Small Carriers Seem Intent on 700 MHz Spectrum

“For obvious reasons, we've been focusing on the larger players, but I would think it would be a challenge to deploy a network,” said Rebecca Arbogast of Stifel Nicolaus. “For some of them it may be a way to provide broadband service to customers not otherwise served by wired broadband,” she said. “If the past is prologue, then some of the small licenses will probably go for a modest price,” the analyst added. “Also, 700 is particularly well suited for service in rural areas and buildout costs will be less than with other spectrum bands.”

Rural carriers lobbied the FCC to augment the 700 MHz sale with CMA licenses, as was done in the 2006 advanced wireless services auction, due to the 700 MHz spectrum’s propagation characteristics. They allow maximum coverage in remote areas with relatively few towers. “The 700 MHz spectrum is particularly well-suited for rural applications,” NTCA noted in filing to the FCC at the time. “Its propagation characteristics enable providers to cover vast distances with minimal tower construction.” Of 94 winning bidders of CMA spectrum in the AWS auction, 70 were rural or small carriers, said the Rural Cellular Association.

“The list of applicants includes many small businesses, which indicates a lot of interest in the CMA licenses,” said a lawyer for rural carriers. “It is a safe prediction that all who filed are willing to bid on at least one license,” the source said, saying he sees a general perception that the spectrum uniqueness warrants a shot at success even though there’s not a good understanding of the cost of equipment or the revenue potential. Some bidders will get cold feet, he predicted: “It will not be surprising if many bidders drop by the wayside after the first day or two of bidding.”

Heavy interest among rural and smaller carriers probably arises from the spectrum’s “excellent propagation features,” said a second regulatory attorney, wondering aloud how high smaller carriers will be willing to bid. “There would be some new expense, but they can probably use much of the same infrastructure, such as towers,” he said.

Smaller bidders are ready to take on build-out costs, said Airspan Networks marketing vice president Chad Pralle. “None of those people are applying without having done a full business case,” whether regional CLECs or “Mom and Pop” wireless ISPs that “mortgaged the house to buy three or four base stations and some subscriber equipment,” he said. “You might get a few speculators… but most of those people are planning a full deployment.”

Small carriers could look to WiMAX in building out 700 MHz spectrum to stand apart from incumbents, Pralle said. “WiMAX is sufficiently different from what’s currently on offer,” perfect for “disruptive” carriers, he said. With costs “similar” to CDMA, WiMAX also is “a very nice technology for providing services that are directly competitive against DSL,” he said, citing Clearwire’s success using “totally different” technology. Rather than match incumbent offers of “adding data to your phone or adding voice to DSL,” Clearwire chose new technology and asked consumers, “How would you like your DSL mobile?” he said.

AT&T, Verizon and other larger bidders won’t use WiMAX to build out 700 MHz spectrum because they're already following a different technological roadmap, said Pralle. “If they've already gone in a particular way, they're likely to stick to that path,” he said. “You can’t underestimate the cost of a separate network.” However, Google would be “starting from scratch” and could consider WiMAX, he said. If the search firm gets spectrum, it will face a “real decision,” he said.