It might not sound like the sexiest deal, but today the Federal Communication Commission (FCC) will auction off rights to the 700 MHz band of wireless spectrum a sale that has the potential to create a seismic shift in the telecommunications landscape. The powerful band of prime cross-country airwaves, which is currently being used for analog TV broadcasts, is due to free up by February 2009 when TV goes fully digital. So, if ever a new telecom player were to carve out a piece of the lucrative nationwide wireless pie, now would be the time. "This is the last auction of any magnitude the FCC will do for the foreseeable future," says Rebecca Arbogast, analyst with financial-services shop Stifel, Nicolaus & Co.
Already Google has said it will participate along with nearly 200 other registered bidders, including industry giants like Verizon and AT&T as well as surprise contenders like Chevron and Microsoft co-founder, Paul Allen, through his Vulcan Spectrum LLC. A more robust playing field would mean heightened competition in the consolidated telecom industry, benefiting consumers with more inventive technologies and potentially lower prices.
Once TV broadcasters have vacated the 700 MHz band for more efficient digital signals, which take up less bandwidth, the FCC will repurpose the surplus analog spectrum for wireless devices. The auction consists of five blocks of licenses to be sold off in pieces ranging from rights to various regional networks to sprawling nationwide ones each set at a minimum bid. The process could take weeks or even months and is likely to pull in about $15 or $20 billion for the federal government. Carriers wishing to offer new wireless services are currently running into spectrum shortages one reason why cell phone prices haven't dropped much so this additional bandwidth is now about as valuable as buildable square-footage in Manhattan.
Most important, the 700 MHz spectrum is top-notch quality and has the power to carry lots of data, penetrate buildings with ease and travel great distances. "Its location is beachfront spectrum," says Bill Belt, senior director of technology at the Consumer Electronics Association. Data goes farther and faster without needing as many cell towers. "The fewer transmitter towers you have to build, the cheaper the network is and the cheaper your rates will be," says Craig Settles of Successful.com, which tracks the wireless industry. The result: Customers should see more complex services for streaming video on the go (think YouTube while you walk) and location-based applications, which could point you to the nearest Starbucks wherever you happen to be.
The speed of innovation depends on whether a newcomer like Google or Qualcomm, both of which are registered bidders, has the money and the will to acquire enough licenses to break into the wireless game and force the telecom companies to break old habits. Sure Google has the cash, but do they really want to get in the labor-intensive business of broadband networks? Already, startup Frontline Wireless, a venture supported by a group of Silicon Valley investors, has gone belly up, unable to secure funding for its intended bid on the discounted public-private D block of the 700 MHz spectrum that will share airwaves with public-safety responders. "I don't expect that the auction will result in a major new market entrant," says Michael Calabrese, director of the wireless future program at the New America Foundation, a Washington, D.C. think tank. "I think Verizon will end up bidding more because it is worth more to them to keep out a new entrant."
Others disagree. "I think Google is going to go for it," says Tim Wu, a Columbia law professor and net neutrality expert. "They are the Obama in this race. They don't have the advantages of the Bell culture, but they aren't trapped by it either." Google could benefit by controlling their own wires, which could potentially mean huge profits down the road and direct access to their customers a safety net against any wireless carrier whims.
Regardless of who ultimately wins, the auction has already prompted a serious restructuring of the way wireless carriers offer services to their customers. In August, the FCC backed Google's crusade (spawned by a paper written by Tim Wu for the New America Foundation calling for open networks) and mandated that the auction's largest available spectrum, the C block, be an open network if the bid reached at least $4.6 billion. (Some analysts predict Google will bid just enough to trigger the open-network provision, and no more.) That would mean customers could use any wireless device, handset or application on the network, without being restricted by their carrier. It's a dismantling of the traditional "walled garden" telecom approach in the hopes that the U.S. catches up to Europe and Asia with better services and innovations. At first Verizon and AT&T were vehemently opposed, threatening lawsuits, but they have since reversed their position, with Verizon announcing that they would voluntarily open their entire network in 2008. Still, analysts caution, it is unclear whether Verizon's move will completely level the playing field because of price variations for gadgets they may favor. "The auction is potentially a big turning point for the whole wireless market," says Wu. "The dream is to create a reliable, ubiquitous wireless Internet floating around you like the air you breathe." The auction's open network mandate and stiff competition should bring us closer to that goal.