What the Cincinnati Bell Wireless collapse means for the industry and the upcoming spectrum auctions

Mike Dano

Cincinnati Bell, the nation's ninth-largest wireless carrier, announced that it will shut down its wireless network and sell its spectrum--essentially an acknowledgement that it cannot compete in today's wireless industry.

So what does this mean for the rest of the nation's smaller regional wireless players that continue to struggle to compete with the Tier 1 wireless operators? And what does this mean for the FCC's upcoming AWS-3 and 600 MHz spectrum auctions, which the agency is trying to structure in order to make it easier for carriers just like Cincinnati Bell to acquire spectrum.

First, it's no secret that the wireless market is heating up for carriers of all sizes. And Cincinnati Bell specifically outlined its troubles during the past year--in February, Cincinnati Bell said that it was reviewing strategic alternatives for its wireless business, language that typically implies that it's available for sale or merger. During the course of 2013, Cincinnati Bell's wireless subscriber base shrank from 385,000 in the first quarter to 340,000 in the fourth quarter.

It's worth noting that Cincinnati Bell appears to have been unable to find a buyer for its wireless customers and network--the carrier said it would take steps to transition its customers to other wireless operators.

And Cincinnati Bell isn't alone: Revol Wireless in Ohio and Indiana just last year sold off its spectrum licenses and shuttered its CDMA network. Revol also appears to have been unable to find a buyer.

556 Ventures analyst William Ho said that Cincinnati Bell and Revol faced serious challenges because they were competing in larger U.S. markets like Cincinnati, Columbus and Indianapolis--markets where either some or all of the nation's Tier 1 wireless carriers are already offering service. Ho said customers in these markets would naturally gravitate toward larger service providers that are offering increasingly competitive prices, increasingly faster LTE data speeds and increasingly impressive nationwide coverage. A regional carrier simply didn't have the wherewithal to compete.

But, Ho said, that's not necessarily the case in smaller U.S. markets, where there are few if any nationwide players. In smaller cities and towns, Ho said regional carriers like C Spire and U.S. Cellular (NYSE:USM) (which has retreated from some big markets) still have the chance to offer competitive services in these locations because nationwide carriers like Verizon Wireless (NYSE: VZ) and AT&T Mobility (NYSE: T) simply don't offer service there.

For example, Bluegrass Cellular operates in the smaller cities of Kentucky and has said it enjoyed a very successful 2013, partly because it is able to offer nationwide service plans on par with the Tier 1 wireless operators.

As for the FCC's upcoming spectrum auctions, the Competitive Carriers Association argued that the agency still must ensure that smaller wireless carriers aren't blocked from auction participation by the bigger wallets of AT&T and Verizon--regardless of the collapse of smaller regional carriers like Cincinnati Bell and Revol. "There absolutely is a need and desire to build out rural and regional areas," Steven Berry, CCA's president, wrote in response to my questions. "Our members make up the over 100 competitive carriers across the nation that serve these communities, and AT&T and Verizon's recent buying sprees say less about the willingness of these carriers to compete than it does about the need for immediate reforms to the commission's spectrum screen. Competitive carriers must have access to the same critical inputs, including spectrum and devices, as the largest carriers."

Although the FCC has repeatedly said it hopes to foster competition in the wireless space, the number of actual competitors is shrinking rapidly--in the last several years Alltel, Clearwire, Centennial Wireless, Cox Communications, Dobson Communications, Leap Wireless, MetroPCS, Revol and now Cincinnati Bell have all exited through merger, acquisition or collapse. LightSquared and, more recently, Dish Network (NASDAQ: DISH) have promised to enter the space, but neither has been able to do so.

The FCC may well craft auction rules that prohibit AT&T and Verizon from controlling the upcoming AWS-3 and 600 MHz auctions, but the recent failures of Revol and Cincinnati Bell indicate there may not be may bidders able and willing to purchase spectrum in medium and large markets, build that spectrum out and then actually have a shot at competing effectively. --Mike | +MikeDano | @mikeddano

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