The FCC is getting ready to auction more wireless spectrum,
drawing interest from incumbents, start-ups and Internet giants.

Beachfront property. The last, great wireless auction. Those are two of the hyperbolic phrases being applied to the FCC’s upcoming auction of spectrum in the 700 MHz bands. Some think the auction could change the industry. Others aren’t so sure. The reality is likely to be somewhere in the middle.

The FCC took that middle road in setting out the rules for the auction, which is scheduled for Jan. 16, 2008. Some potential bidders, notably Google, wanted so-called “open access” rules applied to the winning bidders but got only part of that request. The CTIA responded to the rules by saying it agreed to some and was concerned about others.

The spectrum that is being auctioned does have “beachfront” characteristics because 700 MHz has propagation characteristics that make it good for in-building penetration as well as the potential of fewer cell sites. Critics argue it also would have more interference issues.

The FCC has on the drawing board more spectrum it could auction, particularly in the 1700 MHz and 2100 MHz portions of the so-called Advanced Wireless Services (AWS) spectrum bands. Much of the AWS spectrum was auctioned off a year ago, but there remains some other slices. What happens with the 700 MHz auction could determine how soon the remaining AWS spectrum goes on the block. The AWS bands don’t have the propagation advantages of 700 MHz but could still be attractive.

LAST GREAT AUCTION?
The 700 MHz auction will cover a number of bands in the 698-806 MHz range totaling 62 MHz of spectrum. The largest single block, the so-called Upper C Block, comprises 22 MHz. Although it will be sold as 12 different regional licenses, the FCC will allow companies to bid on it as a nationwide block.

That’s why it is most attractive to companies like Google, which conceivably could start its own national wireless broadband network.

Another 10 MHz, in the Upper D Block, is designated for one nationwide network that would be shared between the winning bidder and public safety agencies. These agencies would have priority over any commercial use of the network during emergencies, which analysts like Andrew Seybold think could lower its attractiveness. (See Seybold’s Take on page 25.) The D Block is adjacent to 12 MHz of spectrum already set aside for public safety.

Frontline’s Hundt: FCC’s rules have set up a number of barriers to new entries in the market.	Seybold:  22 MHz is too little to build a nationwide wireless broadband network.	CTIA’s McCabe: FCC rules are a “mixed bag” because fewer restrictions mean more competition.	Google’s Whitt: Uncertain how open applications and devices alone will effect competition.

The remaining spectrum is going to be auctioned in 12 MHz chunks in the lower 700 MHz bands on a small geographic basis. With as many as 734 licenses available for some of this spectrum, it will be most attractive to incumbent operators or small regional operators looking to fill holes in their current networks.

ISP INTEREST
So, why is everyone getting so excited about this auction, which involves less spectrum than last year’s AWS auction, which sold off 90 MHz? One big reason is the interest shown by the Internet community, especially Google.

Google committed to bidding a minimum of $4.6 billion in the auction if the FCC required four types of open access. The FCC ruling later gave the company just two of those four – requiring that any device and any application could be used on the spectrum. The commission rejected Google’s call that third parties such as Internet service providers should be able to connect to the network, plus third parties like resellers should be able to buy use of the spectrum on a wholesale basis.

Although it hasn’t said what it would do with nationwide spectrum, many analysts believe the company would wholesale it to a partner or partners to build out and operate a network.

Google also isn’t committing itself to bidding in January, now that the FCC didn’t fulfill all of its requests. Richard Whitt, Google’s Washington Telecom and Media Counsel, said in an interview, the company is still considering what it’s options may be.

Whitt says the FCC’s rules give an advantage to incumbent operators in the bidding process. For one thing, he says, incumbents could block a nationwide 700 MHz network by bidding an unrealistically high amount for just one of the 12 licenses.

“We will take a close look at the (FCC) order and at this point we haven’t made any final decisions,” he says.

Whitt says if Google does bid and does win a nationwide license, it could form a consortium with other companies to build and operate a network. It could also partner with a company that has the technology and skill to build and operate a network. Or it could wholesale the spectrum.

Whitt did say Google has had “discussions with a variety of entities” about forming a consortium but he declined to say if that was a favored option.

