Editor's note: This article updated January 24, 2008
The FCC's 700-MHz-spectrum auction officially began on January 24 and stands to be one of the most significant airwave auctions in U.S. history, potentially affecting everything from the cost of your wireless service to the competitive landscape among U.S. mobile providers for years to come.
With 214 qualified bidders expected to compete for various 700-MHz band licenses -- including Verizon, AT&T and Google -- some industry insiders say the government could rake in as much $30 billion in the auction. That money will be used to help transition to all digital TV signals by 2009.
Although bidding gets underway on Jan. 24, 2008, the public won't know who the winners and losers are until the auction officially concludes. Per FCC rules, the entire bidding process for Auction 73 will be anonymous, and the government agency has warned participants not to disclose anything about the auction (or their bids) until after it's over. That said, interested parties can track the auction's progress by visiting the FCC's auction homepage.
Over the next week, industry insiders will be watching Google in particular. If the company does win the highly coveted "C Block" of spectrum, the portion that has been deemed "open to any devices and services," the resulting network could usher in much-needed innovation, improve services, and even a "third broadband pipe" (after DSL and cable) into the home -- one that wouldn't be controlled by any one company.
The "C Block" carriers a minimum bidding price of $4.6 billion, and the general consensus is that if Google does win this portion of spectrum, the company will have someone else build the network. Total build-out costs could be as high as $15 billion, according to industry analysts.
Of course, there are already enough loopholes attached to the "C Block" to render all of the open access stipulations obsolete if the FCC doesn't get its asking price for the spectrum. Unquestionably, there's a lot at stake.
Here's a FAQ on how the FCC's 700-MHz auction will work -- and why you should be interested in its outcome.
What is the 700-MHz-spectrum auction?
The 700-MHz auction represents the largest portion of spectrum to become available in years, according to David Farber, professor of computer science and public policy at Carnegie Mellon's School of Computer Science.
Very broadly, this spectrum is divided into two bands -- the lower and upper 700 MHz. The lower band is 48 MHz wide, and the upper band is 60 MHz wide. Of the upper 60 MHz, 24 MHz is being reserved for public safety, according the to FCC.
The 747- to 792-MHz portion of the spectrum, which includes a highly coveted swath known as the "C Block," is now used for commercial UHF television. But federal law now mandates that broadcasters convert to digital TV signals by 2009, so they're handing this particular chunk of spectrum back to the FCC (in return for new UHF spectrum). And the FCC is auctioning it off to the highest bidder.
Why is this spectrum so attractive to bidders?
Generally, the lower a radio signal's frequency, the farther it can propagate and the more easily it can penetrate obstacles like walls and buildings. Lower frequencies also tend to be more efficient, enabling radios to transmit more bits for each hertz of frequency band. As a result, the 700-MHz band should provide better coverage than current cellular bands, which are between 800 MHz and 1900 MHz. So if you're frustrated by the lack of reception you get on your mobile phone while in the office, a cell service that uses 700 MHz spectrum could offer some relief.
What kinds of services could the frequency support?
Some say that the UHF band will be best suited for widely distributed mobile networks or broadcast applications for mobile devices. Applications tied to public safety are also on the table. Still others say the broadness of the available frequencies and their ability to penetrate buildings make them more suitable for delivering broadband wireless services.
For proponents of an open mobile web, open-access spectrum could also spark a slew of new applications, which is precisely why Google's reported interest in the auction is something to watch closely. Indeed, there is at least a chance, remote as it may be, that the Mountain View company could become your next wireless-network provider.
How much money will this auction raise?
It's an auction, so it depends on how fierce the bidding gets, but the current reserve price for the entire 700 MHz spectrum is set at $10 billion. Some experts say the auctions could bring in as much as $30 billion. For the C Block alone, the reserve price stands at $4.6 billion -- conveniently, the exact minimum amount that Google said it would pay if the open-access conditions it asked for were honored.
The high reserve prices proposed by the FCC are starting to meet some fierce opposition, most notably from Frontline Wireless. The upstart company (with two former FCC officials on its board) recently submitted a comment to the FCC saying that the proposed prices run contrary to the goals stated in the 700 MHz Order (the official document that sets out the proposed auction rules).
