You Can't Always Get What You Want. But If You Try, Sometimes, You Get What You Need!

What do Mick Jagger, Tim Donahue and Bob Kelly have in common? Well all of them have to croon this cautionary tune on occasion. Jagger gets to do it on stage with women still swooning over his wizened, but undeniably wealthy, self. Messieurs Donahue (Nextel CEO) and Bob Kelly (Transition Administrator (TA) team) are going to be singing it throughout the 800 MHz rebanding process as they navigate the narrow balance beam between making deals sweet enough to motivate incumbents to migrate quickly and short-changing the Federal Treasury by agreeing to gold-plated deals just to get the job done.

By any standard, the 800 MHz rebanding process is an odd duck. It is unlike anything previously conducted under the FCC’s auspices. The FCC has been through lots of spectrum migrations so that’s nothing new. It has been through some in which an entity had the authority to require resistant incumbents to relocate as long as the relocation was handled in accordance with Commission requirements so that’s old hat as well. In fact, it already has been through one mandatory and two purely voluntary spectrum migrations in the 800 MHz band alone

What’s different about this particular brand of 800 MHz relocation is that it’s no longer just a duo – the relocating party and the incumbent -- negotiating an agreement. Under traditional rules, everything was fair game as long as the parties negotiated in good faith. Incumbents could ask for the moon and sometimes even get it if the other party had an urgent need for that particular spectrum at that particular moment. The FCC didn’t ask to see the agreements and didn’t want to know the terms and conditions. The Commission quite properly recognized that, absent a complaint of bad faith, the agency had no role to play in or any responsibility to oversee the negotiation process. It’s no surprise that more than one incumbent has used this type of FCC-mandated relocation to upgrade its radio system.

That’s where this process is different. In this case, Nextel has a fixed payment of $4.86B (yes, billion) to pay to the Federal Treasury since that is the value the FCC has placed on the 1.9 GHz replacement spectrum Nextel will be getting. That figure will be reduced by the FCC-determined value of the 800 MHz spectrum below 862 MHz that Nextel is surrendering, a figure set at a hair above $2B at the moment, and by all costs associated with rebanding. These include Nextel’s costs of rebanding its own system as well as the costs it incurs in the relocation of incumbent systems in both the 800 MHz and broadcast bands. If the total rebanding costs are less than the roughly $2.8B delta between the 1.9 GHz and 800 MHz spectrum values the FCC has set, Nextel will owe the Treasury whatever is left of the $2.8B after all rebanding costs have been paid.

And how is the FCC going to ensure that the Treasury won’t be gypped out of its fair share? How will they ensure that Nextel, which has to pay the money to someone so why not motivate an incumbent to get moving rather than fund the Treasury, doesn’t pay incumbents for gold-plated rebanding solutions?

Two ways actually. First, each incumbent will be required to certify to the TA that the rebanding costs negotiated with Nextel are “the minimum necessary to provide facilities comparable to those presently in use.” This certification will be required even if the incumbent and Nextel have negotiated the agreement without any intervention by the TA. (There may be incumbents who are prepared to certify anything as long as they get the deal they want, but statements made under penalty of perjury may deter the faint of heart from any gross exaggerations.) Second, the TA is charged with reviewing all rebanding agreements, including the incumbent certification and the work schedule, before signing off on the cost estimates. In effect, the TA will be hovering over the parties like a financial chaperone to ensure that there’s no economic hanky-panky going on.

But what exactly is the TA going to do during this mandatory review process? Well, the FCC’s rules are a bit vague on this point. It is clear the TA has a review responsibility but the scope of its authority/obligation is murky. May the TA rely on the incumbent certification as to the reasonableness of its cost estimates when reviewing the analysis without conducting any independent analysis of the figures? Would that, plus confirmation that the agreement includes a work schedule consistent with the rebanding plan detailed in the TA’s Regional Prioritization Plan, satisfy its oversight responsibility? At the other extreme, must the TA scrutinize each and every term of each and every agreement to verify that all of the estimates are documented and reasonable and that the work schedule is viable? Is it required to develop an economic template against which it would compare each deal presented to it? If the figures appeared out of whack with those standard costs, must the TA challenge the incumbent’s certification irrespective of the total value of the agreement?

The TA also could find any number of middle ground approaches. For example, it could use a “trust, but verify” model in which certain items were reviewed routinely with additional scrutiny on a random basis (like MLB drug testing if they ever get around to it). Alternatively, it could rely on incumbent certifications for negotiated cost estimates below a certain amount on the theory that, even if incorrect, the overpayment would have only nominal impact on the Treasury and thereby concentrate its focus on the big ticket deals. Of course, since the costs incurred by the TA are, themselves, rebanding expenses that will be deducted from Nextel’s final payment to the Treasury, beefing up its capability to review incumbent cost estimates could be counter-productive. There will be no benefit to the Treasury if the TA expenses for monitoring these items exceed what it recovers. Whatever the legal or moral value, the taxpayer loses if it costs the TA $100 to uncover $50 in excessive rebanding expenses.

The Commission has made it clear that 800 MHz incumbents are entitled to fully comparable facilities. It recently reaffirmed that incumbents “should incur no costs for band reconfiguration and the sole responsibility for paying all band reconfiguration costs-including the cost of preparing the estimate, negotiating the retuning agreement, and resolving any disputes-lies with Nextel.” But this time it isn’t just a matter of getting Nextel to agree to terms. In fact, Nextel might be the easier part of the process. It is highly motivated to get the relocation completed. The key will be knowing what the TA will and will not approve and how to present the information in the most favorable, persuasive manner. In the end the TA, the surrogate watchdog for the Federal Treasury, must be convinced that the estimated relocation costs will permit the incumbent to get what it needs, and not just what it wants.