Questions Abound About Effects Of FCC Wireless Spectrum Ruling

Anticipation has been running high since the U.S. Federal Communications Commission (FCC) said July 31 it will be revising its 700 megahertz band plan and service rules “to promote the creation of a nationwide interoperable broadband network for public safety and to facilitate the availability of new and innovative wireless broadband services for consumers.”

But the question remains: What does this mean?

By February 2009, TV broadcasters will be legally required to broadcast digitally, freeing up about 700 megahertz of public airwaves. The FCC decision provides for consumers to use whichever combination of phone and service provider they wish on nearly one-third of the spectrum. The FCC also moved to address communications problems encountered by first responders by ruling to create a shared public safety network.

Consumers will see two major benefits from this plan, said Carol Mattey, a 10-year veteran at the FCC and now the lead attorney for Deloitte’s U.S. Technology, Media & Telecommunications regulatory consulting services practice. Foremost, by addressing the need for improved public safety, the FCC “holds out the promise that in the future our nation’s public safety entities will have a more robust communications system in an emergency,” she said.

Everyday consumers, meanwhile, would benefit from the FCC’s requirement that the winning bidder for part of the spectrum that will be auctioned off “provide a platform that is more open to devices and applications … to allow customers, device manufacturers, third-party application developers, and others to use any device or application of their choice on their networks in this band, subject to certain conditions,” Mattey said.

The auction, mandated to be held no later than Jan. 28, might bring in more than $15 billion from interested companies such as AT&T, Verizon and possibly Google.

Before the FCC plan was unveiled, Google made headlines with its $4.6 billion pledge to the FCC to support an open source version of the system whereby the rights holder would become a de facto wholesaler for the spectrum usage.

Google wanted to keep open the C block portion of the spectrum, intended for smaller companies to use, so that the winning bidder could not lock it up with proprietary services and devices.

Though the FCC’s decision means no restrictions on devices or services, Google’s open source solution was rejected, though if Google were to win the bidding it would be free to implement its own proposal. In that scenario, a potential exists for a free, ad-supported network that — by using the 700 megahertz signals that go through walls like TV now does — municipal Wi-Fi and WiMax and possibly even cell phones could become obsolete in a free, open and ubiquitous network.
Critics note there is also no prohibition yet in place to prevent existing carriers with their ready cash supplies from buying the so-called neutral frequencies. That could potentially lead to situations where out-of-town users would be left to virtual monopolies in other regions using different features and services, assuming that their phones worked in those areas at all.

While Mattey is optimistic about the potential benefit that the spectrum could provide consumers, she realizes that the details remain largely yet unknown. “There are so many predicates and assumptions, it’s way too early to know how this is all going to play out,” she said. “Companies will have to refine their business models and bidding strategies, and at the end of the day it is difficult to predict in August 2007 who will win in 2008 and what they will do with it in 2009. There are a lot of moving parts, interdependencies and uncertainties that will need to be determined before we know how it will be used.”

Tim Farrar, an analyst with TMF Associates and president of the Mobile Satellite Users Association, believed that the auction “will be dominated by AT&T and Verizon; they’ve clearly focused on that spectrum with their 850 holdings. Probably Sprint and T-Mobile won’t participate, so it’s really down to Google about how they choose to participate. They’d probably make it go quite expensive, maybe $18 billion all in.”

Farrar surmised that while Google’s open source model might entice them to bid, the more established corporate players might be willing to outspend them to more or less maintain the status quo.

“It’s really down to Google’s decision on how to participate,” he said. “The open access might encourage them. It probably will mean that AT&T will outbid [them]; they will probably have the pockets to outspend Google. It may just be a value loss for them, and they’d not necessarily come out as winners.”

Mattey held out guarded hope that the system’s potential not be limited by a simple dollars-and-cents equation.

“A lot of articles are focusing on winners and losers,” she said, “but one of the questions in my mind is what companies will do with this spectrum, and will it be an evolutionary thing or a game-changing thing? Will putting this into the marketplace in whatever form turn into a watershed event, or will the changes that occur be incremental rather than dramatic?”