should be more important to the commission that we take the time necessary to craft a workable plan.”

Barton told the FCC “it isn’t often I get to say this… but… I told you so” about the D-Block. Before the auction Barton wrote to Martin predicting the auction’s failure. Rep. Fred Upton, R-Mich., who presided over the subcommittee when legislation was passed freeing the 700 MHz for auction, said Martin’s open access requirements “shortchanged” the auction’s revenue-raising possibilities.

Martin said the commission imposed rules that “balanced a variety of needs,” calling open access conditions “critical to impose from a public interest standpoint.” He said he would not act differently, based on the auction’s results, in regard to open access. Martin said the public-private partnership model is the only “viable” option for building the network, short of Congress appropriating the cost of a network.

Markey is optimistic about a D-Block reauction, he said, adding that the flop “may ultimately prove fortuitous.” The agency needs to “weigh new proposals that correct deficiencies in the previous plan, puts in place barriers to unjust enrichment, clarifies important details prior to a re-auction and re-calibrates the D-block license conditions to account for what has transpired in the recently-completed auction,” Markey said.