Will the US 700 MHz auction be remembered for dismembering wireless?
High spectrum price could lead to catastrophe
This leaves us with the scenario that AT&T and Verizon will be getting bigger both in terms of the overall efficiency of their networks and their ability to add more advanced data features, at the same time as accelerating the de-stabilization of local incumbents for their consumption by merger or by simple competition. At the same time companies that do NOT have the ability to create a two tier network, may have felt the need to jump on the 700 MHz bandwagon and outbid the two giants in some markets, who may find that instead of beachfront spectrum, they have less profitable, best for rural spectrum, that does not automatically enable the mobile internet in the way that Google has convinced the world it would.
And the FCC, by listening to Google and talking this spectrum up as “mobile internet” spectrum, hyping the auction for the benefit of the US government coffers, and by ignoring the voices that called for the auction to favor rural operators, it may have moved the US telecommunications significantly closer to a duopoly, which will have the opposite effect to all of its “open” rhetoric.
What situation does this leave Verizon in, fighting a rampant AT&T, and if it wins significant spectrum during the auction, having the dual problem of moving its future network over to LTE from CDMA, something it has already committed to, at the same time as harnessing the 700 MHz spectrum. That would mean that sometime in the next few years Verizon might begin to look more and more like Sprint, fighting on too many fronts, and pilloried for overspending on capex.
AT&T would have cheaper LTE devices that are backward compatible with its existing networks, while Verizon would have to pay handset makers for a special device to “bridge” what are two alien networks, again similar to the Sprint situation.
The FCC also has to run another auction, given the failure of the Public Safety element of the auction, so it is also no closer to a terrestrial roaming cellular network for civil emergencies. It may have to give that spectrum away in return for build out promises.
Finally the auction may have set a blueprint for government wireless spectrum valuations that will spread like wildfire throughout the Western World, with every European government putting its 700 MHz spectrum on the block between now and 2012 at too high a price, hiking the cost of mobile broadband beyond any near term viable level, shutting out mobile TV, mobile internet and the wireless entertainment market.
The only hope in all of this, for the US through Sprint, and across Europe through a variety of 2.5 GHz and 3.5 GHz license holders, is the WiMAX community. But this will be hampered by being networks based for the most part on a single slice of spectrum with only urban build outs likely to be profitable – leaving the rural wireless broadband for sometime in the future.
Over the coming weeks we plan to return to this issue of spectrum valuation and look first in detail at the outcome of the US auction, and its likely impact on corporate operator valuations both there and abroad.
Copyright © 2008, Faultline
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