FAQ: How the wireless spectrum auction could change your life

Spectrum auction could lead to more competition, more devices

Depending on who's talking, the wireless spectrum auction that starts on Jan. 24 will significantly change the mobile and wireless landscape in the U.S., or it won't have much impact at all.

Some believe it will lead to creation of new nationwide wireless networks and the entry of new wireless operators. That increased competition could benefit users.

"This spectrum auction is the first real chance we've had to see a competitor emerge that could compete with the telephone and cable companies," said Gigi Sohn, president of the Public Knowledge consumer rights organization. Aggressive bidding is expected from several well-funded companies that aren't currently in the wireless business, such as Microsoft Corp. co-founder Paul Allen's Vulcan Spectrum LLC and Google Inc.

Others, however, beg to differ. "The auction won't change anything per se," said Jack Gold, principal of J. Gold Associates, a telecommunications consulting firm. "But other pressures in the system -- market forces -- could ultimately change a lot of things." For example, Gold said he expects more competition and more open wireless networks to emerge over time, no matter who wins the auction.

Besides the possibility of new competition, this auction is also receiving a lot of attention because it is likely to be the last time that large chunks of wireless spectrum will become available. Also with this auction, the Federal Communications Commission (FCC) has imposed rules that will, to some extent, open up wireless networks.

However, a lot of confusion about the auction remains. Here are the answers to some frequently asked questions.

What is being auctioned?

The FCC is auctioning off a huge swath of wireless spectrum in the 700-MHz range. This spectrum has been used by television broadcasters, which must return the spectrum to the FCC when they switch next year from analog to digital broadcasts.

In particular, the FCC is auctioning many "blocks" of spectrum. Two of those blocks, the so-called C-block and D-block, have enough capacity and geographical coverage to create nationwide wireless networks. The smaller blocks of spectrum also could receive a lot of attention from bidders. Those blocks are regional in nature, and many small telecommunications providers are expected to bid on them.

How is the 700-MHz portion of spectrum different than others?

The physical nature of the 700-MHz spectrum makes it attractive to users and service providers alike. Many digital cellular systems in the U.S. use radio signals in the 1,800-MHz and 1,900-MHz ranges, although some older analog systems still use spectrum in frequencies as low as 800 MHz. Because radio waves in the 700-MHz range are physically longer than higher-frequency radio waves, they travel farther and are better able to penetrate walls and other impediments.

These characteristics are important for several reasons. First, the better penetration makes it feasible to use wireless services indoors. That makes these wireless services competitive with land-line broadband services such as Digital Subscriber Line and cable.

A second important advantage is that, because radio waves in this portion of spectrum travel farther, it is easier to bring wireless access into rural areas that currently aren't well served by wireless providers. This greater transmission range also means that operators would need to invest less in towers and base stations and other wireless infrastructure.

These advantages, combined with the nationwide coverage, explain why the available 700-MHz spectrum is often referred to in the media as "beachfront property."

What technologies can be used in this portion of spectrum?

Virtually any wireless technology that is currently in use can also be used in the 700-MHz range. That includes traditional and next-generation cellular service and other wireless broadband technologies such as WiMax.

What potential benefits could come from this auction?

Besides increased competition, the FCC decreed that the winner of the C-block must make networks that use that portion of spectrum available to any device that employs compatible technology. For example, if a carrier builds an EV-DO 3G (Evolution Data Optimized third-generation) network, any device with that technology built in will be able to access the network.

This openness will increase consumer choice. Currently, cellular operators in the U.S. typically limit what devices can be used on their networks and what applications can run on those devices. Because this approach gives them so much control, the incumbent carriers fought the open network provision vigorously.

Note, however, that this provision applies only to the C-block. Carriers that win any of the other blocks can continue to limit access to those networks.

What other rules apply to the spectrum?

The effort to open up new spectrum to all devices was led by Google and several public-interest organizations. In addition, those groups urged the FCC to require that the winning bidders make some spectrum available, on a wholesale basis, to other carriers. That was another attempt to foster more competition among wireless carriers. However, this effort failed. The FCC refused to require winning bidders to resell some of that spectrum although, as always, that could occur voluntarily.

There are other limits on how the spectrum can be used. One notable mandate is that any network using the D-block must be built to specifications particular to public safety applications and that portions of the spectrum are available for those uses. Because of the emphasis on public safety, the D-block is mandated to be available to 99.3% of the U.S. population by 2019.

There are limits on the other blocks, too. For instance, there are use-or-lose provisions that require wireless networks to be built out within a certain time frame or the license will be lost. This is an attempt to make sure that large companies don't buy spectrum simply to block other companies from acquiring it.

Who is bidding?

The auction has attracted some predictable bidders, some surprise bidders and many smaller bidders. More than 260 applications to participate in the bidding process were initially submitted to the FCC. The predictable companies included incumbent telecommunications operators such as Verizon Communications Inc. and AT&T Inc.

Then, there are some well-funded bidders with unknown motives, such as petroleum giant Chevron Corp. and Vulcan Spectrum. Also in the mix are some cable operators.

Besides the big players, many local and regional wireless carriers have applied to participate in the auction and are likely to bid on the regional chunks of spectrum. A local telephone company, for instance, could use such spectrum to provide wireless broadband service to its local customers using a technology like WiMax.

What about Google's bid?

The potential bidder that has received the most attention is Google, which has been mum about its specific plans. Most observers believe the company's interest in the auction is tied to its recently announced Linux-based Android mobile phone system.

Google likely wants to use Android to sell mobile advertising. However, that won't be successful if existing wireless carriers don't allow phones based on it to be used on their networks. If Google owns the open C-block, it will be certain that phones based on its Android system can be used.

Few, however, expect Google to create a whole new wireless network from scratch -- if it wins.

"Google will rent out the spectrum, said consultant Gold. "It would be insane on their part if they decided to put up their own network. Being landlords of the airspace, that makes sense."

As a result, it is widely expected that, if Google wins the C-block, it will work with other providers. For instance, rumors have been circulating that Google will work with T-Mobile USA Inc., which has been constrained in expanding its network by a lack of spectrum. Neither company has been talking about such specifics.

How will the auction be conducted?

A "mock auction" will be held on Jan. 22, and the auction will begin in earnest two days later. Many observers believe the bidding, which will be largely electronic, could last a couple of weeks.

Bidding will be anonymous. That is to say, nobody will know who is bidding or how much they are bidding. The goal of this rule is to prevent collusion aimed at keeping out specific bidders.

"There are quite a few studies that show that, if you know who is bidding, you can engage in anticompetitive blocking behavior," said Public Knowledge's Sohn.

How much will spectrum cost?

Buying spectrum will require very deep pockets. In particular, the large, nationwide spectrum blocks will surely be expensive. The C-block, for instance, has a reserve, or floor, bidding price of about $4.7 billion. The total reserve price for all blocks is about $10 billion, and many believe the bidding will go much higher than that.

Copyright © 2008 IDG Communications, Inc.

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