Some Hype Mixed with Hope on Value of 700 MHz Spectrum
06/06/2005
Howard Buskirk and Ian Martinez,
Communications Business Daily
Future use of 700 MHz spectrum remains unclear despite extreme hype, sources told Communications Business Daily. The spectrum, to be made available once broadcasters are forced to give up analog spectrum after the DTV transition, remains laden with many questions about how, and how extensively, it will be used and who will use it.
Intel last week released a study pegging the value of 60 MHz of unauctioned spectrum at 700 MHz at $20-$24 billion. However, many questions remain. Among them is the net effect of the FCC's pending advanced wireless services (AWS) auction, which will make 90 MHz of competing spectrum available as early as June 2006. That matter is especially relevant for wireless carriers, most of whom already carry debt but likely will feel obligated to bid in the AWS auction. "Who will want this spectrum and at what price? That's the question," said a regulatory attorney: "There have been studies and lots of numbers, but right now it's sort of speculative. You're going to have a lot of spectrum coming online with AWS.
Nobody wants to be negative about possibilities for 700 MHz, but you have to be realistic." "It's really more of a business, strategic, operational question for the companies," said another regulatory attorney and expert on wireless issues: "People are waiting for that killer application. If it's found, people want to be ready and have enough spectrum. If its not found, that's a different question again." The attorney agreed the spectrum's attributes make it very valuable. "It's got wonderful propagation characteristics. It's close to 800 MHz. It's got all the right stuff," the source said. "Carriers may seem enthusiastic, but listen closely to what they're going to do with it. They don't necessarily have plans. It's very exciting spectrum. That's what it is. It's not a service. It's not a technology."
Former NTIA Dir. Greg Rohde also sees widespread interest in the 700 MHz spectrum. "This auction will be one of the last opportunities for the commercial sector to acquire prime spectrum from a reallocation," Rohde said: "Through consolidation, the larger CMRS carriers are going to control substantial amounts of spectrum. I suspect that they will also seek to acquire more in the upcoming advanced wireless services auction in 2006. The 700 MHz licenses could become the territory for some new entrants." Worry not; the U.S. will make a pretty penny on the spectrum as carriers pay prime dollar for it, said Janice Obuchowski, pres. of Freedom Technologies and exec. dir. of the High Tech DTV Coalition: "Coalition research has shown that the numbers are going to be very high." The spectrum is too reliable, too centrally located and too universally applicable to pass up, she said: "There's no arguing with the laws of physics here," noting "you're not talking about the fundamental radio work" needed when you're dealing with bands higher up in the radio chart.
The real challenge is "when is the date going to be set" for mandatory transition, Obuchowski said. "Then you're not talking about this strange chicken-egg situation... especially post-bubble." For 20 years, broadcasters and govt. have talked transition, Obuchowski said. She wants to know when it will become a reality and stop "being just a political dialog," she said.
Will Carriers Bite?
Obuchowski said questions of whether carriers have financial clout to get involved in the spectrum fray aren't necessarily out of place, but they overlook key realities. "Debt is always a factor... a complicated question," she said, but any red ink spilled at companies in June 2005 will be almost meaningless in "2, 2½ years" when in comes time to pull the trigger. In most cases, carriers "can't help but invest," regardless of their balance sheets, she said, and they'll find a way. The big mergers have gobbled carriers' time, money and attention, she said, making the timing at this moment questionable, but "some players, like T-Mobile" -- a name mentioned by many of our sources -- "are anxious to go out and grab some spectrum."
One carrier source said of wireless carrier interest: "It depends -- some carriers have the spectrum they need to build out 3G networks and grow for the foreseeable future. Others, like T-Mobile, may be very interested."
Uncertain wireless finances are "partly why Qualcomm is investing capital and launching the MediaFLO service, "to accelerate this entire process," said Michael Lorbeck, senior vp-MediaFLO. Qualcomm has committed $800 million to the new firm, including sizeable spectrum purchases, Lorbeck said, some of which the subsidiary already has made. "We already have UHF 55 nationwide," in the 716-722 MHz range, he said, which MediaFLO acquired in FCC auction 49. The entire MediaFLO project "is a commitment to wireless operators" to provide multimedia services, he said. These include mobile TV, live streaming video, push video to subscribers' handsets, live audio, data streams for news and weather updates -- exactly what carriers frequently envisioned for the spectrum.
This involves "extraordinarily large volume," he said, and rewards that more than offset any risk involved in investing in spectrum or even reworking equipment suites to work within the spectrum range. "The question I've always asked is why do you care so much about 700 MHz when you have AWS," said an analyst. "I think it's great spectrum because the propagation characteristics are better than at 1.9... It seems to me that you balance that against the endless uncertainty about 'when do you get the spectrum back.'"