What will the government do with the proceeds from the auction?
The FCC will use the money raised by the auction to aid the national conversion to digital television, by subsidizing set-top converter boxes so people with analog TV sets can view digital signals. The current plan is to offer each household up to two $40 vouchers for these boxes.
How will the bidding process work?
Precise bidding rules haven't been decided at this point, but the FCC has announced some key details of the upcoming auction. For one thing, bidders will be anonymous (more on this below). Because of the large reserve prices, companies must submit a refundable deposit to qualify for bidding.
The FCC says complete rules will be announced by October 16 -- three months before the auction. For those interested in the precise auction timeline, the FCC has mapped out a rough pre-auction schedule.
Why is bidding anonymous in this case?
The FCC has mandated (.pdf) that bidding should be anonymous in order "to avoid collusion and retaliatory bids" and to reduce "anticompetitive bidding behavior."
While anonymous bidding is not unprecedented in auctions, the FCC has said that the 700-MHz auction will be different, because it will purposefully withhold information about bidders "irrespective of any pre-auction measurement of the likely auction competition." Translated into English, that means that the FCC plans to withhold the amount of a given bidder's upfront financial commitment and bidding eligibility until after the close of bidding.
What companies are going to bid?
As you might expect, all the major telecom players, including Verizon, Sprint and AT&T, will likely participate in the upcoming auction. But there are also some other candidates that bear watching. Google's Eric Schmidt has publicly stated his company will "likely" bid. Additionally, startup wireless carriers (such as Frontline Wireless), wireless-device makers and cable TV companies, as well as a handful of tech companies will all be joining the bidding fray.
Because of the anonymity rules, however, we won't know who has bid until the conclusion of each round.
Do the winning bidders actually own the spectrum?
Technically, companies do not own spectrum. They do, however, get a license to use it in the public's interest. That said, telecom expert David Farber says history has shown that it's almost impossible to get that spectrum back into the public domain, even if the company holding the license goes out of business.
Could all the frequencies actually go to a single bidder?
Not very likely. The $10 billion reserve price, plus the fact that the spectrum is divvied up into six geographic regions, mean that the chances of one company getting all the frequencies are slim to none.
Additionally, certain portions of the spectrum have already been allocated for a uniform, national public-safety channel. Other bands, on both ends of the public-safety frequencies, have been reserved to provide a buffer against interference from adjacent bands.
How much will it cost to build a nationwide wireless network over the 700-MHz spectrum?
Estimates currently range from $2 to $4 billion -- in addition to the price of the spectrum itself. It's an expensive proposition, to say the least.
What companies currently have a share of 700 MHz?
Aloha Partners now holds the largest portion of lower-band 700-MHz spectrum. The company says it plans on using its 12 MHz of bandwidth to offer twice as many channels as current mobile-broadcast networks, via a broadcast network it calls HiWire. Qualcomm also owns a portion of the lower-band spectrum and is in the midst of deploying its MediaFLO Mobile TV network over these frequencies. These two companies have already been granted licenses.
What is the tie-in with a national public-safety network?
Because spectrum dedicated for use by police, fire and other emergency responders can vary locally, the government wants to make it easier for agencies to talk to one another. Designating a portion of the 700-MHz spectrum is an attempt to do just that. It is also in line with the Sept. 11 Commission's final report, which calls for rapid turnover of analog-television spectrum to interoperable use by first responders.
Under the current proposed rules, 20 MHz of spectrum will be set aside for the creation of a public-private partnership that will eventually evolve into a new, nationwide broadband network with public safety as its primary goal.
Under these terms, a public-safety licensee will oversee the entire network. The actual building, however, will be done by the commercial licensee. As an added incentive, the FCC is offering the commercial licensee extra spectrum adjacent to the public-safety block for the company to use as it wants.
Dave Farber: FCC 700-MHz Spectrum Auction a Hot Contest
Epicenter: FCC to 700MHz Spectrum Bidders - You Better Have Bank
Epicenter: FCC Champions Open Access! (Wink, Wink)
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