By Steve Rosenbush Radio channels are crucial to the world of wireless communications in the same way that roads are crucial to the housing market. Cell-phone services occupy invisible real estate in the air, just the way buildings occupy sites along a road. Without such infrastructure, neither industry could exist.
These channels, known as wireless spectrum, are doled out and managed by the Federal Communications Commission just like local planning committees approve the creation of new streets. It controls who gets which spectrum and when, so that wireless companies don't interfere with one another on the airwaves.
In January, the FCC will auction off the biggest block of spectrum to hit the market in years. While this auction alone won't transform the wireless industry, it marks the beginning of a series of sales that will. During next year and 2006, the FCC will more than double the amount of spectrum that's available to the market, making way for high-speed wireless Internet services that will carry voice, music, and video.
MOBILE TV ON TAP. The spectrum that will be sold to the highest bidders next month was originally sold to wireless companies in the 1990s. It was returned to the FCC because the owners, including NextWave (NXLCQ) and others, ran into financial trouble in the telecom bust.
Over the next 20 months, the FCC will auction spectrum from several other sources, too, including government agencies. TV broadcasters, which are making the transition to digital TV, will also give up spectrum that's used for traditional analog-TV broadcasts. That spectrum will be sold to the wireless industry, which will use it to deliver mobile TV and other advanced services to wireless handsets (see BW Online, 12/01/04, "TV Phones Prep for Prime Time").
The January, 2005, auction is especially important because it will help existing players expand their coverage in existing markets, improving the quality of voice calls and the reliability of today's basic data services. Most of the licenses are in smaller and midsize markets around the U.S., such as Akron, Ohio, and Jacksonville, Fla. A few larger cities, such as Houston, Seattle, and Minneapolis-St. Paul, are included as well.
BETTER COVERAGE. The auction will help improve the overall quality of cell-phone service throughout the U.S. -- which is still frustratingly inadequate in many markets. Problems like dropped calls and unavailable network connections are largely a function of spectrum. Increasing the supply will help ease those annoying technological glitches. While that might not sound as exciting as the rollout of mobile-TV service, it could ease some of the exasperation that consumers experience when they use their cell phones -- no small feat.
The auction is also important because it could help several medium-size carriers step up in weight class, intensifying competition for giants Verizon Wireless and Cingular, which is owned by SBC (SBC) and BellSouth (BS). The FCC won't reveal bidders' names until later this month.
But T-Mobile, which is owned by German telecom giant Deutsche Telekom (DT), is expected to be the most active bidder, according to Blair Levin, a former FCC official who analyzes communications policy for investment bank Legg Mason (LM). T-Mobile is the U.S. wireless sector's price leader. "This could be an opportunity for it to pick up some spectrum on the cheap and improve its coverage," Levin says. Nextel Communications (NXTL) also may be an aggressive participant.
UNCERTAIN TIMING. Prices in this auction aren't expected to skyrocket, because most of the other big players have satisfied their immediate needs in other ways. Cingular acquired AT&T Wireless. Verizon Wireless bought $3 billion worth of spectrum directly from NextWave. And Sprint PCS has the most "head room" -- or currently unused spectrum -- of any major carrier, Levin says.
But all of the big carriers are likely to sit up and pay attention when subsequent auctions are held, later in 2005 and in 2006. Those sales, which Levin says could raise as much as $70 billion, will pave the way for some of the so-called third-generation (3G) services already beginning to appear in Europe and Asia.
The auctions' timing is unclear, but one FCC official, speaking on condition of anonymity, says several technical issues have to be worked out so that the new spectrum doesn't crowd out existing users. The timing also could depend upon how much pressure the White House puts on the FCC to raise money for the U.S. Treasury. With homeland security at the top of the national agenda, it could be difficult to get government agencies to turn any part of the communications capability over to the private sector.
But one way or another, the crucial wireless infrastructure of the 21st century is making its way into the market. That means that the advanced services that people have anticipated since the '90s won't be far behind. Rosenbush is a senior writer for BusinessWeek Online in New York