| There was a lot of talk and high expectations | | | | become a wireless carrier, even just a virtual one. |
| coming into the FCC's Advanced Wireless | | | | Spectrum auctions also require a fair amount of |
| Spectrum (AWS) auctions this summer. The cable | | | | cash or access to capital. Any smaller players are |
| companies, and satellite companies all made grand | | | | thus, disadvantaged. |
| claims that they were going to buy spectrum | | | | The next thing limiting the MSOs bidding |
| rights, and offer alternative wireless services to | | | | enthusiasm is that they have formed a |
| compete with the cellular phone incumbents. Even | | | | consortium with Sprint. This is a true |
| web companies like Google were rumored to be | | | | complementary relationship, where the MSOs |
| sniffing out the auctions for some licenses. | | | | have high-capacity fixed Broadband plant that |
| However, as predicted by the analysts at | | | | covers the last mile, and Sprint has nationwide |
| Techdirt where I write, it was much bluster | | | | wireless but no DSL. As partners, Sprint and Cable |
| followed by little bidding. | | | | can effectively compete against Verizon or |
| Although the cable companies are interested in | | | | AT&T, which have both mobile and fixed |
| buying spectrum to get into wireless, they are | | | | services. Sprint has a large swath of 2.5GHz |
| more "bargain hunting" than doing essential | | | | spectrum in which it plans to offer WiMAX mobile |
| purchasing. But, how can you expect to grab a | | | | broadband service nationwide (covering 85% of |
| bargain when the other bidders are out of your | | | | the population), and perhaps the MSOs see this as |
| league? Consider the auction-aggressive T-Mobile, | | | | an unbeatable advantage, in which it's better to |
| which is lagging against its cellular competitors, and | | | | "join 'em" than try to "beat 'em". Thus, the Sprint |
| is hampered in offering modern, 3G services by | | | | partnership definitely serves to lower the MSOs |
| spectrum constraints. T-Mobile is the most driven | | | | demand for the AWS spectrum. |
| in this auction, and will certainly bid more than the | | | | Ultimately, despite all the early talk from DBS |
| MSOs (an industry term for cable companies), and | | | | Cable/new entrants, they would face a massive |
| likely more than the other telcos. It's about | | | | bill for infrastructure deployment if they were to |
| survival for them. Other incumbent telcos can also | | | | go wireless. That necessitates access to cheap |
| be expected to bid high, both to get the | | | | spectrum, or else the business model will fail. |
| bandwidth to offer additional services, and to | | | | That's why we never expected much from the |
| block the entry of new competitors…and | | | | DBS crowd in this auction. They're as outgunned |
| even just to aggravate existing competitors. | | | | as Johnny Lunchbox at a Sotheby's art auction. |
| Cingular bought spectrum from Nextwave in | | | | As for the rumors that web companies like |
| 2004, then AT&T Wireless, thus already has | | | | Google would be active in this auction: forget |
| considerable spectrum in many markets, but they | | | | about it. Google is learning through their simple, |
| have cash so should be expected to bid for | | | | one-city-at-a-time Wi-Fi networks that the |
| strategic licenses. Verizon is cash-rich, and has | | | | wireless infrastructure business is very complex, |
| designs to expand services, so they will bid high, | | | | and hardly offers the same share-price multiple of |
| perhaps just more than Cingular. Sprint has plenty | | | | earnings as their current lines of business. Why |
| of existing spectrum all over the chart, so they | | | | would a company with a stock valuation such as |
| can be expected to sit in the rear, and simply | | | | theirs want to get into telecom, where the |
| cherry pick, looking for bargains and to fill in | | | | multiples are substantially less? |
| regional weaknesses. In the end, of course the | | | | For better or for worse, the spectrum auction is |
| mobile telcos (including regional carriers Alltel and | | | | just another situation where the incumbents and |
| US Cellular) are likely to bid higher than the newer | | | | the big dogs dominate. There has been ample |
| entrants. So why is that? | | | | arguments that this lowers the net benefit to |
| In general, the mobile telcos are investing in | | | | society, and thus the FCC has historically taken |
| property rights which have proven to be of value | | | | measures "give a leg up" to smaller participants. |
| to them, and in which they have proven their | | | | Smaller bidders have been offered 25% discounts |
| ability to exploit. They have the expertise to utilize | | | | and preferential financing terms that were not |
| the spectrum, and to extract more value from it | | | | accessible to the big dogs. But the outcome of |
| than MSOs or new entrants. This is not solely | | | | these measures was just systematic abuse; |
| because of expertise, but also because of | | | | wherein the big players were fronted by smaller |
| pre-existing investment in technology, staff, | | | | bidders. Effectively, the same big companies won |
| tower real estate, nationwide retail facilities, | | | | the auctions, while also accessing the discounts |
| switching equipment, service layers, roaming | | | | that were intended to put them at a |
| relationships, vendor relationships, volume | | | | disadvantage. The FCC has worked to avoid |
| purchasing scale, and other advantages that new | | | | letting the incumbents access the discounts this |
| entrants in wireless do not share. Take, for | | | | time, but has offered little to actually put small or |
| example, the rough start the MVNOs such as | | | | new bidders on equal footing – but really, |
| Amp'd, ESPN, and Disney are having in the USA | | | | how could they? The advantages of the |
| – it's not easy, cheap, or risk-free to | | | | incumbents run deep; expect them to dominate. |