• by Laurie Sullivan , March 24, 2008

AT&T and Verizon sealed the deal last week on a slew of airwaves that could open new revenue streams for advertising and marketing agencies and provide consumers with better experiences on mobile devices.

The carriers spent billions of dollars to secure parts of the spectrum. AT&T paid out $6 billion; Verizon more than $9 billion. The auction included an "open-access" provision that would allow users on about one third of the airwaves to use any phone or software.

The open-access provision sent cheers through the advertising and marketing industries, but analysts--who know the network could take years to build and won't generate significant income for several more --were taken back by the financial investments.

"This is a big hole in the carriers' finances for several years to come," says Jan Dawson, a telecom analyst at research firm Ovum. "AT&T's purchase of Aloha looks like a smart move, though it still spent a truckload at the auction, but Verizon was the big spender here."

Reminiscent of the 3G auctions that took place in several countries eight to 10 years ago, Dawson says, AT&T and Verizon will likely use the spectrum to expand capacity on their existing networks, as well as to build forthcoming 4G networks, although that's a long way off. He notes that locking in the airwaves is a major step toward next-generation services. As AT&T and Verizon drive growth in data offering, it will become important that both have sufficient support for ads, as well as video and other consumer services.

Services made possible by the 4G network should replace limitations and latency with innovation and faster bandwidth rates. Sophisticated ads will likely emerge, creating new models on phones, such as video overlays and richer content, similar to those seen on the Web through PCs, according to Mark Pearlstein, SVP/business development at mobile ad network Ringleader.

"We saw this with online ads, which started with simple banner ads, video and then flash," Pearlstein says. "The same thing will happen in the mobile space with video. You also will see mobile-specific applications being written. For example, your phone could become the central hub in the car via Bluetooth."

The phone becomes the connection device to serve ads into the car. The ads are distributed through the phone, but mobile ad networks like Ringleader will need to know if the consumer views the ad through the handset's three-inch screen, or the video player for the kids in the backseat. Publishers, such as Cellfish, Newsweek Interactive, Washington Post, ToneThis, Go2 and Yahoo that Ringleader works with will need to know, too.

The ultimate winners of the 700 MHz auction are likely to become ad and marketing agencies, content providers and the Internet companies that have increasingly felt stifled by the lack of control. "They are objectively much better at creating compelling customer experiences and understand customers in ways that mobile operators have barely begun to understand," according to a research note from IDC analyst Scott Ellison.

While both AT&T and Verizon declined to disclose long-term plans for their purchase, both issued statements regarding the Federal Communication Commission's auction results.

AT&T said the company's 700 MHz spectrum will cover 100% of the top 200 markets. It gives AT&T the spectrum needed for new services covering 95% of the U.S. population, and continues to offer "the latest technology and best-in-class services to our customers as the wireless industry grows and evolves."

Verizon, although equally pleased with the FCC's decision, appeared to be less forthcoming about future plans. "We were successful in achieving the spectrum depth we need to continue to grow our business and data revenues, to preserve our reputation as the nation's most reliable wireless network, and to continue to lead in data services and help us satisfy the next wave of services and consumer electronics devices."