The analyst noted that if the DTV transition occurs as expected, the spectrum would be available in 2008-2009, about the same time AWS spectrum actually will be available. "It could potentially be an interesting source of spectrum for a pipe to the home or small business, but it's a long way from here to there," the analyst said. Of the $20 billion plus value estimate, the source observed: "That's a lot of money. That's not chump change."
Concerns over Applicability
Little equipment has been designed for the band. Another complicating factor is that 700 MHz for wireless broadband is not an international standard. MediFLO is developing 700 MHz-compatible radio technology to run at "no less than 6 megabits per second," Lorbeck said. "We're developing technology, developing chip sets for handsets... deploying transmitters," he said, emphasizing "the technology is coming."
Intel's Peter Pitsch said "there's a lot of [IEEE] pre-standard equipment" but added most of the companies who are building the pre-standard equipment are committed to the 802.16 standard. "By the time the spectrum would become available they would be providing WiMax equipment": Intel, along with Microsoft and other key computing companies, are key players in the WiMax Forum, which is publicizing the advantages of 700 MHz band for that technology. "The Commission might have allocated spectrum to a particular technology," Pitsch said, but they were "more flexible" and have allowed carriers to decide what they're going to do with it, which will let manufacturers and carriers get their acts together with minimal strife. "We think that's fine," he said, adding that Intel is hoping licensees choose WiMax: "It's just a better mousetrap."
Calling WiMax the "wild card" in a recent report, Deutsche Bank Securities said if the stars align the technology could have a major impact on the financial performance of several key manufacturers and carriers. Incumbent equipment makers like Lucent, Nortel and Alcatel are investing in WiMax as a "hedging strategy," Deutsche Bank said, reflected in the fact that they've all announced partnerships with Alvarion or Intel. They've done this, the report suggested, because they don't want to build equipment, but don't want to be left behind if it does catch on. The bank said carriers like T-Mobile that are short of spectrum will embrace Wi- Max and even its less-powerful cousin WiFi to offload their cellular network traffic to unlicensed technologies.
WiMax, which doesn't have a globally unified spectrum block, could benefit from an opening in the 700 MHz range, especially because of Qualcomm's holdings there, said Brian Modoff, the Deutsche Bank analyst who authored the report. But he cautioned that despite the U.S. being such "a big pocket," the lack of a global standard could continue to keep the technology inefficient. It's only a "hiccup" that the band won't be internationally standardized when widespread adoption takes place, Obuchowski said. It's a "huge market" that's up for discussion, she said, and de facto standardization is likely to emerge as other companies develop. "Even in a 'worst-case-scenario' this is absolutely a large enough market to justify the investment," she said, as industry will bend to conventions the market demands. "We're not doing any radio engineering that is breaking through in the laws of physics...it's not going to be rocket science."
Lorbeck said MediaFLO would be "developing this technology from the ground up," while everyone else is developing from a terrestrial standard, a marked advantage for Qualcomm. He said the company is "promulgating actively worldwide," and is in deals with prominent French, German and Asian manufacturers.
MediaFLO has begun unpublicized demos of its international media distribution system, he said, but hasn't taken that step with the MediaFLO platform in the U.S. Another question mark is the focus on the advantages of the spectrum for rural America. Several sources questioned the extent to which anyone will spend billions to provide wireless data to rural markets that tend to be neglected because they are expensive and difficult to serve. "The reason it's good for rural is you don't have to invest in the cell sites, but you've got to have enough demand to put up the infrastructure to begin with," one source said.
Though the spectrum would be "particularly useful in rural areas," Pitsch said, "presumably most of the economic value would be in urban areas" that are home to high volume customers. Most spectrum hawks agreed. Of course "there's an important rural component," Obuchowski said, "but I think there are many dimensions to this rollout... it's not wholly or even largely rural." She said while the near-term applications will chiefly be rural, because that's a part of the country that "doesn't have nearly as many options for broadband to the home," most of the market demand has come from urban and suburban spectrum applications. This is because wireless consumer demand has "grown so intensely... yet data and video are just beginning to come online," she reasoned: "Spectrum is constrained badly."
Regardless of what the 700 MHz spectrum fetches at auction, making it available is the right thing to do from a policy perspective, said Peter Cowhey, dean of the Graduate School of International Relations at the U. of Cal., San Diego, and former FCC International Bureau chief. "It's highly desirable spectrum and we know that there are an enormous number of technologies and services that can utilize it," Cowhey said. "It makes no sense to just have its use tied up by the existing services. This is a good example of what the U.S. always preaches in principle, which is we should be technology and service neutral. The question about 700 is do we live up to our rhetoric."
Cowhey said the wrong course would be to let the FCC decide how the spectrum should be used. "If the FCC has to decide we'll be sitting around talking about 700 MHz five years from now," he said.
