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U.S. Spectrum Auction's Impact on Business

No one knows exactly how Verizon will offer its new “beachfront” spectrum, which it won in an auction from the U.S. government in the 700 MHz UHF band recently. But open platform rules may offer un-dreamed of opportunities.
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Imagine a world in which mobile phone companies controlled the Internet, and ran it the way they run their wireless networks. Instead of buying whatever computer you like, you’d choose from a limited number of models offered by your Internet service provider (ISP). The computer would be “locked” -- usable only on that ISP’s network -- so that if you wanted to switch providers, you would need a new one. You would either have to buy a computer, or commit to a long-term contract in order to get a less-attractive model for free. If you wanted to sell your product over the Internet, you would have to pay the provider a cut of every sale.

Now, reverse the image, and imagine a world of mobile communications that works the way the Internet does. There would be no locking -- every mobile device could tap into every network. Your business, like any other, could sell products and services on the network whenever it chose.

This scenario might become reality, thanks to the U.S. Federal Communications Commission (FCC), Google, and Verizon Wireless’ winning bid at the 700 MHz spectrum auction recently.

TV out, mobile in

The auction came about because Congress voted in 2006 to require many UHF television stations to give up their spectrum in favor of digital broadcasts. The FCC was left with the biggest chunk of spectrum real estate to become available in decades, probably bigger than will ever become available again. And it’s nice real estate -- 700 MHz’s lower frequency penetrates buildings much better than the 800 to 1900 MHz mobile phones currently use. This is why the 700 MHz spectrum is sometimes referred to as “beachfront property.”

The FCC decided to auction off its attractive new asset in blocks, with different rules and different reserves governing each block. The most valuable of these was the C Block, which can be used to create a network that would cover the entire nation. For this block, the FCC (at Google’s urging) required that bidders create “a network that is open to any devices and services.”

“Small businesses can thrive”

This rule could completely change the way customers use mobile networks. “Right now, you have to pay a mobile carrier for anything charged over its product,” says Bob Walczak, founder and CEO of Ringleader Digital, a mobile ad serving company. “An open network makes them what they should be, which is just a pipe. Mobile becomes more like the Internet model, where any innovative company or individual can distribute any product. When they don’t have to pay the carriers, small businesses can generate more revenue and thrive in the marketplace. And the marketplace itself can flourish.”

It’s a great vision of the future, but there are few hurdles to clear first. Verizon Wireless, the C Block’s new owner, appears to welcome the open platform rule -- now. After suing the FCC last September to have the rule removed, the company had a very public change of heart, and announced it would make its own network available to “all apps, all devices,” by the end of this year.

But since both devices and apps must be tested by Verizon first, no one knows exactly how this initiative will play out -- or what Verizon has in mind for its new spectrum. The company will have plenty of wiggle room. “There wasn’t much of a description, legally speaking, of what the requirements were,” says Rick Rotondo, vice president of marketing and communications for Spectrum Bridge, Inc., a startup company that is creating a marketplace for trading unused radio spectrum. “If I were a lawyer, I could probably make it mean whatever I wanted.”

Still unclear what the new rules mean for business

It could be a while before consumers and small businesses find out what the new rules mean to them. According to Alan Pearce, president of Information Age Economics, and former chief economist at the FCC, it will be at least three years before the first customer makes the first 700 MHz phone call.

“The TV stations don’t have to clear the spectrum till 2009,” he says. “And then, the equipment manufacturers will have to find out what kind of services will be presented, and what kind of infrastructure will be needed for those services.” It will take a long time to build out the new 700 MHz network, he adds. “But it will be better, clearer, with fewer dropped calls, better coverage, and new types of services not offered before.”

And maybe not even conceived of. “The sky’s the limit as to what services could be provided,” Rotondo says. “The Internet created whole new opportunities for people and businesses in ways no one had ever thought of. Open access has the potential to revolutionize the mobile market in that same way.”

Last updated: Apr 1, 2008

MINDA ZETLIN | Columnist | Co-author, The Geek Gap

Minda Zetlin is a business technology writer and speaker, co-author of The Geek Gap, and president of the American Society of Journalists and Authors.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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