Analyze This: The 700MHz Frequency Spectrum Auction

( 1 Mar 2008 )

By Stephen Las Marias, Editor


As of this writing, the Federal Communications Commission's (FCC) auction for the 700MHz band, what others considered to be a "beachfront property" when it all comes down to network deployment and market share, has commenced. In fact, as the first day closes, the bid for the 700MHz wireless license has already reached about $2.78 billion, with the bid for the national coverage (for the 50 states) put at $1.24 billion. The bidding, which is done anonymously to prevent conspiracy or "antiblocking behavior" between bidders, is expected to last for weeks or months, according to observers. But at this early stage, the figures above are already trying to make a point about the whole wireless license bidding. Why would companies go out of their way to join in the bidding war for as much as that amount of money for that spectrum of the airwaves?

WHY BID?
As analog TV broadcasters will switch to digital broadcast next year, the 700MHz spectrum will be returned to the FCC. Two blocks of that spectrum, the C block and D block, have sufficient capacity and geographical coverage to create nationwide wireless networks.

Radio waves in the 700MHz range are physically longer than higher frequency waves, so they can travel farther. They can also penetrate walls and other physical barriers, making it easy to use in in-building wireless services— offering competition with DSL and cable broadband services.

Furthermore, as radio waves in this spectrum have longer propagation range, rural areas previously not well-served by wireless providers will now have wireless access, at the same time bringing in less investment for operators in terms of towers, basestations, and other wireless equipment.

These simple technical points surrounding the 700MHz spectrum, including the fact that any wireless technology that is currently in use today can also be used in that frequency range—including traditional and next-generation cellular service and other wireless broadband technologies such as WiMAX—are already enough to attract operators, providers and other enterprises in these frequency blocks, therefore the on-going bidding process.

WHAT THEN AFTER THE AUCTION IS OVER?
One thing is for sure will happen after the auction is over: an open network ecosystem. FCC mandated that the C block of the spectrum must be open for users to use any mobile device and operating system of their choice, regardless of whoever wins the bidding.

This mandate, though, came from advocacy of public interest groups and Google, who said that it will bid about $4.6 billion for the C block of the spectrum (provided FCC will make some changes to the auction—and that is the mandate mentioned above).
But there continues to be a lingering question: What will Google do with the spectrum if it won the auction?

Of course there had been already a lot of speculations as to what the internet search giant will do to the block of the spectrum once it emerges the winner of the bidding. Some say that, through partnership with a network operator, this will be the chance for Google to compete in the mobile industry.

As I've mentioned in my previous comment, Google, together with 33 leading technology and wireless companies, have formed the Open Handset Alliance, which aims to develop technologies that will significantly lower the cost of developing and distributing mobile devices and services. As a first step in this initiative, the alliance has developed the Android platform—a fully integrated mobile "software stack" that consists of an operating system, middleware, user-friendly interface and applications. Android, claimed to be the first truly open and comprehensive platform for mobile devices, will be made available under one of the most progressive, developer-friendly open-source licenses, giving mobile operators and device manufacturers significant freedom and flexibility to design products.

Now, considering this option, perhaps we could have vague idea as to what will happen next if Google, with that $4.6 billion bid, won the auction for the open C block of the spectrum. For one, we can be certain that it will use the open platform Android for its mobile services.

However, it is really too early to tell, and all of these are merely speculations. In fact, other observers say that Google might not really bid all that $4.6 billion it promised last year as the FCC, as already mentioned above, has mandated for the C block of the spectrum to be open, regardless of whoever wins the auction. So it could be that even though that portion of the spectrum will be won by another bidder, it could be possible that Android will still have a piece of the pie in that market—and of course, Google.

WHAT ABOUT ASIA?
Although there are no auctions yet for the said spectrum in Asia, I think the region can learn a lot from this auction. Of course not about the auction process, but from its outcome, especially as to how operators in the region, particularly in emerging markets such as India and China, can benefit from such a network model described above.

The spectrum's offerings, mainly longer coverage range and the low-cost network deployments for service providers, are so attractive that it could usher in a new wave of product development mainly targeted at the said segment. Chip makers and equipment suppliers are already rolling out new products for the said frequency band, such as Qualcomm and Alcatel-Lucent.

Asia is not far from it. South Korea, for instance, is said to be opening up its 700MHz UHF band on 2012. I think, once the auction has finished in the U.S., everything has been set up in place, and the world has witnessed the advantages of having an open 700MHz, the rest of Asia will follow. And once auctions have been decided in the region, we will get to see another series of exciting bidding wars for the airwaves.


You can reach Stephen Las Marias at stephen.lasmarias@rbi-asia.com.