Stakes High in FCC Wireless Auction Vote

With the Federal Communications Commission due to vote Tuesday on how to auction off the wildly anticipated 700 MHz (megahertz) band of wireless spectrum, speculation is running rampant about the likely outcome.

The stakes are about as high as they come -- an estimated US$15 billion, according to reports -- and so is the tension. AT&T (NYSE: T) and Verizon have reportedly spent a combined $35 million lobbying for favor, while Google (Nasdaq: GOOG) has officially said it would cough up the required $4.6 billion or more to participate in the auction -- if the FCC abides by its four requirements that would make the spectrum open to any applications, devices, services and networks.

Google and others see the auction as consumers' last chance to break free of the contracts, requirements and closed systems that currently define wireless services.

FCC Chairman Kevin Martin has proposed a plan in which only two of Google's conditions are met, however, raising the question of whether Google will still participate. Whether it does is certain to have a lasting effect on wireless consumers.

The Big Prize

Previously used by TV stations, the 700 MHz band is particularly desirable for its ability to travel long distances and go through the walls of buildings. Now that TV broadcasters are moving to digital distribution, the FCC will auction off those bands in January.

What kinds of access options are offered is a big part of Tuesday's decision.

Whereas today carriers like Verizon and T-Mobile decide what applications can go on consumer cell phones, "open access would allow consumers take their existing phones to the carrier using this open access spectrum," Paul Gallant, a telecom policy analyst with Stanford Group, told TechNewsWorld. "It would also require the carrier using this spectrum to let consumers download any software or applications they wanted to their mobile broadband device."

An Inefficient Use?

Essentially, open access is the option Google is hoping for, at least in part because it would give all mobile consumers access to Google content, regardless of what type of cell phone they use.

Carriers such as AT&T, not surprisingly, have been loath to give up the control they've had for so long, though recently the company did an about-face and said it supported Martin's proposal that just a portion of the available spectrum be open to all devices.

It's also not clear that a free-for-all system would serve consumers best in the long run. "That leaves a lot of good money on the table, and is probably not the most efficient approach to something so valuable," Bill Hughes, principal analyst with In-Stat, told TechNewsWorld.

"The airwaves have proven that unfettered access is not necessarily efficient," Hughes explained. "Once you offer controlled access, on the other hand, somebody has an interest in making sure it's properly taken care of and managed."

'Totally Insane'

The current decision is sometimes compared to the breaking up of a monopoly in the interests of increased competition and consumer choice -- but not everyone agrees.

"I think this whole thing is totally insane," Ira Brodsky, president of Datacomm Research, told TechNewsWorld. "The market has come down to a few big guys, but that's not because the market isn't completely open.

"In any market, once you have margin and choices, you get consolidation -- companies purposely combine for benefits like economies of scale," Brodsky explained. "To pretend that the cellular industry is a monopoly that needs breaking up" is a mistake, he added, and will result in a set of regulatory "handcuffs" on mobile operators. That, in turn, will hurt consumers, he said.

"I think some of these companies are hoping to get regulations that will give them a government-mandated advantage," Brodsky said. "But that would just hurt everybody. The minute you begin to try to create a situation where someone else gets an advantage by law, consumers lose."

Will Google Play?

Whether Martin's proposal will be enough to keep Google in the game is highly uncertain. "It's anybody's guess," Gallant said. "They didn't rule it out."

If Google skips the auction, "it would be easier for today's large carriers like Verizon and AT&T to win," Gallant added. If, on the other hand, Google does get into the auction, "it could create a bidding war with the Bell companies for these valuable airwaves. If Google wins the spectrum, it would create more competition to the Bells and cable companies, which today dominate the Internet access business."

Ultimately, most observers expect Martin's plan -- or one much like it -- to be adopted.

'Hue and Cry'

"I think FCC Chairman Martin's plan for a large license with limited open access conditions -- open devices, open software -- is the most likely outcome," Gallant said.

"Probably the best outcome would be a compromise between all the competing priorities," Hughes agreed, "with some controlled portions and some public access."

Of course, with stakes this high, no decision is likely to gain easy acceptance. "No matter what decision the FCC makes, you can bet it will be challenged in court," Hughes predicted. "There will be a great hue and cry."