By all accounts, the Federal Communications Commission’s 700MHz spectrum auction, which begins Jan. 24, will be historic. The greater question, though, is whether the winner do anything historic with the airwaves once it has spent billions to obtain it.
The hubbub over history isn’t hype. For starters, the auction is expected to break FCC auction records, with bidding likely to exceed $10 billion, slowing economy or not. The auction also holds the promise of the possible emergence of a third rival to traditional wireless carriers.
Perhaps most historically, the most coveted spectrum in the auction-the C Block-will come with open-network strings attached. Bidding for the C Block will begin at $4.6 billion and winners must allow consumers to attach the legal devices of their choice to the network.
To no one’s surprise, the nation’s two largest carriers, AT&T and Verizon, are considered the odds-on favorites for the spectrum that is being vacated by broadcasters as part of the digital television transition.
But in a classic high-stakes clash between traditional carriers and emerging new mobile Internet powers, search and advertising giant Google, chip maker Qualcomm and satellite television provider EchoStar, as well as some cable companies and Microsoft co-founder Paul Allen, are also to be in the race for the spectrum.
“If the incumbents win, they’ll just be protecting their existing market interests,” Carlyn Taylor, national leader of the Communications & Media practice at business consulting firm FTI, told eWEEK. “They could use more spectrum, but if they buy it, they’re just trying to block new competitors.”
However, if AT&T and Verizon are outbid, Taylor said, “That’d be historic. If a video player, satellite or cable company or other nontraditional player wins, it could be a market-shifter.”
Most of the speculation over untraditional players begins and ends with Google, which waged a high-profile campaign in the summer of 2007 to convince the FCC to attach open-network requirements to the C Block. With that goal accomplished, questions linger over Google’s actual interest in acquiring spectrum to run a national wireless network.
“I believe Google’s No. 1 objective is to gain access to the incumbents’ customer base. The auction is actually Google’s Plan B,” Taylor said. “We think Google really just wants to stake out a claim in the mobile market.”
The FCC’s open-network requirement seemingly accomplishes that goal, but by staying in the auction, Taylor said, Google is making an implicit threat. “Google is saying if [traditional carriers] don’t play ball the way we want to, we’ll just buy the spectrum,” she said.
Initially, AT&T and Verizon did not want to play by the FCC’s rules, contending that Congress’ intent was to sell the spectrum to the highest bidder with no strings attached. Verizon went so far as to file a lawsuit, calling the FCC’s open-network rules “arbitrary, capricious and … contrary to law.”
Verizon eventually dropped the suit and agreed not only to abide by the open-network rules if it wins the C Block, but also announced that customers will have the option of connecting hardware and software not sold by the company to its existing network.
“This is a transformation point in the 20-year history of mass-market wireless devices-one which we believe will set the table for the next level of innovation and growth,” Verizon Wireless President and CEO Lowell McAdam said in a statement.
Taylor takes a different view. “People are little bit doubting about Verizon,” she said. “I think they decided if they can’t beat them, at least appear to be joining them.”
Taylor is also skeptical about the C Block spectrum opening the way for a third broadband pipe into homes. “TV shows or video over the air is much more expensive than most people realize, even on new-generation networks. Wireless broadband will continue to grow, but wire-line will remain much, much cheaper,” she said.
The winner of the so-called “beachfront” spectrum (its signals can travel great distances and penetrate walls and mountains) in the C Block will not be known for weeks. The FCC will post the leading bid amounts daily but will not disclose the names of the bidders. Anti-collusion rules also prohibit any bidder from discussing the auction.