McCaw set to disrupt wireless landscape

What is past is prologue. Last Thursday Craig McCaw's Clearwire filed with the Securities and Exchange Commission to go public. The IPO is expected to raise $400 million and the company says it will use the money to acquire radio spectrum. The timing of the filing and the announcement mean that the small Kirkland, WA-based company is planning on being one of the important bidders in the June 29 auction by the Federal Communication Commission of wireless spectrum. The FCC has auctioned off spectrum before, but the June auction, labeled Auction 66, is its most important yet, involving the largest chunk of wireless spectrum ever auctioned in the US. The value of the spectrum on sale is estimated to be between $8 billion and $15 billion. Bidding will likely run to two months.

Many large players are clamoring to bid, including ventures backed by Bill Gates and Microsoft co-founder Paul Allen, TimeWarner, and News Corp. But small service provider such as Leap Wireless, which last week announced a $250 million sale of its common stock in order to finance its bid, are also interested in bidding. The reason for the commotion: The auctioned spectrum is particularly valuable, allowing the winners to build three or more new nation-wide wireless networks carrying voice service, broadband Internet access or mobile TV services.

All this comes just as a measure of relative tranquility has settled over the wireless sector after five years of shakeout and consolidation. This calm will soon be disrupted again. There used to be six major wireless players, and four emerged from the wireless wars of the first five years--Verizon Wireless, Cingular, Sprint/Nextel, and T-Mobile. These four began to think that they had the landscape to themselves until this auction arrived, promising that a new crop of competitors will rise. What's more, these competitors will be in possession of valuable spectrum which can accommodate practically any wireless technology. The wireless universe will again be plunged into pricing wars and features competition.

Which brings us back to Clearwire and McCaw. McCaw pioneered wireless service in the US by patching together cellular spectrum in the 1980s to create McCaw Cellular. He sold it to AT&T in 1994 for $11.4 billion. Is McCaw up to his old tricks again, stitching together spectrum to create another disruptive wireless entity? Smart money says he is.

For more on Clearwire and Auction 66:
- see Olga Kharif's BusinessWeek report

BACKGROUND: The spectrum to be auctioned could be used to launch different data services. Spending on wireless data services will likely increase from $8.8 billion in 2005 to $27.7 billion in 2009, according to consultancy IDC. "The data market is still quite young. There's a lot of growth ahead," says Farpoint Group's Craig Mathias.

The auction would spur competition and introduce new activity into the wireless sector. Today, most U.S. wireless carriers limit their customers' bandwidth, making it difficult, for example, for users to view movies wirelessly in real time or to give media-heavy wireless presentations. A new spectrum holder would not have to abide by such limitations, putting it in a stronger position to lure customers away from the incumbents. Controlling their spectrum would allow new providers to offer data services of higher quality. Specifically, spectrum holders would have more bargaining power and would be in a better position to escape the restrictions imposed in what is called mobile virtual network operator (MVNO) relationship. For example, a carrier such as Sprint Nextel can prohibit its MVNO partners from pursuing certain market segments, or from offering services which compete directly with Sprint Nextel's offerings. A new spectrum holder would not have to put up with such restrictions, with the result being greater price competition for voice services and wireless data offerings.

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