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Business Impact

What the FCC's Auction Means

Verizon and AT&T dominate the airwaves, but Google helped open the networks.

Last week, the Federal Communications Commission (FCC) announced that Verizon and AT&T were the big winners in its 700-megahertz spectrum auction, in which the U.S. government put 36 megahertz of airwaves, from about 745 to 800 megahertz, up for bid. The government received $19.6 billion for rights to use the section of the spectrum. The frequencies are currently being used by television broadcasters (stations 60 through 67) but will be reclaimed by the government in February of 2009, when they will be doled out to the auction winners. The frequencies in the spectrum are appealing to wireless carriers because of their long range, their ability to penetrate building walls, and the fact that they will not require a major overhaul to existing hardware.

Google came away empty handed, but the company succeeded in pushing open-access conditions for the winning bids. These conditions, which affect the part of the spectrum that Verizon now owns, require that the frequencies be accessible to devices and networks from other companies–a requirement that could result in innovative new mobile phones and services, says David Reed, professor at MIT’s Media Lab.

“There’s really not anything [physically] special about the 700-megahertz spectrum,” says Reed. “I think the main thing that’s happened is that Google managed to get the auction done in such a way that the services have to be more open.”

Verizon paid $9.63 billion for 108 licenses in the C block, a 10-megahertz block that provides coverage throughout the United States. AT&T picked up 227 licenses in the B block, a collection of frequencies that cover various regions in the U.S., for $6.64 billion. The fate of the D block of the spectrum, in which the FCC in 2007 set aside 10 megahertz as part of a public-safety and private partnership, is still undetermined, as bids did not meet the required $1.3 billion.

Selling spectrum: The Federal Communications Commission divided part of the 700-megahertz spectrum, currently used for television stations 60 through 67, into chunks, labeled B, C, and D, that it sold at an auction completed last week. In 2009, the U.S. government will reallocate these frequencies to winners of the spectrum auction. The C block, in which Verizon won 108 licenses, provides service to the majority of the country. AT&T won 226 licenses in the B block, which covers regional areas scattered throughout the country. The D block was not auctioned because the minimum bid wasn’t reached. The A blocks, which tend to experience more interference than the others, were previously auctioned.
Source: The FCC

Google’s push to open the C block spectrum spurred Verizon to announce on Wednesday that it would allow devices it does not sell to use its network later this year. In the short term, this could have the simple implication that a person can use Verizon’s calling plan with any unlocked cell phone. But in the long term, says Reed, the open network could lead to other types of devices, such as cameras and mobile computers taking advantage of cellular networks. “I think the best-case scenario is that there will more likely be new classes of devices not specifically thought of as phones,” he says.

In addition to new types of devices, Reed says, constant connectivity using different wireless services could become possible. Verizon and other providers have historically not allowed devices on their networks to use Wi-Fi. The breakthrough for cell phones and Wi-Fi came with the Apple iPhone, Reed says, but that decision “was a special deal.” But now, he says, it’ll be easier for device makers to build communications that don’t need to be tied down to the rules of a cellular provider.

In particular, the open C block will be a boon to Google’s mobile-phone software project called Android. “The Android project has been a big beneficiary of the openness of the spectrum,” Reed says. Networks such as Verizon, he says, were not going to be able to keep up with the next-generation devices without opening up.

By letting device makers take advantage of the open spectrum, Verizon benefits too. “It turned out well for both Verizon and Google,” Reed says “There’s a new basis for both competitions and cooperation that will hopefully generate much more innovation that will benefit everybody.”

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