By Allen Nogee
If, like so many Americans, you are forced to drive to work during rush-hour traffic in a big city, then you probably also have a good appreciation for why the upcoming 700 MHz spectrum auction is so important to companies that offer or plan to offer wireless services. Spectrum, to a service provider is like lanes of highway to a commuter.
During the time when most wireless traffic was mostly voice, spectrum wasn’t a large issue because a single voice call uses relatively little spectrum, and hundreds of voice calls can be carried within a 10 MHz chunk of spectrum. But high-speed wireless data, like WiMAX or 3G cellular, is different. Only a relative few users can share a 10 MHz chunk of spectrum if all are to receive something that you would call high-speed data. With wireless operators pushing their high-speed offerings, a great deal of spectrum is needed. If subscribers do shell out money for mobile broadband in large numbers, but the spectrum isn’t there, you have something similar to Los Angeles at 5 p.m. You get the picture.
The problem is spectrum, like space to build new highways, is not unlimited. If you want to widen a highway, you usually need to tear down buildings and buy the land. In the world of spectrum, it’s similar, with analog UHF TV stations being forced to vacate spectrum that they will no longer use once they go digital. They have been told by the FCC to vacate the premises by February 2009.
The 700 MHz spectrum which will be auctioned off by the FCC in January is prime real estate, with both wireless operators, and potential wireless operators licking their chops. In wide-open areas without capacity issues, 700 MHz spectrum allows operators to provide coverage to an area with only a quarter the number of the base stations required at 1900 MHz, the band which PCS operators like Sprint and AT&T currently operate on. In areas that require high capacity, like in big cities, 700 MHz doesn’t buy you range, but it does penetrate buildings much better than higher bands, providing better indoor coverage.
The FCC will be auctioning 5 blocks of 700 MHz spectrum totaling about 60 MHz in width. The most prized of this spectrum is the 22 MHz wide “C†Block which is being reserved for open access, a concept where service providers won’t be allowed to restrict which devices can operate on their band. In the other 700 MHz blocks, service providers can limit which devices they support.
While there has been much speculation on which companies will bid on this valuable spectrum, the answer to that question is probably easier than most people realize. A company purchasing spectrum not only needs the money to purchase the spectrum, but also a plan to launch services which will yield enough revenue to pay back the investment over the next few years. The list of companies meeting these two requirements is a small one indeed.
Verizon or possibly AT&T are the only companies which could muster up enough money and make use of the “C†Block of spectrum. The reserve price for that block alone is $4.6 billion. The other blocks are less expensive, so more bidders will likely compete.
Google is the big wild-card, and anyone’s guess. The company desperately wants to be a player in wireless but it knows that the odds of it going it alone aren’t good. Will an existing cellular operator step-up to partner with Google? Maybe, but Google may also be likely left out in the cold.
Allen Nogee is principal analyst, wireless technology and infrastructure at market research firm In-Stat.
