700MHz: The Wireless Beachfront

When the age of analog television draws to a close, in February of 2009, the 700 MHz band of spectrum which channels 52-69 have used to broadcast will become free, or at least available. Under the Digital Television and Public Safety Act of 2005, signed into law last year, the FCC is required to auction off that piece of the spectrum no later than January 28, 2008. While there are officially 108 MHz in the 700Mhz band, 60 will be placed on the block when the auction does happen; 24 have been allocated to create a first-responder network and 24 are owned by Access Spectrum, Aloha Partners, Pegasus Communications and Qualcomm. Of the auction, FCC commissioner Robert McDowell said, “I think it will be wonderfully chaotic and disruptive in a good way.” Wonderful and good perhaps for the FCC which anticipates raising in the neighborhood of $10 billion from the auction (private estimates have been made as high as $30 billion); chaotic and disruptive for just about everyone else.

The noteworthy characteristics of the 700MHz band, other than the attention its auction has garnered, are its ability to travel through obstructions such as trees and buildings and the fact it can cover four times the geographic area of others. As a result, 700 MHz providers anticipate being able to operate systems at lower cost and with fewer towers than wireless incumbents located higher up on the spectrum chart. Its characteristics have led to the 700MHz band being labeled ‘beachfront property’. As to be expected with any piece of prime real estate everyone wants a piece. In this case the battle is all-the-more heated as it may be the last time that such a piece goes up for sale. Michael Calabrese, director of the wireless future program at the Washington think tank New America Foundation says, “This is the last large auction of prime spectrum in the foreseeable future.”

“Spectrum makes strange bedfellows,” says Rebecca Arbogast, a wireless-policy analyst at Stifel Nicolaus; this is apparent in the current case. The upcoming auction has spurred the creation of the 4G Coalition which is comprised of DirecTV, EchoStar Communications, Yahoo!, Google, eBay, and Intel. Strange bedfellows indeed, but while these companies may be allying themselves at present it does not mean that they will be bidding together, “I do not read this joint position as indicating that they plan on bidding together,” Arbogast says. Nor does it mean that they will be bidding at all, “This coalition does not mean these companies will actually bid, but that they want a say on how the auction will run,” according to Ben Schachter, Internet analyst with UBS Research. Om Malik of GigaOM says “Google, Yahoo, and eBay may not see eye to eye with each other, but when it comes to broadband access, they all agree that the future is too much in the control of the incumbents who can squeeze them dry.” Therefore, what the 4G Coalition wants is to ensure the FCC keeps a close eye on the proceedings. Yahoo, Google, and eBay, while quite powerful, are content providers, not network operators, their concern is if the incumbents gain control there could eventually be a ‘last mile toll’ on access to their services. This is a particularly scary prospect given the unresolved status of the Network Neutrality debate. The 4G Coalition is not the only party with concerns about access or that would like to see the big boys sent home.

Sharing the bed with the 4G Coalition is the Save Our Spectrum Coalition; made up of members Public Knowledge, Consumer Federation of America, Media Access Project, Consumers Union, New America Foundation and Free Press. As the stance several of these groups have taken publicly on Net Neutrality would suggest, they claim to have the public interest in mind. As ComputerWorld states, members, “want the FCC to impose conditions on the winners of the spectrum auction. They want half of the 60 MHz to be auctioned to allow open access to competitors of the large broadband providers, and they asked the FCC to require the spectrum to be available at wholesale rates.” An open-access filing coordinated by Consumers Union said, “It is imperative that we learn the lessons of the wireline market and make the appropriate policy corrections in the launch of the most promising wireless broadband markets . . . Wireless broadband has not been a useful ‘third pipe’ and will not be in the near future if this spectrum is auctioned to the very same vertically integrated telephone and cable incumbents that dominate the wireline market.” Jeannine Kenney, a senior policy analyst at Consumers Union of United States Inc. believes, “This spectrum, in our view, represents the last, best hope for meaningful competition in broadband.” As such it is unlikely the incumbents will let it slip easily from their grasp.

As powerful as some of companies making up the 4G Coalition are, and as much as Save Our Spectrum may truly represent the masses, both are up against a powerful common enemy. Stifel Nicolaus says, “The FCC’s upcoming spectrum in the 700 MHz band is shaping up as a key event in the communications industry: it could open the door to new wireless broadband and video competition to the Bells and cable, but the incumbents appear likely to make a strong bid to acquire much of the spectrum.” Verizon for example is rumored to be interested in half the available MHz. Multichannel News says, “If members of the 4G Coalition decide to bid as a group or individually, they will likely need to outbid cable and phone companies.” Telcos, in addition to controlling the vast majority of the residential broadband market, have very deep pockets as well as deep roots in the lobbying department. It is not likely that they will surrender what may be the last chance of defending their near-monopoly; it is equally unlikely that the FCC will step in an effort to create competition.

FCC Commissioner Robert McDowell recently told reporters that the FCC’s 700 MHz rules wouldn’t cater to wealthy incumbents, “Everyone will have an opportunity to own some of that spectrum.” Not everyone shares that assessment. Multichannel News states, “In recent years, the FCC has appeared to place a higher premium on auction revenue than competition policy.” Access Intelligence agrees with the assessment, “the commission’s real mission is to make money for the U.S. Treasury.” At that task they have succeeded, having raised close to $30 billion since Congress authorized spectrum sales in the early 1990s.

A more complete version of this posting, with journal articles, and research reports can be found at the website of Analyst Views Weekly.

More information on this topic can be found in Northern Light’s Telecommunications & Equipment Market Intelligence Center.

And in the following articles:

Silicon Valley Moneymen Make a Play for Airwaves
New York Times, April 9, 2007
Some of Silicon Valley’s most powerful venture capitalists and technology investors have joined an investment group that is preparing to challenge cellphone carriers, cable and satellite companies for valuable radio spectrum that will be freed when television broadcasters convert to digital signals.

Group Pushes FCC for Open Spectrum Auction
EETimes, April 6, 2007
The battle over control of old television spectrum is heating up as the age of analog broadcasts comes to a close. First responders are vying to get as much unused spectrum as they can to improve interoperable communications, while a new coalition wants the Federal Communications Commission to auction 700 MHz spectrum to create competition for high-speed Internet service.

The 700 Club Debate
WirelessWeek, April 6, 2007
In a letter to FCC Chairman Kevin Martin, CTIA President Steve Largent offered his two cents on the latest 700 MHz band auction proposal to cross the FCC’s desk. Frontline Wireless, a startup headed by past CTIA Chairman Haynes Griffin, former Administrator of the National Telecommunications and Information Administration (NTIA) Janice Obuchowski; and former FCC Chairman Reed Hundt, was the third player to enter a proposal for what the FCC should do with the 700 MHz spectrum that is supposed to be freed up when TV goes digital.

Consumer Group Calls for More Competition in Spectrum Auction
ComputerWorld, April 5, 2007
The six groups, calling themselves the Save Our Spectrum Coalition, filed comments with the FCC today, suggesting that competitors to the large DSL and cable modem service providers could use the open access to provide a broadband alternative. Sometime next year, the FCC is due to auction 60 MHz of spectrum in the upper 700-MHz band that’s being abandoned by television broadcasters as they move from analog to digital broadcasts.

Google to Lobby FCC about Spectrum Auctions
Webpronews.com, March 12, 2007
Google, Yahoo, and eBay have enlisted satellite carriers EchoStar and DirecTV to help them lobby the Federal Communications Commission about keeping a close eye on how spectrum auctions are conducted. The alliance aims to put tighter reins on incumbent last mile providers of broadband access.