Surprises in Spectrum Bidding

Google may be the least surprising of the known bidders for 700MHz spectrum.

Which is more surprising? That Chevron, an oil company awash in cash, could become a wireless carrier?

Or that Paul Allen, the multibillionaire Microsoft co-founder, may be planning to boost the profile (and bandwidth) of a cable company in which he owns a controlling interest?

His company, Vulcan Ventures, as well as Chevron, are two of the surprise names that appear on the FCC's list. And their intentions are murky.

No wonder that the list of participants just released by the FCC for its auction of highly prized spectrum is creating so much buzz.

The FCC has so far accepted as complete 98 applications for its auction of the 700MHz spectrum. That includes the application made by Internet search company Google. Google announced its intentions months ago, so its application was expected.

One head-turning accepted application comes from Vulcan Ventures, Paul Allen's personal holding company.

Allen also owns a controlling interest in Charter Communications, already the third-largest public cable operator in the United States, with interests in telephone, cable and high-speed Internet services.

However, the auction application is registered with Vulcan Spectrum, not Charter Communications, fueling speculation as to Allen's ultimate motives.

The simplest idea is that Vulcan would be holding the spectrum on behalf of Charter Communications.

Vulcan already snagged some 700MHz spectrum during an auction which took place in 2002, with much of the holdings located in Oregon and Washington.

Andrew Jay Schwartzman, CEO and president of public interest law firm Media Access Project, said one could speculate that Allen is doing this "for tax reasons."

Vulcan could simply be looking to add to its inventory, said William Ho, research director of wireless services for Current Analysis. This would give it "a stronger pipe to offer broadband services," he said.


Click here to read about companies that have chosen not to participate in the 700MHz spectrum auction.

However, Vulcan has other options, Ho said. It could buy a chunk of spectrum and then sit on it until the time to sell is right. Aloha Partners sold the block of 700MHz spectrum it bought at auction in 2002 to AT&T in October 2007. "There are a lot of speculators/entities going after this same business model, though the FCC tries to discourage it," Ho said in an e-mail to eWEEK.

Or, Ho noted, Vulcan could lease the spectrum to an MVNO (mobile virtual network operator.)

Vulcan Ventures could not be reached for comment.

Schwartzman said Allen's presence "makes it a more exotic field than anyone expected … because he has a track record of attempting to innovate with good and bad results. He has been responsible for failures, but he can afford to bet and lose."

But despite telecom companies making an obvious play for pieces of spectrum, the true spoiler in this auction may be Chevron, although its application is one of the over 170 applications still considered incomplete, meaning some paperwork is missing.


Any of these potential bidders can complete their applications before the deadline of Jan. 4, 2008. The auction itself will take place on Jan. 24.

Although Chevron has the funds to grab its own piece of spectrum, the company has no experience running a telecom company. "Everybody is puzzled about what may be behind that. But oil is [almost] $100 a barrel, and they have a lot of extra cash," Schwartzman said. "One can surmise that Chevron may not plan to hold the spectrum for themselves but may lease it out to other companies."

Some names on the list of incomplete applications are as noteworthy as the names on the list of accepted applications. They include "the usual wireless carrier suspects of AT&T, Verizon Wireless, Alltel, Cincinnati Bell Wireless, Denali Spectrum License (which partnered with Leap in a previous auction), and MetroPCS," Ho said.

Meanwhile, telecom giant Sprint has not bid at all—at least, not publicly. Ho said some "companies are mere fronts for other companies …. I understand that Cox Wireless is in, as well as Aloha Partners' [President and CEO] Charles Townsend operating under a different name."

Indeed, conjecture is rife in this upcoming auction—and with good reason. Even though the names of participants are made public, bids have to be made anonymously. This, Schwartzman said, "maximizes the incentive for parties to disclose as little as possible about their intentions; when they discuss their intentions, it may help people figure out who they are in the bidding process."

The FCC adopted anonymous bidding rules to stop bidders from interfering with each other. In a previous auction for advanced wireless services, which took place in 2006, Schwartzman said, "There was evidence that some of the bidders, particularly the DBS [direct broadcast satellite] bidders, were targeted by the cable company bidders." When companies band together, they not only force out other bidders, but they also reduce the value of the auction by squelching competition.

In addition to anonymous bidding, this auction has other interesting rules. Importantly, the license for the largest spectrum block, the upper C block, has an open platform requirement. Any company that wins the auction must allow third-party developers to add functionality to their devices, subject to certain conditions. Google is already developing Android, an open platform for cell phones.

The auction rules and regulations can be found here (PDF); the FCC's list of accepted bidders can be found here (PDF); and the FCC's list of bidders whose applications are incomplete is here (PDF).


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