FAQ: The 700-MHz wireless auction results

We know who won the just-completed Federal Communications Commission auction of wireless spectrum. But we don't know what the winners will do with the spectrum, what the prospects are for the losers and, perhaps most important, how the auction will effect users.

Verizon Communications Inc. won much of the coveted "C block" of wireless spectrum in the 700-MHz band, and AT&T Inc. won big chunks of the "B block." (For a fuller explanation of the auction, the blocks and what was at stake, check out this article.) Both Verizon and AT&T now have enough 700-MHz spectrum to create new nationwide wireless networks.

However, there were less-publicized winners and also some losers in the auction. And how did users fare? Here are some frequently asked questions about the impact of the spectrum auction.

What will Verizon and AT&T do with their new spectrum?

Verizon, the second-largest cellular operator in the U.S., paid about $9.63 billion and gained as much 700-MHz spectrum as it needs to create a new nationwide network. AT&T, the nation's largest operator, had previously acquired a large chunk of 700-MHz spectrum, and it spent an additional $6.64 billion in this most recent auction for even more so that it, too, can create a new nationwide network.

The FCC forbids auction winners from talking about their plans until April 3, but the presumption is that these carriers will build completely new wireless networks because neither currently uses the 700-MHz band for its existing network. In particular, pundits presume, this newly acquired spectrum will enable the carriers to build next-generation networks based on a technology called Long-Term Evolution (LTE). Verizon has announced that it will use LTE, and it is a logical migration path for AT&T as well.

The creation of new networks is exceptionally expensive, so why are the carriers building new networks to replace their old ones?

"It's a greenfield thing," said Jack Gold, an analyst at J. Gold Associates, a telecommunications consulting firm. "Verizon and AT&T can leave their existing networks in place and not harass their customers when they build their new networks." By that, Gold meant that outages or other hassles could occur while a network was undergoing a major upgrade, problems that wouldn't occur during the build out of a "greenfield" network.

Gold cautioned against expecting the new networks anytime soon. LTE technology isn't expected to be ready for users until 2011.

He noted that, in theory, AT&T and Verizon could build WiMax networks sooner than LTE networks. That technology is ready now, and Sprint Nextel Corp. has said it will roll out its WiMax network this year. But Gold noted that, in the near term, AT&T and Verizon are much more interested in spending their money to continue developing their higher-speed networks into the home, such as Verizon's FiOS network.

Were there other big winners?

Yes. Frontier Wireless paid about $711 million for licenses in the so-called E block that cover 168 metropolitan areas, giving the company nearly national wireless coverage.

This is one of the more intriguing aspects of the auction because Frontier is a corporate sibling of Dish Network Corp., a leading provider of satellite television. Increasingly, Dish Network and its main competitor, DirecTV Inc., are fighting large incumbent telecommunications operators such as Verizon and AT&T to provide multiple services such as cellular service, television and broadband.

"Verizon can tell customers to sign up, and you can have broadband wherever you go and [TV] in your home," Gold said. "Dish needs to keep their customer base happy and stop them from going to Verizon."

However, ABI Research pointed out after the auction that, while Frontier's winnings cover a lot of territory, the company didn't acquire much bandwidth. The research firm also noted that "EchoStar could potentially deploy mobile WiMax services similar to those of Sprint and Clearwire." However, ABI pointed out that EchoStar only has 6 MHz of spectrum in each market, a paltry amount compared with, say, Sprint's approximately 90 MHz in each market.

Others speculate that Dish will use the spectrum to provide on-demand television programming, something its cable competitors can do but that satellite providers have been unable to do because of technical limits.

Bottom line: EchoStar's precise plans are intriguingly unclear.

Another winner was Qualcomm Inc., which picked up spectrum in a handful of metropolitan areas. As with other winners, Qualcomm can't yet comment on its future plans, but it has long stated one of its goals for wireless bandwidth: to establish a network for mobile television using its MediaFlo technology.

Another winner was U.S. Cellular Corp., a large regional operator. It won spectrum in a handful of markets it either already services or in which it wants to expand coverage, in states such as Virginia, West Virginia, Vermont and Wisconsin. However, at the end of the day, it still won't be a national carrier.

Do the auction results leave Sprint and T-Mobile out in the cold?

