Much-discussed spectrum-lease payments made to potential D Block bidders prior to the 700 MHz auction were not the primary reason the 700 MHz spectrum swath failed to attract a bid that met the FCC’s reserve price, according to a report revealing the findings of a federal investigation of the matter.

While the 700 MHz auction garnered a record $19 billion in high bids, the only bid on the D Block—a 10 MHz swath of airwaves that was to be combined with 10 MHz of spectrum licensed to the Public Safety Spectrum Trust (PSST) to build a shared broadband wireless network for public safety—fell well short of the FCC’s $1.3 billion reserve price.

In the wake of the D Block failure, FCC Chairman Kevin Martin asked the Inspector General’s office to investigate allegations regarding the auction. Most notable among the allegations was that PSST advisor Cyren Call deterred bidding by indicating to potential interested commercial partners that the D Block winner would have to pay a $50 million annual spectrum-lease payment for a period of 10 years.

Various Internet blogs—including one written by Harold Feld, senior vice president of Media Access Project—cited this spectrum-lease arrangement as a major reason for Frontline Wireless closing its doors three weeks before the auction began.

But the Inspector General report, which cited interviews with Feld and three Frontline Wireless representatives, indicated no wrongdoing on the part of Cyren Call and the PSST.

“This investigation has concluded that the lease payment estimates conveyed to Frontline … were informational in nature, were not made in bad faith, and by themselves had no deleterious effect on the auction,” the report states. “The lease payment was only a drop in one of the many ‘buckets’ that concerned Frontline and other potential bidders interviewed.”

In a prepared statement, PSST Chairman Harlin McEwen said, “The PSST is pleased that the FCC’s findings confirm in all material respects the PSST’s public explanation of the actions taken by the PSST and its advisor, Cyren Call, in advance of the D Block auction.”

This sentiment was echoed in a prepared statement from Morgan O’Brien, chairman of Cyren Call.

“Today closes the book on Auction 73,” O’Brien said. “The release of the Inspector General’s report is an encouraging sign that the FCC is moving forward to re-auction the D Block. Cyren Call will work closely with public safety, the bidder community, Congress and the FCC to make the re-auction of the D Block a success.”

While the Inspector General’s report cleared the PSST and Cyren Call of any wrongdoing, its findings revealed problems with the structure of the D Block. Potential D Block bidders were discouraged by high network costs associated with building a nationwide broadband network for public safety, significant penalties facing a D Block winner if it failed to reach an agreement with the PSST, and uncertainty surrounding the commercial business model, according to the report.

One interview cited in the report was with Tom Peters, senior director of public safety and regulatory engineering for Frontline Wireless. According to Peters, a Cyren Call representative told him that the potential public-safety user base would not be limited to the 3million to 4 million first responders but also would encompass “9 million other emergency personnel.” Frontline officials worried that these additional 9 million users would limit network capacity for its commercial customers, the report states.

Mobile wireless consultant Andrew Seybold said the Inspector General report’s conclusion that the spectrum-lease payment proposal was not the primary problem for D Block bidders was expected—“We knew that all along,” he said.

With the Inspector General investigation complete, Seybold said he believes the FCC will act next.

“I have to believe the FCC is going to come out with a document that says, ‘Let’s get some comments on what to do next,’” Seybold said.

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