Wireless auction yields mixed results for consumers

The completion of the 700MHz wireless spectrum auction on Thursday should bring more choice and new types of services for end users, although the results were not as rosy as some observers had hoped for.
For the first time in such an auction, the FCC required winners of some of the spectrum to allow any phone and any application to run on their new networks. These "open access" terms mean that end users should be able to choose from a wider selection of devices, along with new types of Web 2.0 services to run on them.

The change affects mainly Verizon, which won almost all of the licenses that must follow the open access rules. Google entered the auction but did not win any licenses, although its participation was seen by many as way to promote the open access requirement, rather than as an attempt to become a network operator.

Verizon and AT&T, another big winner, will most likely use the spectrum to offer high-speed data services -- either mobile or fixed line -- which would provide an alternative to cable or DSL (Digital Subscriber Line) Internet services. The networks will probably use the new LTE (Long Term Evolution) cellular technology. Trials could begin by the end of next year, although broad availability probably won't come until 2010 or 2011, said Bill Ho, an analyst with Current Analysis.

The new networks are unlikely to deliver cheaper services for users as some had hoped, however, at least not for a while. The operators will need to pay off the billions of dollars they pledged for the spectrum, in addition to the investment in the new networks. "It won't be cheap right off the bat," said Ho. "At some point there will be mainstream adoption, and then the price goes down."

Nor did the auction result in completely new types of companies entering the wireless market, which had been another possibility when the auctions were announced. Some said they expected all along that the incumbent operators would dominate.

"The whole thing was set up from them beginning for [the incumbents] to win all the licenses," said Vince McBride, who won just two licenses at the auction, covering only a small geographic area. The big winners in the auction picked up hundreds of licenses.

A former mail carrier, McBride has been trying his luck at FCC auctions since 1996. He said new rules for the auction favored large companies with deep pockets. For example, the FCC shortened the amount of time that the winners would have to build their networks. "All that did was prevent small businesses from coming in. They were scared of the build-out requirements," he said.

Still, the open access rules lead some to call the auction a success. In a blog post, Google called it a victory for end users.

"Consumers soon should begin enjoying new, Internet-like freedom to get the most out of their mobile phones and other wireless devices," wrote Richard Whitt, Washington telecom and media counsel for Google, and Joseph Faber, corporate counsel.

Many insiders didn't expect that Google would bid to win in the auction, even though it entered the contest. "It would have been foolish on their part to try to run a network," said Nadine Manjaro, a senior analyst with ABI Research. "It's not their core competency."

Google has developed its own mobile phone software platform, called Android, and stands to benefit from the open access rules in any case.

"They're trying to become bigger and looking at means to expand their advertising into other areas beside the PC without incurring the cost," Manjaro said. "They accomplished that. They got the networks opened up."

The high price the operators paid for the spectrum may also have an upside, since they may have to come up with innovative services to recoup their costs, she said. "They'll have to be more creative to pay for these networks,"

One potential casualty could be the rural telephone companies. That's because the 700MHz spectrum is ideal for supporting services across long distances. That means the operators may use it as an easier and cheaper way to deliver DSL-like service to rural areas -- where rural telephone companies have a lock on the market today, Manjaro said.