No and maybe. Sprint, the third-largest U.S. wireless carrier, has plenty of still-unused spectrum in the 2.5-GHz range, which it is using to build its nationwide mobile WiMax network. Besides not needing more spectrum, Sprint has been in dire straits lately, losing both profitability and subscribers. As a result, it had no need -- and was in no position -- to bid for more spectrum.

The case of T-Mobile USA Inc., which did not actively participate in the auction, is more curious. While generally considered a nationwide carrier, T-Mobile's spectrum holdings are weak in comparison with its larger rivals. Plus, it has yet to roll out its 3G (third-generation) network, while its competitors have had 3G networks for the past three years.

T-Mobile continues to attract new voice customers and has used its large network of Wi-Fi hot spots to keep itself in the mobile broadband business. And it has said it will roll out a more advanced type of 3G network later this year. But analysts say its lack of spectrum endangers the operator.

"T-Mobile is between a rock and a hard place," said Gold. "They're years behind. They're getting people to sign up for voice because of price. But the world is going to data."

While T-Mobile is working on its 3G network, Gold questioned whether it has enough bandwidth to eventually grow a 4G network. "It will have to develop partnerships with other operators," Gold said.

Was Google a winner or a loser in the auction?

Perhaps no company attracted more attention prior to the auction than Google Inc. It strongly lobbied the FCC to require networks using all blocks to be open to all devices and applications -- currently, carriers in the U.S. limit what devices and applications can be used on their networks.

The FCC agreed that networks created in the C-block must be open, and Google indicated it would bid on spectrum in that block. It did bid, and while it didn't win any spectrum, it is widely held to be one of the winners of the auction.

"Without Google, we wouldn't have what open access provisions we did get," said Art Brodsky, communications director of Public Knowledge, a public-interest firm that was pushing the FCC to require open networks using the auctioned airwaves. "They didn't really want to own spectrum."

Added Gold: "Google got something for nothing. They put in a bid [on the C-block], then backed off. It was a great poker bluff."

Google's primary interest wasn't owning spectrum but, rather, in serving advertisements to mobile devices, according to Gold. Phones based on its Android mobile platform will work -- and deliver ads -- via open networks. That's why Google warmed up the bidding for the C-block, but apparently didn't expect -- or want -- to win spectrum.

Will the auction result in truly open wireless networks?

Verizon won the lion's share of the C-block, which was designated by the FCC for open networks. By contrast, closed networks can be built with all the other spectrum, and AT&T and other winners will decide how open their networks will be.

Even though it is required to build an open network, some wonder whether Verizon will resist true openness.

"The spirit of it is that people with their own phones can use open networks, but we don't know yet about how it will work in practice," said Brodsky. "Will it cost more? Will Verizon continue to sell crippled phones at a discount, which would discourage use of 'open' phones? If you want to access iTunes, what will it cost you? There are no rules, and [Verizon] has been trying to undermine [network openness] from the get-go."

What will happen to the D-block?

The D-block was designated by the FCC for two combined uses: a national network for public-safety applications and a standard public-access network. This was a peculiar approach, since public-safety networks are more exacting and expensive to create because of reliability and security issues.

Prior to the auction, one start-up, Frontline Wireless, said it wanted to undertake that task. However, the company closed down shortly before the auction. No other bidders stepped up to the plate and, as a result, the FCC's reserve price (minimum winning bid) of $1.3 billion was not met, and the spectrum was not sold. Qualcomm bid about $472 million for the D-block, far below the reserve price.

Brodsky wasn't surprised at the outcome.

"Two networks co-existing in that way is something we haven't done before," he said. "The FCC was asking the impossible, so I'm not surprised they didn't even get their reserve price."

So what will happen with that chunk of spectrum? First, the FCC "de-linked" it from the auction, so it can now do with it as it wishes. It is also investigating what went wrong with that part of the auction and how to proceed in the future. In the meantime, observers are proposing many ways to handle the D-block.

"There will only be a limited number of companies that will be interested," Brodsky said. "I think they'll find that maybe a hybrid network wasn't the way to go."

Gold said that the FCC should sell the spectrum to Qualcomm.

"The government should throw in the towel and take the bid they got," he said. "There's no money to be made there. This is about the best deal they're going to get."

Copyright © 2008 IDG Communications, Inc.

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