700 MHz Spectrum Auction a Likely Lure for Players Traditional and Otherwise

Sources said Thurs. the best gauge of interest in 700 MHz spectrum is the High-Tech DTV Coalition, which helped get the DTV transition bill through Congress. Members include high-tech heavy hitters Texas Instruments, Dell, Cisco, IBM, Intel and Microsoft. Estimates peg the auction’s potential at as much as $28 billion, which would be a record.

Interest “is going to build in the next year or two,” said Charles Townsend, CEO of Aloha Partners, a major holder of 700 MHz spectrum the FCC sold earlier. “The major reason will be wireless Internet [rollout] probably based on WiMAX technology. People who are interested in entering wireless Internet are wondering how can they have a competitive edge. If they combine 700 MHz and WiMAX it’s an explosive combination.”

One example of probable uses is a Qualcomm plan to put $800 million into a nationwide network delivering video and audio programming to 3G cellphones, over encumbered 700 MHz spectrum it bought in Auction 49. Qualcomm subsidiary MediaFLO will offer service through Verizon Wireless this year.

Qualcomm plans to offer the service through other providers acting in effect as resellers of MediaFLO. “The market for mobile multimedia is going to be significant,” said Alice Tornquist, vp-govt. affairs at Qualcomm. “We're going to be early to market with this technology that allows significant amounts of content at a lower cost.”

Aloha, with $100 million in 700 MHz spectrum, plans to offer wireless Internet nationwide in the band. A big factor there would be, if as expected, Intel computers incorporate Wi-Fi chips able to handle 700 MHz, Townsend said.

700 MHz spectrum, regarded as superior in propagation to other frequencies, readily penetrates walls and trees. Four cell sites at 700 MHz cover as much territory as 8 at 1.9 GHz and 25 at 2.4 GHz. A service using 700 MHz could cover the top 175 U.S. markets -- taking in 75% of the population -- with 6,000 cell sites at a cost of $2-3 billion and with a 2- 3 year build-out, Townsend said. The same network using AWS spectrum would need 15,000 cell sites and take 4-5 years to build out, at a probable cost of $5-6 billion, he said.

Asked which is likelier to invest in 700 MHz, traditional telecom companies or nontraditional players, Townsend said a mix is likely. “There has been a real change in sentiment in the last couple of months,” he said: “Verizon went on record as active in wanting to accelerate the auction. If you didn’t care about it or didn’t want it in the market, the last thing you would want is to accelerate the auction.” T-Mobile, he said, has long been an active member of the DTV Coalition.

Traditional participants may have advantages in the AWS spectrum auction, despite major simplifications thanks to regulatory reform, said a former govt. official. The engineering involved could give larger, more experienced firms an edge, since they would know how best to approach getting the bands they want, this source said. But no one can say who will step up, and a big move by an outsider is as likely as anything else, this person said. Even firms pushing for unlicensed spectrum, or hesitating to participated in FCC rulemaking, could make winning bids come auction time, said this source; past auctions have made fools of many prognosticators, and “it’s not even economically smart to say what you're doing.”

Bidders won’t be deterred by lack of standards for 700 MHz band technologies, the former official said. Over time, standards will emerge for the best technologies; meantime, a wide variety of businesses will bet on equally diverse technologies, the source said. Since the 700 MHz and AWS auctions are the last, best chances for a long time to get nationwide spectrum, major tech players with massive revenue streams will gamble happily on technologies they like but that the standards community hasn’t enshrined yet, the former official said.

An industry-side source agreed the 2 auctions represent companies’ last chance to get coveted nationwide spectrum rights. A company’s involvement in early-stage rulemaking and lobbying doesn’t mean it will bid. The converse also is true. MCI famously didn’t bid in PCS spectrum auctions, contrary to industry expectations; Verizon, previously uninvolved in the process, did bid on NextWave spectrum auctions. “Once the FCC announces an auction, a lot of things kick in” that weren’t evident before, she said.

An official transition date changes nothing for some firms, said Ron Marquardt, Covad dir.-wireless product development. The spectrum interests many and supply is low, he said, but the 700 MHz spectrum can be “a double edged sword.” It costs less to get into the band -- but once a carrier’s coverage model is “dominated by density of users rather than the area you want to reach,” the firm must spend far more on towers to meet the massive bandwidth requirements, he said.

Overall, Marquardt said, those who have already nabbed 700 MHz spectrum are “big winners” now that broadcasters must vacate the spectrum. Before, firms like Aloha and Qualcomm had promising products in a band with terrific propagation characteristics, he said, but they always had to worry about interfering with broadcasters. Now they're going to be worry-free in very coveted “real estate.”

“The 700 band has some unique propagation characteristics that have people interested for different reasons,” said an industry source: “People see the potential for delivering audio and video content to cellphones. This is uniquely suited for that purpose.”

“I'd be stunned if there were people not looking at 700 MHz for WiMAX technology or similar technoloy,” an industry source said: “I think people are looking to this as a broadband service to the home, perhaps combined with the mobile component.”

“700 MHz is going to create an entirely new green field in wireless communications,” said Greg Rohde, former NTIA dir.: “It’s very desirable spectrum and it’s a very large chunk of spectrum… It’s hard to see where there’s going to be another opportunity of this size.” Auction rules should spur as much competition for the spectrum as possible, he said.

“It is isn’t good… if you have the same old players continue to gobble up the spectrum,” Rohde said. “We have too much unused commercial spectrum. That’s a significant problem we have with respect to management policy. This is a whole new greenfield that creates tremendous opportunities for the Commission to help foster a new wave of commercial opportunities.”