After the Auction, the Real Wireless Wrangling Begins

The wireless spectrum auction is over and the big boys have won the day — America’s two biggest carriers, Verizon Wireless and AT&T, shelled out a total of more than US$16 billion for tons of spectrum.

AT&T, America’s largest wireless carrier, has to dig deep to pay the $6.64 billion it owes, and is tapping operating funds and taking out a loan.

Wireless operator No. 2 Verizon, which bid $9.4 billion for the Block C spectra it purchased, is already working to open up its network in compliance with the rules for the purchase.

Meanwhile, consumer groups are angry that it was business as usual, with the large corporations getting the lion’s share of the spectra.

The White Knight

Google had forced the opening up of Verizon’s wireless network by offering to bid $4.6 billion for the C Block spectra if the FCC would agree to four openness requirements. AT&T and Verizon threatened lawsuits, and the FCC finally agreed on two requirements: that the winning bidders for Block C spectra ensure customers can download and use any applications on the wireless network, and that customers can use any handheld communications device with any wireless network.

Many laud Google for this, but some don’t entirely agree. “It’s easy to be a white knight when you don’t have any money on the table,” Bob Williams, director of HearUsNow.org, an offshoot of Consumers Union, which focuses on telecommunications and media issues, told the E-Commerce Times.

Still, Williams agrees that Google’s actions have had a positive effect. “Before this auction started, there wasn’t any inclination among the big guys, Verizon and AT&T in particular, to open up their networks,” he said. “Since then, they’ve at least announced that they’re thinking about it.”

However, Williams remains skeptical: “Whether it comes to pass, and how, is what we’ll be keeping an eye on them for.”

Verizon Moves Toward Openness

Last September, Verizon announced that it would be opening up its network.

Earlier this week, it held its first Open Development Device Conference, attended by about 300 people from third-party developer firms, releasing version 1.0 of the tech specs for the open portion of its network, which could be in operation by the second half of this year.

Verizon plans to leverage the work of third-party developers of wireless devices, and hopes to follow the desktop PC model, where third-party developers churn out thousands of applications, services and plug-ins.

“If they follow our specifications, developers can develop devices and we’ll just test them for connectivity and, if they pass, the developers can offer the devices and applications to consumers,” Verizon spokesperson Nancy Stark told the E-Commerce Times.

Verizon will not test third-party applications, and consumers “can download any applications they want to the phone,” Stark said.

Charges will be usage-based as they are now, and Verizon won’t have to invest in new infrastructure; “We’ll use our existing network for open development,” Stark added.

Open? Not Yet

The open device requirements for C Block “will help move Verizon and the rest of the industry in the direction of open networks,” Harold Feld, senior vice president of the Media Access Project, said.

That may not really mean anything, however. “I don’t think people are going to stop in droves going to Verizon or AT&T,” JupiterResearch analyst Neil Strother told the E-Commerce Times. “Most people are somewhat satisfied with their carriers even though they complain a lot.”

Then there is the question of blame and breakdown. “You get this open device and you can’t go to your carrier when it breaks down because the carrier won’t take any responsibility. Who do you call?” Strother said.

There are also practical obstacles to third-party devices being successful. “The carriers have developed, over a couple of decades, some very good distribution channels, and replicating them won’t be easy in the short term,” he said.

Finally, will there be any interest in open wireless devices?

“Is the world screaming for another wireless operating system?” Strother asked. “There are so many out there with varying degrees of success.”

Also, the wireless market is fast-moving and, by the time Google does come out with its Android phone, “the carriers will have had time to ramp up” and offer other devices, he said. “Do you think a mass of people will then say ‘Wow! I’d really like that Google phone!’?”

Same Old, Same Old

Consumer advocacy groups were hopping mad that AT&T and Verizon walked away with the lion’s share of spectra.

“This auction proves that major incumbents will always be able to win if they spend enough,” Feld said.

“We were hopeful that the small independent companies could buy in, but didn’t really expect anything,” HearUsNow’s Williams said.

However, it’s not surprising that the biggest players won. “It’s no trivial matter to come up with billions of dollars for the licenses in the first place, as well as hundreds of millions of dollars for the infrastructure,” Strother said. Also, running the business is “a lot harder than it looks, and it’s hard to change consumer behavior.”

Then there is the question of how to run the business. “We’re talking about managing minutes, and customer satisfaction, and setting up customer service teams, and selling and marketing your product,” he said.

There’s another reason small independent carriers will find it difficult to succeed: “There’s a trend in this country towards bundling services, and being a standalone provider with just one slice of spectrum and one technology is a value proposition that’s going to be tougher and tougher,” JupiterResearch analyst Julie Ask told the E-Commerce Times.