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Now On The Block: Chunks Of The Sky


Out on the western plains of North Dakota, Royce Aslakson, CEO of the Reservation Telephone Cooperative, just wants a small piece of the airwaves. For Reservation, which serves 19 communities and 7,500 customers, some of whom are Native Americans, it will mean creating a little competition among cell-phone services.

Back East in Philadelphia, Comcast Corp. (CMCSA) CEO Brian L. Roberts wants a whole lot more wireless spectrum. His plan is to offer a cell-phone service to his 22 million cable subscribers to keep them from jumping to satellite. His arch nemesis, Rupert Murdoch, whose News Corp. (NWS) owns a stake in DirecTV Group (DTV), is looking for spectrum, too, for data and cell-phone services that will keep Roberts from getting the upper hand.

Starting on Aug. 9, these players and more than 160 others, large and small, will be pitted against one another in an auction by the Federal Communications Commission for the largest chunk of U.S. wireless spectrum ever put out to bid. The auction, which could raise as much as $15 billion for the government, is considered a key part of FCC Chairman Kevin Martin's plan to push new broadband technologies. More important, the auction of high-frequency spectrum, which had been used for pagers, radio telephones, and government communications, could usher in a major rejiggering of the telecommunications landscape.

Divvying up more spectrum among a slew of new competitors will certainly be a plus for consumers able to choose from a new array of wireless options. Cable and satellite operators are making their biggest push yet into wireless, with the potential to threaten the established networks operated by such players as Verizon Communications (VZ) and Cingular. Smaller outfits like Aslakson's Reservation could snap up spectrum in local areas around the country and roil plans by the big guys to buy wireless spectrum piecemeal to assemble a fuller network. "It's the auction of a lifetime for some companies and the biggest we'll see in a while," says James L. Thoreen, a partner with adviser GVNW Consultant, which is helping 11 smaller telecom bidders.

LIPS ARE SEALED

The auction is expected to stretch for more than a month, with the approved bidders wheeling and dealing to suit their agendas. Bidders include wealthy individuals eager to speculate on future uses for the spectrum. One Michigan video game arcade owner was briefly in the bidding to create a broadband gamers' network. A New York money manager put down $20,000 to bid on the rights over the Gulf of Mexico, in part to woo oil rig workers away from satellite phones. He faces 40 potential competitors for the tract, including the Dolan family of cable operator Cablevision System Corp. (CVC) and money manager Mario J. Gabelli (permitted to participate in the auction even after paying fines for violating previous wireless auction rules).

The biggest players registered to bid are not commenting on their plans, but clearly it is the latest battle in the cable-satellite wars. Comcast is part of a consortium of cable giants in a joint venture with Sprint Nextel Corp., pledging $637.9 million to create a national cell-phone service. Satellite rivals DirecTV and EchoStar Communications (DISH) formed Wireless DBS and have plunked down $972.5 million with plans to offer either cell-phone or wireless data services.

Nearly two-thirds of the 168 bidders are small enough to qualify for FCC special bidding credits, no matter how modest their ambitions. Reservation, for one, is playing catch-up. Covering 5,700 acres that comprise farmlands, an Indian reservation, and ballistic missile silos, the co-op finally dumped its rotary phones in the late 1980s and only recently began offering Internet service. For Reservation, the cost of entry was hefty -- it hired a Washington law firm and put up $37,000 for a single swatch of territory that will reach less than half its customers. It would like to partner with another phone co-op that is bidding for the wireless rights to the other half of its turf. "We just want a little spectrum," says Aslakson. Unfortunately, so does just about everyone else.

By Ronald Grover


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