Technology

FCC Auction: 'The Big Get Bigger'


The wireless spectrum auction fails to pave the way for new competitors; instead, AT&T and Verizon Wireless solidify their positions

So much for creating a new national competitor in the U.S. wireless business.

On Mar. 20, the Federal Communications Commission revealed the top bidders in a just-ended auction of the nation's most desirable remaining airwaves. The winners? By a wide margin, it was the nation's two biggest cellular operators, AT&T (T) and Verizon Wireless, the mobile venture owned by Verizon (VZ) and Vodafone (VOD). Those two companies bid a combined $16.3 billion, accounting for more than four-fifths of the auction's record proceeds of $19.6 billion. AT&T paid $6.64 billion for 227 licenses, while Verizon Wireless spent $9.63 billion for a handful of large regional licenses.

"I think the big just got bigger," says Rebecca Arbogast, an analyst with Stifel Nicolaus, a research firm based in Washington, D.C. "No matter how you look at it, they clearly bulked up in this auction."

Google (GOOG), which had set off an industry hullabaloo by pressing the FCC to attach "open access" requirements to the spectrum being auctioned, walked away with nothing (BusinessWeek.com, 2/14/08). But the Internet search giant still achieved a victory: Last July, the FCC ruled the winners of certain blocks of spectrum would have to allow any wireless device to connect with the network using those airwaves. "They are the happy loser," says Arbogast. "They got nothing. I think they wanted nothing. But they got open access."

Successful Outcome?

While the auction failed to produce a new national competitor, FCC Chairman Kevin Martin called the outcome a success and says the government did all it could to facilitate such an entrant. Martin, in an interview with BusinessWeek, noted that 99 bidders other than the dominant national operators won 754 licenses, or nearly 70% of the 1,090 licenses sold in the auction. "Would I have liked to see a new entrant on a nationwide basis? Sure," Martin says. "But the auction will be used to create a third [high-speed Internet] pipe into people's homes. It won't be on a nationwide basis but it will be offered in each market."

But Public Knowledge, one of many public interest groups that lobbied for open access, said it was disheartened that the auction hadn't paved the way for new competitors as expected (BusinessWeek.com, 11/26/07). "It is disappointing that new competitors and innovators won't have access to the spectrum to give consumers the benefits of real broadband competition," the group said in a statement.

The group also questioned whether Verizon, which purchased some of the spectrum with open-access requirements, will follow through on those principles. Arbogast echoes that sentiment: "My guess is they won't go as far as the public interest groups and applications providers want." Notably, just a day before the FCC auction results were disclosed, Verizon held a conference during which it revealed details of its open-access plans for the first time (BusinessWeek.com, 3/20/08).

Bidding for Airwaves

The third- and fourth-largest bidders in the auction were also very recognizable names, though both raise more parlor intrigue than Verizon and AT&T. Qualcomm (QCOM), which operates a mobile TV service that's been slow to catch on with cell-phone users, spent just over $1 billion for 14 licenses. And satellite TV provider EchoStar (SATS) is paying $711 million for 168 licenses it will likely use to sell its customers Internet access. Those licenses will enable EchoStar to create a near-nationwide footprint, noted FCC Chairman Martin.

MetroPCS (PCS), a discount provider of wireless service, picked up one license covering the Boston market for $360 million. Cox Communications was the only traditional cable company to win spectrum, spending $304 million for a bunch of licenses in the Southern U.S. And Paul Allen, the super-rich Microsoft (MSFT) founder, spent $112 million for two licenses in the Pacific Northwest.

Sprint Nextel (S) and T-Mobile, the nation's third- and fourth-largest wireless operators, respectively, did not even participate in the auction. T-Mobile had been the high bidder in the FCC's last auction, spending $4.2 billion. Alltel, the nation's fifth-largest wireless carrier, came away with nothing, as did Leap Wireless (LEAP).

Anticollusion rules prevent the bidders from commenting on how the auction transpired. But Verizon Wireless said it was pleased with the results. "We were successful in achieving the spectrum depth we need to continue to grow our business and data revenues, to preserve our reputation as the nation's most reliable wireless network, and to continue to lead in data services and help us satisfy the next wave of services and consumer electronics devices," said Verizon, whose regional licenses will allow it to create a nationwide footprint of choice spectrum that can penetrate buildings and mountains.

Ante is the computers department editor for BusinessWeek.

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