Verizon, AT&T Control Bandwidth--But What Will They Do With It?

The $19.6 billion raised by the federal government's auction of the analog spectrum will barely ease the $263 billion national deficit. But it will make Verizon, AT&T and Google (by default) bigger power brokers in an exploding wireless digital marketplace.

For the winning bidders, the spectrum is a rare opportunity to change the complexion of the wireless mobile scheme by directly managing applications and platforms, some of which don't yet exist. For Google, one of the losing bidders, it is assured open access to the additional spectrum and existing cell phone networks without spending a dime. As a minimum reserve bidder, Google achieved its goal of securing Federal Communications Commission guarantee of open access to the new 700 Mhz spectrum and existing networks for consumers to combine applications and devices from all sources.

Focus now shifts to the influence top players will have controlling recycled bandwidth. Verizon Wireless, co-owned by Verizon Communications and Vodafone Group, won the largest national block of spectrum, spending $9.4 billion, while AT&T snared a smaller but sizable cluster of 227 regional licenses for $6.6 billion.



Although Verizon made no mention of an open network, it not so coincidentally hosted a developer conference in New York the day before it became the auction's winner. Verizon Wireless said third-party sellers of devices and applications will need to meet its minimum technical requirements, handle its own marketing and distribution, and use Verizon's customer support. Details on opening all or part of Verizon's spectrum to third-party devices and applications are scarce. Even more scarce is clarification of how the FCC plans to enforce it.

Surely, Verizon, Google, the FCC and others will complicate matters with different definitions of what constitutes "open access." Analysts anticipate a brawl over whether and how much Verizon can charge Google for access to devices over its network, or charge consumers for using Google and other "open" applications. In the end, there likely will be no new players and no radical change in the competitive landscape--the only way to keep prices down and diverse offerings high.

Whether these new provisions are enforced and truly render an open exchange of applications and devices is anyone's guess. Major carriers' walled gardens are not likely to crumble that easily. Although there is promise in the growing trend among major players to open their platforms and devices to third-party developers, results will partly depend on consumers exercising open choice.

To that end, a separate "D block" of spectrum reserved for public safety use failed to raise the minimum $1.3 billion bid; it will be held in reserve pending FCC review. The public safety requirement could be scraped, and the remaining spectrum could be auctioned as a commercial block. So much for using the spectrum and digital technology for the greater good.

The true success of the much-ballyhooed reassignment of spectrum will be whether it amounts to more than making the big even bigger. Regional slivers of spectrum were licensed to EchoStar Communications, Cox Communications and Paul Allen's Vulcan Capital and a handful of smaller players, such as Qualcomm and MetroPCS. The more than 260 rounds of bidding nearly double the $10 billion in projected proceeds.

If Google is the biggest winner, as many suggest, it is because it commands the most relevant dominant services and applications across all platforms and devices. Its share of the search market is 70% and rising. As interactive advertising becomes the backbone of all things digital, Google will emerge as the leading broker of the links between commerce and consumers. Verizon, AT&T and others may own the spectrum foundation for a wireless mobile world, but Google will be the gatekeeper of essential interactive services.

The only consumer protection that may come between these giants and the estimated 250 million Americans (or more than 85% of the U.S. population) that use mobile phones is a proposed wireless user bill of rights being contemplated in Congress and in more than 20 individual states. Stifel Nicolaus provides a reliable, detailed ongoing analysis of the legal and regulatory wrangling between wireless players and the FCC. It paints a chaotic picture that is not conducive to any such efforts. Especially peculiar is the complicated fight between the FCC and Sprint Nextel over orders for the carrier to vacate its 800 Mhz spectrum by 2009.

With the recent collapse of private corporate franchise efforts to build and operate municipal wireless urban networks, consumers are at the behest of wireless carriers, and platform and applications giants with their own commercial agendas. One more shot at bringing new players into the fold may come later this year, when the FCC reallocates the unused broadcasting "white space" between occupied DTV channels for broadband and mobile applications, according to the New American Foundation. Broadcasters oppose the move, claiming that the use of this white space by mobile broadband devices could interfere with their DTV reception.

Since most TV broadcasters are still struggling with lucrative ways to utilize their mandated digital infrastructure once analog is yanked in February 2009, this could be a useful jolt for station owners without a solid game plan. There are plenty of powerful, savvy players who will instantly monetize the digital spectrum if you don't.

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