Wireless Spectrum Auction 101
A Short Guide to the Sale Happening In Everyone's Backyard
SOURCE: FCC
Yesterday, the Federal Communications Commission began auctioning off licenses to a portion of the 700 MHz band of the radio frequency spectrum. Regional licenses, shown above, would facilitate construction of of wireless communications networks across the country.
Yesterday, the Federal Communications Commission began auctioning off licenses to a portion of the 700 MHz band of the radio frequency spectrum. The decisions of companies that win those national licenses will determine the shape of wireless communications in the United States for years to come. New networks operating in this portion of the spectrum have the potential to improve U.S. communications capabilities, or to further long-term trends limiting the public’s access to the airwaves. Currently, television stations broadcast analog signals in the 700 MHz band. Beginning in 2009, many full-power TV broadcast operations will go digital and move out of this coveted portion of the spectrum, which the FCC refers to as “beachfront property.” Science Progress has prepared a short guide to understanding the basics of the auction, the technology involved, and the implications for the future of wireless communications in the U.S.
The Spectrum
Broadcasters will return the 700MHz spectrum to the government in the transition to digital television scheduled for February 17, 2009. The FCC will retain control of two major blocks within this band for public safety use. Several remaining blocks will be available for bidding in Auction 73, which began yesterday, Jan. 24.
Why are these frequencies so important? The 700 MHz band has ideal physical properties for broadband and cellular services, as signals operating in this frequency can penetrate barriers like building walls and travel longer distances with little distortion than signals operating over other frequencies, making it easier to reach more people.
Below is a graphic detailing the license blocks up for auction, along with the TV channels to which they currently correspond:
For more information on geographic areas covered by each block, see the FCC’s information page for Auction 73.
The Auction
To facilitate the sale, the FCC is holding a standard English Auction in which each round of bidding raises the price until auction participants drop out, leaving only one high bidder for each license. The process will take place primarily online. Congress granted the FCC authority to auction spectrum licenses in 1993. Briefly, during the Reagan administration, licenses were up for grabs in lotteries. For nearly 50 years prior to that era, companies looking for a piece of the spectrum pie competed against one another, arguing their cases in hearings before the commission. According to the General Accounting Office and the FCC, spectrum auctions are successful because they are more efficient than hearings or lotteries, and because they raise revenue for the government. In this case, estimated proceeds from the auction will be at least $15 billion.
Revenues are one thing, but what of the public value of the technologies companies will build that capitalize on the available spectrum? A Wall Street Journal column from 2006 quoted Thomas Hazlett, a former FCC economist: “Congress is spending too much time looking at auction revenues and not enough time looking at the gains to the economy from having more productive use of spectrum.” According to a 2006 report from the Center for American Progress, past auctions have been susceptible to bidder collusion and large-scale mis-pricing by the FCC.
Two hundred and sixty-six companies applied to participate in the bidding for the 1,099 available licenses. Along with their application, the companies were required to include a substantial upfront payment.
Last week, the FCC held a mock auction for bidding companies to familiarize themselves with the auction process. Once the auction begins, companies are forbidden to discuss their bids, make them public knowledge, or even know the identity of other bidders. Furthermore, participants must cease business discussions with one another until the process is over, including talks about mergers or partnerships. These rules aim to prevent both collusion between companies trying to keep prices down and retaliatory bids from one company signaling to another that rivals are encroaching on “prized” licenses.
The entire auction cycle will likely take two months, at which point the high bidders can make public their winning bids in order to negotiate with partners and losing bidders.
Opening The Network
The FCC decided to split the available 60 MHz of bandwidth into five blocks that have been paired with an upper and lower portion of the band to allow separate up-link and down-link capabilities (see the above graphic). The C block in particular has generated headlines over the past few months, as acquiring all twelve licenses would result in complete national coverage (see map below). The minimum bid for the C block is $4.6 billion. The D block will also provide national coverage but its single license will come with the requirement that the winning bidder enter into a public-private partnership to develop a network for emergency first responders.
Adapted from FCC map and band plans for Auction 73.
Google made headlines in 2007 by working with other Internet companies and consumer groups to pressure the FCC to attach conditions to the C block licenses mandating that auction winners open their network, permitting consumers to use any compatible device or software. Verizon announced plans in November that it would open its network to outside devices this year.
Open access to these wireless networks could revolutionize the way telecommunication companies do business. With an open platform, consumers, resellers, and business would have an unprecedented amount of access to the licensee’s network. Consumers would be able to use any software applications, services, content, or devices they choose. Third parties would be able to buy wireless services at wholesale and connect to the 700 MHz network from any point. Open access will likely lead to greater competition, innovation, and lower prices—all of which are stifled by the current proprietary network approach.
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