After having mounted what appeared to have been a serious legal challenge to the US Federal Communications Commission's right to impose rules for bidders in the upcoming 700 MHz spectrum auction without legislative authority, Verizon yesterday formally withdrew its FCC complaint from the D.C. District Court of Appeals, Dow Jones reported this morning.

Verizon had sought judicial review on the matter on the basis that the FCC exceeded its authority under current telecommunications law. The FCC has ordered that winners of spectrum in the so-called "C-block," which currently resides around UHF Channel 63, make services available to customers using that spectrum only if they can choose their own equipment. Verizon's lawyers challenged that argument on the grounds that any restrictions whatsoever could be construed as a violation of federal mandates for openness in the auction process.

A protracted legal debate -- which the Court of Appeals itself made possible by refusing to fast-track the process -- might have resulted in a postponement of the auction, which could in turn have necessitated a delay in the DTV transition date currently set for February 2009.

The news of Verizon's withdrawal of complaints may be an indicator that the company is willing to engage arch-rival AT&T in a bit of gamesmanship. Earlier this week, on exactly the same day, different trusted news services reported: 1) AT&T would not be bidding in the 700 MHz auction; 2) AT&T would definitely be bidding in the auction; 3) AT&T was undecided about whether it would bid. AT&T clearly intentionally sent mixed signals into the marketplace in recent days, especially when its CEO, Randall Stephenson, told attendees at the Web 2.0 Summit in San Francisco that he wasn't sure whether there was a real business model for bidders taking part in the spectrum auction under FCC rules.

"It'll be interesting to see if somebody can go in and pay $4.5 billion for the spectrum," The Consumerist quoted Stephenson as saying, "then build a network, then build OSS [operations support systems] and all the other systems, then turn that loose, can you make money at it? I don't know.

Stephenson's references to bidders in the third person, not apparently including AT&T, led some reporters to conclude his comments to have been an outright withdrawal from the auction. But after they apparently left the room to phone in their story, Stephenson later called the same auction "a huge opportunity," referring to bidders in the second person by saying, "When it comes to buying spectrum, it's the best you're going to find for a long time."

Those reporters walked away with the headline that AT&T was bidding...when in fact Stephenson did not make any positive indication one way or the other.

Verizon could be concerned that, while the legal debate proceeded, the auction could go on anyway as scheduled and AT&T could place a bid. At the CTIA convention this week, AT&T made sure its brand and logo were seen next to those of Samsung (which premiered its Blackjack II this week), Motorola, HTC, and Unified Communications champion Microsoft, in a move that could be interpreted as AT&T warming up to the idea of customer choice in both premise and personal equipment.

With the possibility of Google placing a bid anyway despite not all of its requests of the FCC having been granted, there had been speculation that Microsoft would proffer a counter-bid. Such a move could put that company in the position of reselling spectrum wholesale to smaller providers, as a way of staying competitive with Google, which is openly considering the same business model.

But yesterday, speaking to attendees at CTIA, Microsoft CEO Steve Ballmer -- in no uncertain terms -- made it clear his company would not be an auction participant.

"We don't have plans to participate in the spectrum auction," stated Ballmer in a transcript provided by Microsoft. "At the end of the day, we think we may be broader in what we do than almost any company out there, but we think we have a core competence, and we think that the telecom industry and the service providers have a core competence."

That statement was met with applause by attendees, many of whom represent the telecom industry and not the software industry. Sensing he was on a roll, perhaps, Ballmer continued: "There are people who really understand it takes some real expertise to set up networks, to invest in the capital expenditure, to do the servicing of the networks, to provide the customer service 7-by-24. That is a core capability...So what would it buy us to own a piece of spectrum? One piece of spectrum in one country, it would probably do a lot to alienate the telecom industry."

Ballmer's statement could be interpreted to suggest that any other player in the software or Web services industry that may be considering a similar bid, might also want to reconsider whether such a move would conflict with its "core competence."