The Ultimate 700MHz Auction Guide: What It Is, Who'll Win and Why You Should Care

Click to viewYou've probably seen the phrase "700MHz auction" bouncing around these pages quite a bit lately. Some of you know too much for your own good about this, but surely many readers are ashamed to admit you don't know what it means. It's okay, we get frazzled at times, too, so we thought we'd take a moment to explain what it means, why it matters, and what companies, at last check, were actually sitting at this FCC-run billionaire's poker table.

WTF Is This 700MHz Deal?

We're not getting into the technical nitty-gritty of the electromagnetic spectrum. Just know that there's only a finite amount of it for broadcasting and telecommunications, so spectrum licenses—the right to use a particular chunk—are really valuable. Analog TV is currently broadcast over the 698-806 MHz range of the UHF band: the ballyhooed "700MHz spectrum." But the FCC will kill off analog TV on Feb. 19, 2009, and will auction off the right to use it for other purposes.

Why Would Someone Pay BILLIONS for It?

Every frequency band has slightly different physical attributes. The 700MHz band penetrates walls fairly easily and travels well, making it perfect for either cellular or long-range wireless broadband that could provide an invisible alternative to DSL and cable. It could simply augment a major telco's existing holdings with a powerful wireless network, but it could also mean a lucrative new ISP for Google or some other non-telecom behemoth.

Going Once...

So here's how the auction will work. There are five blocks A-E, divided up regionally. Everyone had to secretly declare their intent to bid to the FCC by Dec. 03, and can't talk about it at all now. Cue Google's not-so-secret entrance last week. The actual auction will take place on Jan. 24 with a minimum bid of $4.63 billion to get at the C block. Winners can pick up their prize in Feb. 2009.

The reason all the excitement's been over what goes down with the C block, is that Google convinced the FCC to load up with "open access" provisions: The winner has to make the network open so any "safe" device use it, plus they have to make their own networked devices open as well—the exact opposite of what Verizon's handsets are right now. Before Verizon's recent Mitt Romney-likerevelation that open networks are the One True Path, the veteran telecom fought the openness provisions with every trick in the book, from backdoor deals to lawsuits. Verizon actually sued the FCC over this exact provision—that the C block winner allow any device on the network—that it is celebrating with pig-in-shit PR glee right now. The rules (thankfully) stuck, and Verizon changed its tune.

The Players

Here's a list of the bidders:

• Google, obviously

• Verizon and AT&T, the other two heavies

• Cox Cable, probably looking to start a wireless internet service

• DISH Network

• Leap Wireless

• Frontline Wireless, a startup

Here's who is not in:

• Time Warner

• Comcast

• Sprint

• Clearwire

Big investments are too risky for all of the above, plus those last two already have their plates full trying to get their busted-ass WiMax deals off the ground.

How It Might Go Down

The educated guess is that Google is bidding to not look like a dick. It may not be playing to win, but after all of the previous big talk and the launch of the OHA business, it needs to show up. Evidence for our skepticism: Google is going it alone, and was already looking for ways to finance just the minimum $4.6 billion bid. Circumstantial evidence: Google's statements of late haven't been very enthusiastic about the prospect of winning; the ol' college reading between the lines says it's not planning to. But, it did get the open access provisions it pushed for, so there's really no need to finance the network on top of it.

AT&T just bought a massive chunk of 700MHz spectrum from Aloha Partners for $2.7 billion a couple months ago, so it's probably going to focus its bidding on the regional licenses to fill in the gaps.

Our feeling has been that Verizon's going to be the juggernaut, even before it gets all lovey-dovey with third-party devices. It's been rabble-rousing over the rules for months—trying to get FCC chairman Kevin Martin to shitcan the open access provisions—and spitting back and forth with the Google the entire time. Reading between the lines again, it's clear it's always intended to bid win.

In fact, Verizon's 700MHz dreams probably played a significant role in opening up the network, whatever other feel-good reasons their PR department might tell us. Why? For one, to placate Kevin Martin, who's pretty hot on openness and competition. He koshered the open-access rules in the first place. It'll be interesting to see if Verizon tries to go war post-auction to fight the provision requiring unlocked hardware on the C block, since its open-network announcement implied that Verizon's own gear would stay locked down like Guantanamo.

Our money is on Verizon for the total C block win.

The Afterglow

Verizon winning the C block pretty much kills previous utopian notions of a mythical third pipe, outside the grasp of the vested telcos, bringing glorious open internets to us all. However, coupled with Verizon's recent announcements it could spell progress. The FCC probably won't let it go back to its evil ways. And you can expect Google to be all up on that, pushing search, services, ads and eventually hardware. The little guy might just get his crack at putting his dream device on the network too. We're warming up the soldering iron!