FCC Spectrum Auction: What's Google on About?

Forget "Live Free or Die Hard." This summer's major action adventure is the debate over the Federal Communications Commission's planned 700MHz spectrum auction, scheduled for January.

The story so far: Analog TV will be retired in 2009, freeing up a big chunk of spectrum for wireless networking. The relatively low frequencies involved (700MHz compared to Wi-Fi's 2.4GHz, for instance) means this spectrum essentially offers more bandwidth for the buck. Lower-frequency signals require less power and therefore lower cell density, which translates to lower operational costs for carriers.

Spectrum traditionally is allocated by an auction in which telcos try to outbid each other, in the process driving up the value of the spectrum. (The proposed auction is estimated to bring US$20 billion to $50 billion into the federal treasury). In addition, winners get to do pretty much as they choose with the spectrum they've purchased.

A few weeks ago, Google attempted to do an end run around this model by pledging to bid $4.6 billion for a chunk of spectrum -- but only if the whole shebang came with two constraints:

Open access. As with today's landlines, winning bidders would need to relinquish control of end devices.

Wholesale resale. Winning bidders would be required to resell their bandwidth wholesale to other firms (basically a setup like that of competitive local exchange carriers [CLEC] back in the '90s).

In other words, in Google's proposal, bidders couldn't recoup the cost of their investments by building closed networks.

Much as I mistrust Google's manufactured air of moral superiority (not to mention its motives), I think the company has a point. Open access has proved to be an excellent competitive stimulus in the wired world, starting with the Carterfone decision in the late 1960s that created the competitive telecommunications market of the '80s, and '90s.

Wholesale resale? Not so much. It's never worked in the wired world (the CLEC market of the 1990s imploded rather dramatically).

More to the point, unlike open access, wholesale resale essentially is anticompetitive. Open access prohibits providers from shutting out competition. Wholesale resale, in contrast, dictates how companies must package their services -- basically making regulators into product managers.

In other words, if Google wants to buy spectrum and resell the bandwidth -- great. But why should it get to tweak the rules to force everyone else to do likewise?

That said, trust carriers to turn this into a showdown. AT&T has staked out a middle path, supporting open access but balking at wholesale resale. Verizon, however, is threatening that if it doesn't get its way, the telcos will take their bidding dollars and go home, thereby cheating the "public" (aka the Feds) out of the "value of the spectrum" (aka whatever large companies are willing to pay to lock in their profits).

Not likely. The regulators can't afford to let that happen. Don't forget: The Feds must be fed. Regulators won't let that $50 billion turn into $5 billion without a fight -- and we're gearing up for a doozy. It's shaping up to be a heck of a show. So sit back, grab some popcorn and enjoy.

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