INTERSECTION OF OPPORTUNITY
Google had been encouraged when FCC Chairman Kevin Martin last spring started talking about open networks and an intersection of the wireless and broadband industries, Whitt says. He says he’s happy that the FCC is mandating some openness, but “it remains to be seen how open applications and devices alone will effect” competitiveness.

The reason Google was seeking more openness, he says, is that it would bring the kind of innovation being experienced on the Web to the wireless networks. He says the incumbent carriers have their own business models and visions.

Analyst Seybold thinks 22 MHz of spectrum is too small to build a nationwide wireless broadband network. That’s only enough spectrum for voice and limited data, but not the kind of video streaming Google may have in mind, he says.

“It’s like a starter kit for a wireless network,” Seybold says, adding that spectral efficiency could be improved by using some 4G technologies like GSM’s Long Term Evolution (LTE), CDMA’s Ultra Mobile Broadband (UMB), or the coming version of WiMAX M. But all of those technologies are yet to be solidified and several years from being commercially available.

“If Google wants millions of users on a network, it won’t make any difference the number of cells it has, with 22 MHz they won’t have enough capacity,” he says.

Seybold is watching closely what is happening with the D Block, the commercial-public safety shared spectrum. He worries that there might not be any bidders because the commercial network would have to give priority to public safety. The winner also probably would have to use the same technology that will be used on the 12 MHz of public safety spectrum already granted.

“Two of the (FCC) commissioners have said they have to be ready for no one to bid on that spectrum,” he says. “I hope that doesn’t happen.”

LAST CHANCE
One of the companies that’s expressed an interest in bidding for the shared D Block spectrum is Frontline Communications. Its founder and vice chairman is former FCC Chairman Reed Hundt, who told Wireless Week “this is a last-chance auction” in the sense of building a nationwide network for public safety, as well as providing open access on a commercial basis.

Hundt criticized the FCC’s auction rules, saying they have set up a number of barriers to new entries in the market. One of those is a high minimum price for spectrum that makes it hard for a startup to bid, he says.

He says incumbents get an advantage because they can buy the spectrum without any requirement that they use it, while creating so many licenses in the lower portion of the spectrum that it would be difficult for anyone to build a nationwide network.

Hundt says Frontline still wants to bid in the auction but will have to see investors to help build the cash reserves to do so. “It’s a question of whether we can raise enough money,” he says.

AT&T and Verizon Wireless have the most interest among the nationwide incumbent carriers in the C Block spectrum, as well as some of the lower 700 MHz bands. Sprint Nextel is getting ready to launch its own new nationwide WiMAX network, while T-Mobile USA acquired spectrum last year for its 3G network launch.

Neither AT&T or Verizon Wireless would comment directly for this story, but both have indicated interest in the auction in the past. Jim Cicconi, AT&T senior executive vice president for external and legislative affairs, says the carrier will wait on a decision on its position until after it has closely studied the final FCC rules.

Jorge Fuenzalida, vice president of VeriSign’s communications consulting unit, thinks Google and the open access people were winners in the FCC rules. “There’s something for everyone,” he says of the rules. “But because of that, there’s less of a mass appeal because there isn’t one big, wide-open channel that can do everything.”

Fuenzalida also thinks there is enough public pressure developing that open access is going to become more prevalent on all wireless networks. That’s what is happening with Sprint’s new WiMAX Xohm network, where any device will be allowed to use the network as long as it is certified and the user pays for the connection.

“I think some of the editorials (in the press about open access) didn’t understand the topic,” he says. “They thought it means free access, but that’s not what open access means.”

Chris Guttman-McCabe, vice president for regulatory affairs with the CTIA, says the FCC rules are a “mixed bag” because the industry association believes fewer restrictions mean more competition.

Guttman-McCabe thinks the 700 MHz auction will draw new entrants because the rules don’t foreclose any bidders. “If Google wants, they can bid and be a part of the industry,” he says.

The CTIA executive says he has heard a lot of talk that this auction will be the “last best,” but he disagrees. It is extremely important, he says, but so was the AWS auction last year and the PCS auction before that.

“This isn’t the last time we’ll go to the government for spectrum,” he says. “And as spectrum becomes available, people will find ways to use it.”