The 3G Wireless Auction Will Happen in 2002

Identifying and doling out spectrum is the achilles heel in the promise of 3G

U.S. service providers cant wait for third-generation wireless spectrum to hit the auction block. But that doesnt mean were only a year or two away from the cybernirvana of 3G technology.

Industry analysts believe the U.S. 3G auction wont happen in June 2002, as originally envisioned by the Clinton administration. But they do think the auction is likely to occur by 2003.

But heres the kicker: Some service providers may be content to acquire spectrum space and then wait a couple of years to build infrastructure.

"Say 700 megahertz goes up for auction this year. We hope the spectrum goes at a reasonable price, then sit on it for five years and wait for the TV guys to get off it," said Dave Williams, Cingular Wireless vice president of strategic planning.

In the U.S., the spectrum where 3G service would ride is already controlled by the Department of Defense, religious organizations and some television stations. In June, the Bush administration announced a delay in identifying what spectrum ranges would be available for auction. The Department of Defense is not keen to give up the 1755-MHz to 1850-MHz frequency range, considered to be the most attractive because its globally recognized.

Service providers that ferociously lobbied the Clinton administration for a 3G auction are now backing off.

"Carriers are not putting the spectrum issue at the top of their lobbying efforts," said Chuck Stormon, founder and chief technology officer of Coherent Networks. "Theyve got other concerns, like intercarrier settlement charges."

The delay will have its benefits: U.S. operators can learn from mistakes made as Japanese and European networks roll out their 3G services.

U.S. service providers also say theyll benefit from a hindsight view of the high prices and ensuing insanity that surrounded the 3G auction in Europe. "The European auction happened during the big telecom bubble," said Conductus CEO Charles Shalvoy, noting that a U.S. auction wont result in those kind of prices. Stormon predicts that with recent stock market upheavals, U.S. 3G spectrum prices will be "less than one-third of what the bids would have been last year."

Despite stock downturns and less money for capital expenditures, service providers may still be able to afford to pay top dollar for 3G spectrum by delaying infrastructure improvements, which analysts estimate will cost $150 billion over the next five to seven years. Anyway, Stormon and others say, its not consumer demand for data services that will draw operators into the auction.

"Wireless is still a voice service," Stormon said. "Data isnt a significant enough economic driver yet. Companies will bid on 3G to add capacity for voice."