Cellcos face challenge from satellite, cable cos in AWS auction

Top 10 bidders commit $4bn in upfront fees

Number 10 in the upfront payment rankings, US Cellular, is the largest rural carrier to show interest. It has been expanding its spectrum holdings aggressively in the past year, perhaps with an eye on a possible acquisition bid from T-Mobile USA. Its holdings are mainly in the Midwest and far West.

Another interesting bidder, though not in the top 10 upfront spenders, is one of the two holders of current 700MHz licenses, Aloha Partners (the other is Qualcomm). This may be just as a financial investment, since Aloha is largely a spectrum trader, or could be designed to supplement its joint venture with satellite delivery company SES, Hi-Wire, which is creating a mobile TV network in the 700MHz band to compete with Qualcomm's MediaFLO and Crown Castle's Modeo.

Aloha pledged an upfront sum of $52m. Whatever its success in this auction, and whether or not it runs its television network as a business or sells it on to a larger entity, it will certainly be seeing the value of its national 700MHz license enhanced almost by the week as interest in this band heats up.

This increasing value, and the potential of 700MHz as a catalyst for major restructuring of US wireless services, will make the FCC's task in setting auction rules a delicate one. The regulator is currently examining the rules and considering a change in how spectrum is divided up, as well as renewal periods. It is required to begin auctioning licenses by January 28 2008, but the licenses that it will auction are currently set to expire in 2015—giving auction winners only a handful of years to operate their services.

Thus, the FCC is opening up the expiration date to comment from industry. It is also seeking "comment on the possibility of modifying the size of the geographic service areas and spectrum blocks, and on revising the performance requirements", as well as opinions on license terms, license-exempt allocations and power limits.

Specifically, it could change the licenses to align with cellular geographic marketing areas, or create smaller geographic areas to stimulate very rural build-out, rather than sticking to regional blocks based on the current Economic Areas.

"Smaller providers need a fighting chance to bid against the large national carriers for spectrum that is ideally suited for rural broadband applications," said FCC Commissioner Michael Copps - although this could diminish the commercial usefulness of the spectrum by fragmenting it among small players with little money to invest in new services, and play against the vision of a national next generation multimedia system as envisaged by Intel and others.

Again, this demonstrates how the two chief benefits that could be derived from 700MHz - greater rural access and a more rapid, profitable route to '4G' services, may be at odds with each other.

The FCC's difficult task will be to create a balance between the two.

In reworking the rules for the 700 MHz auction, the FCC will also consider whether it should reclaim spectrum not being used, something supported in particular by Commissioner Jonathan Adelstein.

He said: "I am particularly interested in reactions to the suggestion of a 'triggered keep what you use' rule, in which the FCC, rather than reclaiming unused spectrum after a period of time, would reclaim spectrum only in the event a party other than the licensee is interested in securing access to the spectrum in an unserved portion of the license area."

Other key questions include how large the block should be - 6MHz or 12MHz; implementation of E911; and consideration for the spectrum's use among Native American lands. "New rules are absolutely necessary ... for this beachfront spectrum," said Copps.

Copyright © 2006, Faultline

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