Reasons for Commercial Operators to Bid are Few

We all know that the commercial network operators did not step up and bid on the 700 MHz D Block the first time around. There are many reasons for this and there has been a lot of finger-pointing, so the FCC is once again trying to find a way to make this nationwide private/public network a reality.

But the third Notice of Proposed Rulemaking (NPRM) made public on Sept. 25 casts more doubt than ever over the process and the outcome of the new auction planned for early next year. Today’s FCC is rushing to turn the NPRM into an actual rulemaking before the next presidential administration has a chance to recast the commissioners who would review the process and propose their own rulemaking.

This time around, the incumbent carriers will have only one reason to bid, and even then this might not be sufficient incentive for them to show interest in this auction. The auction rules, as proposed, call for three simultaneous auctions. The first is for a single nationwide license with a reserve bid of $750 million and a reduced penalty for not being able to agree with the first responder community on the details of the network. The next two auctions break the license up into 58 different regions. One auction is for those who would use LTE (the natural migration path for GSM/UMTS network operators) and the other for those who would deploy WiMAX. The rules are so convoluted that if they are allowed to stand, there is little or no incentive for the incumbents to bid in this auction either.

At the last auction, Verizon Wireless bought a nationwide license for a good-sized chunk of the 700 MHz spectrum, and AT&T Mobility added to the spectrum it already owned and filled out its own footprint in at least the top 200 markets. On the surface there is no real reason for either of the top two network operators to bid on this spectrum. While the smaller network operators might be inclined to bid in the regional LTE auction, there is no indication that there would be enough of them for the LTE regional auction to outbid either a single nationwide provider or the WiMAX regional auction.

The WiMAX community would love to have a nationwide swath of spectrum at 700 MHz to deploy WiMAX. For a number of reasons, this is not the best option for the first responder community — but it could become a reality. Clearwire or Intel could easily come up with $750 million to purchase the spectrum, and they would have 15 years to build out the network. They could concentrate on major markets to load the network with paying customers (in addition to the 3 million or so first responders) and take their time building out the rest of the network. The WiMAX specifications, as they are today, would have to be changed to support frequency division duplex and push-to-talk services, but the WiMAX community says that both of these additions already are on its road maps.

Incumbent network operators have no compelling reason, except to give back to the community, for bidding in a new auction that is full of pitfalls and minefields. It might be reasonable to believe they won’t even show up at the bidders’ table next year. However, they just might want to participate to keep the WiMAX community off the 700 MHz band and ensure that the spectrum is used only for traditional 3G and LTE technologies. The question is whether blocking WiMAX will be enough incentive for incumbent network operators to spend what it will take to protect the 700 MHz spectrum.

Andrew Seybold is president and CEO of wireless consultancy Andrew Seybold Inc. in Santa Barbara, Calif. E-mail him at [email protected].