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Industry Prepares For RF Auctions

The Federal Communications Commission (FCC) has three radio-frequency spectrum auctions scheduled for 2006. Two of them are for air-to-ground transmissions, slated for the emerging market for Internet access services on board airliners: one sale of licenses in the 800MHz range (on May 10) and one in the 400MHz range (August 23). The third auction, scheduled for June 29, will sell off more than 1,000 licenses for advanced wireless services (AWS) between 1710-1755 MHz and 2110-2155 MHz -- and it's considered the most significant auction of wireless spectrum in the new century.

"The auction of AWS spectrum is primarily important because it creates the opportunity to change the market structure of the cellular industry," says former FCC chairman Reed Hundt, pointing out that the Big Four cellular companies -- Cingular Wireless , Verizon Wireless , Sprint Corp. (NYSE: S), and T-Mobile US Inc. -- will be looking to increase their market clout by purchasing broad swaths of spectrum in which to deploy advanced 3G networks.

The AWS auction will take place against a background of harsh criticism of the federal government's allocation of spectrum. The Tech CEO Council, an influential lobbying arm of the high-tech industry, last week issued a report calling for wholesale reform of spectrum-allocation policy in the U.S. Of the 300GHz or so of available, useful radio-frequency spectrum, less than one percent has ever been or will ever be auctioned, points out J.H. Snider, a telecommunications policy expert and research director of the Wireless Future Program at the New America Foundation; the rest has essentially been handed to incumbents or distributed by lottery. (See Tech Execs Decry Spectrum Policy.)

"Spectrum policy is a case study in special interest politics," says Snider. "There's unbelievable amounts of money at stake, spectrum is the most valuable resource of the 21st century just as oil was the distinctive resource of the Industrial Age. And there's 500 people in Washington who make their living sitting around thinking up ways to get spectrum for free."

Prime Real Estate The AWS auction will also be important as a price-setting mechanism. Since the astonishingly overpriced auction prices of the late 1990s there has been much uncertainty about the market value of spectrum for high-speed wireless technologies, and June's sales could help establish benchmarks.

"Valuation is difficult," said Craig Mathias, principal analyst with the FarPoint Group, in an email, "because an awful lot of money (hundreds of billions) has gone into spectrum licensing, and we suspect therefore that prices for the AWS spectrum could be a bit lower than in the past."

Prices could be depressed by the increasing use of unlicensed spectrum to offload data traffic, freeing up proprietary, licensed frequencies for voice traffic.

Nevertheless, given the strategic importance of the AWS spectrum, the June auction will likely generate dozens of billions of dollars. "This is 90 MHz of prime spectrum," comments Snider, "so I can't see that we're talking about anything less than $10 billion, and it could be $40 billion or more."

Prelude to 700MHz The AWS auction is merely a prelude to the eventual sell-off of the spectrum in the 700MHz frequencies, currently held by analog TV broadcasters. Television broadcasters are facing a deadline to move to digital broadcasts by 2009, freeing up the 700MHz range, considered prime "beachfront spectrum" for delivery of broadband wireless services such as mobile video. (See The Great Spectrum Rip-Off.)

Congress, says Hundt, "has been delaying and cutting deals with the broadcasters and acting in a smarmy way for a decade" on the 700MHz spectrum, but it looks as if that auction may be set sometime in 2007. When that happens, Hundt adds, "it could jumpstart a $100 billion industry."

Beyond the absence of a firm timeline for re-allocating the 700MHz frequencies, plenty of other uncertainties surround that slice of frequencies as well -- including the fate of the public safety network bands at 764-776 MHz and 794-806 MHz. Critics like Hundt think that allowing public-safety networks to squat on those precious frequencies is a waste of priceless resources: "The public-safety community wants to use this core, beachfront, central chunk of UHF spectrum for themselves. If they do that it will deprive the taxpayers of [tens] of billions of dollars, raise the cost of any mobile video or wireless broadband business by a significant sum, hurt our economy, and cost us jobs."

Tying up valuable frequencies, say critics of the current system, puts the U.S. at a competitive disadvantage with Western European and Asian nations that are building state-of-the-art, widespread wireless networks.

A wild card in the AWS spectrum at auction in June is the cable industry, which increasingly views a combination of wireless and cable networks as the most powerful way to deliver broadband Internet access and other services. Comcast, for example, recently made a large investment in BelAir Networks, a maker of wireless broadband networks.

"The cable industry is sooner or later going to buy proprietary spectrum for WiFi mesh networks," explains Hundt. "It's the 'complimentary-izing' of cable: everybody needs wired and wireless networks because every customer wants ubiquity and seamlessness, stationary and mobile service."

— Richard Martin, Senior Editor, Unstrung

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