In contention are two competing philosophies: a more open, neutral network vs. a managed, traditional one. Consumers, providers, and device manufacturers all have a strong vested interest one way or the other, though no matter who wins, a wide variety of devices will probably be supported.
The 700 MHz spectrum's nationwide C block, which will become available in early 2009 when it is abandoned by analog television networks moving to digital, has gained a lot of press for its potential as a high-speed data network and for its FCC-mandated "open access" provision. This provision states that operators must
These provisions were included at the behest of Google -- seen as a potential bidder -- which wanted the "open access" rules to go further, including provisions on the leasing of spectrum to third parties. Traditional telecoms, including AT&T and Verizon, fought these restrictions, and Verizon briefly filed suit to stop them, although that action was later withdrawn. Perhaps feeling regulatory pressure, Verizon even embraced "open access" for devices and applications on its current network.
Even these reduced restrictions are up in the air, however. The most valuable of the properties up for auction, the commercial-designated C block, has a current top bid of about $3.7 billion – and a minimum bid of $4.6 billion is needed to prevent the FCC from re-evaluating the auction and possibly removing restrictions. Other segments, including the emergency use-designated D block, have also failed to meet their minimums as of this writing. The public can follow the top bids at the FCC's website for the 700 MHz band.
The bidding, which is anonymous, is a long and complicated process that could take as much as a month to complete, but there are a few likely scenarios that could affect the U.S. market for mobile devices once the spectrum begins to go live. Tole Hart, a research director with Gartner, has been following the spectrum auction and agreed to provide some perspective on the bidding war for the C-block spectrum.
Outcome: A major telecom, particularly AT&T or Verizon, wins
Likelihood: "I think [Verizon] will come out for the C Block," Hart said. "AT&T should be interested too." He believes that the two giant companies – as they feel out the bidding process -- may push each other into more intense bidding.
What would happen:"Verizon has already claimed to have open networks, so you'll be able to run any device on the network, as long as the device clears the certification for that network," Hart said. "It'll be open access, it just depends on the business model and what Verizon charges for that open access." For most of the major wireless providers, voice revenue is declining as a result of fiercer competition and market saturation, while data is becoming the best source of growth. It is in the networks' interests to keep that network open to any device that will require data services, including not just cell phones but gaming devices, e-readers like Amazon's Kindle, music players, and any number of other types of hardware that could benefit from connectivity.
Data throughput is likely to increase, and over the next several years the network is likely to be built out extensively -- per FCC requirements that the winner provide access to 75% of the purchased area within 10 years.
What probably will not happen, however, is the opening of that network to competitors. The wholesale provision was struck from the FCC at AT&T's behest, and once the billions are spent to buy and deploy the network, the telecoms will most likely keep it closed to other providers who might cannibalize their market.
What it means for devices: The outlook is still healthy. While the winner will probably want to make sure that it is the one providing the access, it will most likely be happy to charge you for any kind of access you want. Providers, like Sprint with the Kindle deal, have already shown themselves willing to creatively strike deals, and that trend is likely to continue as providers seek to increase non-voice revenue streams.
Outcome: Google wins
Likelihood:"I think it's unlikely, just because they have to spend money on the spectrum and then build out the spectrum," Hart said. While Google made a lot of noise early on, and even put a dollar amount on what they would bid ($4.6 billion), it may have been a feint to ensure that open network provisions were included.
What would happen:: "If [Google does] win it, they'd probably outsource it," he said. "What they really want is open access so they can sell advertising and offer services." Hart pointed out that Google's core competencies are not fit for the customer service demands and network deployment that running a service provider requires.
What it means for devices: "Since there's no clear business model for them, they would probably roll out the spectrum wholesale to other networks," Hart said. While the provisions did not go as far as Google had hoped, they did assure that any applications the company rolls out in the future will be able to use the network. So it is in Google's interest to lease the spectrum to multiple providers, keeping the network device-agnostic while pushing its own services and advertising network. Look for a wide variety of devices, perhaps with a strong emergence of the Android platform as a way to deliver subsidized access in return for targeted advertising.
Outcome: The regions are carved up by smaller telecoms
Likelihood:"For the C block, probably not," Hart said, noting the spectrum's value as a national network and the larger telecoms' interest in it.
What would happen: "The way they're kind of set up now, it depends on the region," he said. "For some areas, they would probably offer service in the bigger cities and set up service along highways, so it wouldn't be a big change there." Other providers might use it to upgrade their network to provide next-generation access. Overall, most of the segments would probably be technically interoperable, and agreements might be forged to allow inter-access between the regions.
What it means for devices: Most likely, not much different than if the bigger players won -- open access to any devices that meet interoperability standards and are willing to pay for access. "That's kind of the way the market's going, toward open networks," Hart said. "Your next revenue stream is wireless data, and customers want a wide variety of services."
Outcome: Bidders fail to meet the reserve
Likelihood: "I think it will be met," Hart said.
What would happen: "I think they'll rethink what they want to do with the spectrum. They might tweak the restrictions a little more, but it's hard to say," he said. If it does fail, the process will probably move forward quickly. A quick retooling of parameters, and another bid might be ready in as little as six months, before the 2009 opening of the spectrum, he said.
What it means for devices: Hart said he didn't think a delay would upset the market too much, as long as the FCC began the rebid process quickly; and even if the restrictions are removed, the winning bidder is likely to follow the spirit, if not the letter, and allow open access to a variety of devices.
Final Predictions: Hart said the bidding for the C block is likely to hit $10 billion to $15 billion, well above the current sum. And no matter who gets that spectrum, consumers and enterprises alike will probably see new uses for the spectrum to connect with or without a phone.