FCC Kicks Off Closely Watched Spectrum Auction

The Federal Communications Commission began its long-awaited 700 megahertz wireless spectrum auction Thursday, setting in motion a process that could help determine how — and by whom — next-generation wireless services will be delivered.

The FCC has said the auction could raise more than US$15 billion for the federal government. The spectrum also represents one of the last significant chunks of wireless airwaves the agency has to sell off and is seen as more robust than other parts of the wireless spectrum. For instance, signals can penetrate walls and other barriers and carry over long distances.

The agency has spent several months laying out the ground rules for the auction — known formally as “Auction 73” — and qualifying bidders, which at one point included a range of established telecommunications companies, newcomers and players from other fields, such as Google.

The First Round

The timing of the auction may mean the spectrum sells for less than originally thought. The stumbling stock market and tight commercial credit environments may have limited some would-be bidders’ efforts to have a role in the auction.

The FCC closed the first round of bidding — it has scheduled three more already and can call as many additional rounds as it feels are needed to complete the sale — midday Thursday. A second round of bidding was slated to conclude by late afternoon.

The FCC has received just over $2.4 billion worth of provisional bids in the first round. More than 1,800 bids had been received and 214 different applicants had been cleared to bid. Top bids in that round helped set the minimum price for the second round. For instance, one nationwide block had a high bid of just over $1 billion, with a minimum bid price of $1.2 billion set for the second stage of bidding.

Range of Action

Bids remain anonymous throughout the process, and companies involved are under orders not to discuss the auction, a rule meant to prevent collusion among bidders.

The spectrum being offered will be freed up by the shift to all-digital television signals, on track to happen early next year. Some of the spectrum is being made available in regionally specific blocks, such as areas in and around major U.S. cities. Others cover entire states or multi-state regions and all of it is seen as ideal for offering high-speed wireless services capable of moving large amounts of data, such as video downloads.

In addition to bad timing in terms of the stock market, other factors have changed since the auction was first scheduled as well. For instance, Google at one time said it was prepared to spend up to $4.6 billion in the auction — if the FCC would require that successful bidders keep the spectrum they won open to a variety of services and devices. The FCC agreed to set aside a third of the spectrum for open access.

Since then, however, Google has won direct concessions from several major wireless carriers who agreed to work on more open networks that will guarantee access for Google services and Google-backed devices.

While some newcomers, such as Google, had threatened to crash the spectrum party, the dominant wireless carriers — AT&T and Verizon, for instance — are seen as the most likely winners in the auction. That prospect is troubling for some activists, such as Washington-based Free Press, which is pushing for wireless competition.

Spurring Innovation?

The spectrum auction represented a significant opportunity to inject the type of competition that spurs innovation, said Ben Scott, the group’s policy director. At one time, he noted, the spectrum was being hailed as a potential competitor to the dominance of cable companies and telecoms in providing another choice for high-speed Internet access.

While the FCC did respond to calls for openness by requiring some spectrum be open to all devices and services, the remainder of the spectrum may be acquired by carriers with little motivation to change the way wireless services are delivered in the near-term.

“We’ve lost a huge opportunity if this auction fails to deliver new service providers to the wireless industry,” Scott told the E-Commerce Times.

How Long to Wait?

Still, others say the variety of bidders who have come forward suggest the status quo won’t necessarily remain after the auction. Among the bidders is oil company Chevron and smaller wireless carriers such as Alltel and MetroPCS.

Google’s presence alone — the search company said it would position itself to bid on the “C” block of spectrum, which must remain open to all devices and services — underscores how new players are impacting the wireless industry’s approach to the auction, JupiterResearch analyst Michael Gartenberg told the E-Commerce Times.

“Everyone is much more aware of the relationships that will be needed to have real robust services on this new spectrum,” he said. “No one can ignore the implications down the road of what they do now.”

Still, others are noticeably absent, including Frontline Wireless, a company founded last year by Reed Hundt, a former FCC chairman, specifically to go after the newly available spectrum. That company shut down earlier this month after it was unable to raise all of the $128 million down payment the FCC was requiring for its interest in the auction.