The FCC's Wireless Redial

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In another nod to Google and its allies, including portal Yahoo! (YHOO), e-commerce provider eBay (EBAY), and satellite TV companies DirecTV (DTV) and EchoStar (DISH), the commission adopted a practice called package bidding. This will make it easier for bidders to acquire enough spectrum in one fell swoop to begin providing services nationwide. The auction for airwaves in the 700-Mhz band is due to happen no later than January, 2008.

New wireless networks could also rev up competition in broadband services, dominated by telecom companies and cable providers such as Comcast (CMCSA). In fact, the FCC had an eye toward reversing a slowdown in the pace of broadband adoption in the U.S. by mandating a use-it-or-lose-it schedule for network build-outs. Bidders that don't meet deadlines will have spectrum taken away.

Upping the Ante

How effective the rules will be in reshaping the wireless landscape will depend in part on which parties end up bidding for, and winning, the airwaves. Google and its ilk didn't get all of the rules they lobbied for. The FCC, for example, didn't mandate that spectrum holders must sell their network capacity to other service providers on a wholesale basis—another provision that would have fostered greater competition. Several new entrants had been expected to participate in a big auction last year, but few did. "This has been a truly monumental effort, and I truly hope it works," Commissioner Michael Copps said during the hearing. "But the end result could be same old, same old."

The big takers in last year's wireless auction, including AT&T, Leap (LEAP), MetroPCS (PCS), and Verizon Wireless, owned by Verizon Communications (VZ) and Vodafone (VOD) (see BusinessWeek.com, 9/07/06, "Verizon's Wireless Airwaves Binge"), may emerge as the biggest bidders this time around, too, says John Hodulik of UBS (UBS). "The incumbents will still have a very strong incentive to go after this spectrum [to defend their existing business]," he says.

Some potential new entrants are reserving judgment. "We will need time to carefully study the actual text of the FCC's rules, due out in a few weeks, before we can make any definitive decisions [as to whether we'll participate in the auction]," says a Google spokesperson. But during a July 31 conference call hosted by advocacy group Public Knowledge, Google's Whitt was asked whether the ruling increases the company's chances of bidding. "It sounds like we're in somewhat better shape," he said. "We are encouraged."

And in the off chance that encouragement doesn't translate to sufficiently aggressive bidding by Google and other parties, the FCC has crafted a Plan B. It will redo the auction, under the more conventional rules that leave AT&T and Verizon Wireless far less cause for complaint.

With Spencer E. Ante in New York