Winning Bidders Spell Out How They'll Use Their Spectrum

Though the basic outcome of the Federal Communications Commission wireless spectrum auction has been known for some time -- Verizon Wireless and AT&T (NYSE: T) won major chunks of the spectrum while Google was shut out -- responses to the closely watched event came fast and furious Thursday as the anti-collusion quiet period ended.

Verizon plans to use the wireless spectrum it won in the auction to expand its menu of high-speed wireless services, while Google (Nasdaq: GOOG) also claimed victory in the auction even though it did not submit a winning bid.

Verizon disclosed its plans for the spectrum it obtained, including a national footprint -- covering all but the state of Alaska -- as well as more than 100 local licenses during the lengthy and complex auction process. In all, Verizon said it was on the hook to pay US$9.36 billion for the licenses it acquired.

The spectrum will not be activated for nearly another year, but Verizon said it will use it to launch its Long Term Evolution, or LTE, network that will enable faster and more robust connectivity for smartphones, medical devices, gaming consoles and a host of other consumer and business tools.

"The spectrum we purchased in this auction, combined with our existing portfolio, provides new flexibility as we execute our high-growth business model," said Verizon Wireless CEO Lowell McAdam, adding that the spectrum will carrying Verizon's growth strategy "well into -- and possibly through -- the next decade."

Losers and Winners

Google also claimed victory in the auction process, even though it did not emerge having filed any winning bids.

Because the base price of $4.6 billion for the main "C block" of spectrum Verizon won was exceeded, Google said, the winners of the auction must ensure the spectrum remains open to all devices and services, Google attorneys Richard Whitt and Joseph Faber wrote in a post to the official Google blog.

"Partly as a result of our bidding, consumers soon should have new freedom to get the most out of their mobile phones and other wireless devices," they said.

Whitt and Faber also disclosed that Google was high bidder for the "C block" for several days during the first phase of the auction.

"But it was clear, then and now, that Verizon Wireless ultimately was motivated to bid higher -- and had far more financial incentive to gain the licenses," they wrote. "Based on the way that the bidding played out, our participation in the auction helped ensure that the C Block met the reserve price. In fact, in 10 of the bidding rounds, we actually raised our own bid -- even though no one was bidding against us -- to ensure aggressive bidding on the C Block. In turn, that helped increase the revenues raised for the U.S. Treasury, while making sure that the openness conditions would be applied to the ultimate licensee."

Google's main interest was in keeping as much of the new spectrum open as possible so it can declare a victory of sorts, Enderle Group Principal Analyst Rob Enderle told the E-Commerce Times.

"Their goal was to ensure some openness for their services in the future," he commented. The timing should also work in Google's favor, with some handsets based on its Android open mobile phone platform expected to be rolled out to market by the end of this year, not long before the switch is flicked on the new spectrum.

Rolling Out New Mobile Tech

For its part, AT&T said its own strategy of steering clear of the auctioned "C block" of spectrum -- on which the FCC placed the openness restrictions -- was the right one for it to follow. AT&T picked up mainly "B block" spectrum in the auction. AT&T also bought some of "C block" spectrum directly from Aloha Partners, a transaction not covered by the FCC's openness restrictions.

"With fewer costly and complex regulations, we have the certainty and flexibility needed to move faster in rolling out new mobile technology and more customer choices in devices and applications," said AT&T Mobility President Ralph de la Vega. "We will put our spectrum to work so that customers can do more with their wireless devices, the user experience is superb, and wireless connectivity can be embedded in more devices."

With AT&T steering clear of the open access mandate, that puts the focus on Verizon's moves to open its network, said Yankee Group analyst John Jackson.

The FCC's openness mandate will likely require rules or other clarification going forward, and Verizon will want that mandate weighed against its ability to recoup the investment it made in the spectrum, he told the E-Commerce Times.

"With specific guidance from the FCC, Verizon will be able to determine how that openness works," Jackson said, noting that the carrier's toolbox for ensuring it recoups its investment includes how its prices access to that new spectrum.