A prime piece of invisible real estate is going up for auction this week, and the winners of the $10 billion virtual land grab have the potential to shake up wireless communications in the United States.
The property in question is a sizable swath of the country's radio spectrum that television broadcasters are returning to the government as they convert from analog to digital systems. The frequencies, known as the 700 megahertz spectrum, are ideal for wireless communications, and 214 bidders will vie for the rare opportunity to nab a piece of the coveted spectrum. The list includes Google Inc., Verizon Wireless, AT&T; Inc. and even companies with no obvious telecommunications interests, like Chevron Corp.
The auction could have far-reaching consequences for the industry and consumers, as heightened competition among carriers will increase choices for customers and push down prices. Two blocks of spectrum are configured for nationwide wireless coverage. Winning one of those blocks would allow a market leader to significantly bulk up its network or add a newcomer to the mix. As for the smaller blocks, more spectrum could strengthen a regional provider or bring coverage to rural residents.
The frequencies can handle both traditional voice service and high-speed data, facilitating the rollout of more sophisticated services like streaming media. And if Google has its way, cell phone users will have a wealth of additional choices in carriers and handsets.
The Internet titan successfully lobbied the Federal Communications Commission to require that the winner of one of the largest spectrum blocks open its network to all compatible technology. This would dismantle the wireless industry's "walled garden," where carriers dictate which handsets and services they will support.
At least partially in response to assaults on the walled-garden approach, Verizon Wireless has said that later this year it will allow any devices to connect to its network that meet its technical operating standards, reversing its long-held policy of complete control.
Erosion of the traditional business model would be welcome to consumers like Chicagoan Emily Leung, 28, who wants to get a Palm smart phone but has to wait out her current contract with U.S. Cellular, which doesn't offer those phones. Leung's friend, 27-year-old Carolyn Chong, has been with AT&T; for six years but wouldn't mind greater flexibility in choosing handsets.
"LG has a lot of really awesome phones that are available in Europe but not here," Chong said. "You can get one, but you have to bring it back here and unlock it, and it's a whole process," she said in referring to South Korea's LG Group.
An open industry would also make more services available. Experts say it's likely that next year cell phone users will enjoy an experience closer to what they now get on their wired computers.
"Consumers who use Gmail on their PC want to continue using it on their mobile device," said Hamilton Sekino, a partner with Chicago-based Diamond Management & Technology Consultants.
Incumbent carriers might be reluctant to relinquish control. But they can no longer count on recruiting new customers for revenue because cell phones have spread to most of the population, and growth in voice traffic is losing dynamism. Companies have to make their data services more attractive to stay competitive, and opening new spectrum will accelerate this trend, Sekino said.
Google wants to hasten this change, and its desire for a revolution in the way consumers wirelessly access the Internet landed the company in the auction, said Robert Rosenberg, president of Boonton, N.J.-based Insight Research Corp.
"To be revolutionary, you want to get in there with a bang" and buy spectrum, Rosenberg said.
But Google's exact strategy is unclear. Another observer, John Byrne of Technology Business Research, said "Google is really the big X in this auction."
For Fred Boxa, a Chicago-based consultant with IBB Consulting, Google accomplished its goal by getting the FCC to require open networks for the choice block of spectrum. Boxa believes "Google will place its $4 billion minimum bid to be polite" but refrain from an aggressive bid.
If Google bows out, it will disappoint consumer advocates who want the company to counterbalance the market power of Verizon Wireless and AT&T.; Gigi Sohn, president of Washington-based Public Knowledge, said Google is the consumer's last chance for a new national competitor and she is "cautiously pessimistic" about that happening.
Sohn said she felt that the withdrawal of Frontline, a venture by a group of Silicon Valley investors that fell short on funding for the auction, "was a real blow." Frontline had planned to build its own national network if it won.
But even if the auction doesn't produce a new national wireless operator, it will spawn enough local and regional players to assure consumers more options and lower prices when they go online, experts said. Rural consumers will have choices of broadband wireless Internet service for the first time.
"In rural areas, fewer than a third of people have access to broadband other than satellite, which provides half the speed at twice the price of what city people get," said Jeff Kohler, founder of JAB Wireless Inc., a Denver-based wireless broadband operator. "Competition will bring lower prices for everyone."
The auction starts Thursday with spectrum divided into five blocks, with some blocks divided into as many as 734 individual regions across the nation. To maximize the auction's results, the FCC has forbidden bidders to say anything publicly about their bids, strategy or anything else regarding the auction.
The FCC will post winning bids in each category but won't name the bidder. Final results, when bidding is completed, are expected in March. Winners won't be able to use their licenses until after February 2009, when the change from analog to digital TV occurs. Consumers could see new services, handsets and applications as early as summer 2009.
Jon Van and Wailin Wong write for the Chicago Tribune.