Airways auction points to future of wireless broadband

NEW YORK — Bidding begins Thursday in a pivotal auction of public radio airwaves worth billions of dollars, a contest expected to plot the wireless industry's course and shape the future of high-speed mobile Internet access.

Heavyweight bidders favored to win big slices of radio spectrum are Verizon Wireless and AT&T Inc. The phone companies want airwaves to enhance their mobile services and offer consumers a new generation of wireless broadband.

The more than 200 qualified bidders also include cable and satellite companies, smaller wireless carriers and Internet power Google Inc.

While Google is a potential wild card, industry experts doubt it will attempt to win radio spectrum licenses. They say Google has already achieved its goal: prodding wireless carriers into giving consumers more freedom in picking mobile devices and software.

These government-owned airwaves, likely the last offered for the foreseeable future, will be transferred next year from TV stations, which are switching from analog to digital broadcasts.

The airwaves are highly desired for their ability to penetrate walls and send signals farther with less power.

"It's probably the most important spectrum auction the government has ever had," said Kirk Parsons, a wireless analyst with J.D. Power and Associates. He called airwaves the "lifeblood" of the wireless industry.

"It's like oil to automobiles," he said, noting that carriers are hitting the limits of their existing airwaves and need more of them to offer new services.

This auction will be "a case of the rich getting richer," said Charles Golvin, a Forrester Research analyst.

He said AT&T and Verizon Wireless are most likely to bid aggressively, win and take on the immensely expensive task of building new networks. He said No. 3 Sprint Nextel Corp. is occupied with financial woes and the rollout of its WiMax high-speed Internet service.

The government's auction goals are to foster wireless innovation, promote competition and improve the nation's public safety communications. The anonymous daily bidding could last months.

The Federal Communications Commission has set a minimum price of about $10 billion for the airwaves, which are divided into five blocks governed by different conditions.

The proceeds, which by some estimates could exceed $20 billion, will go toward offsetting the federal budget deficit, supporting emergency communications and subsidizing digital converter boxes for people with analog TVs.

However, the nation's larger economic troubles could affect the bidding.

Frontline Wireless, a leading contender to bid on airwaves set aside for use with public safety agencies, recently backed out after apparently failing to obtain financing.

FCC Chairman Kevin Martin has said Congress requires the auction to go forward even though it may not be the best time for it.

The most-watched contest may involve the "C" block of airwaves, prime real estate useful for the creation of a national wireless network and high-speed mobile Internet delivering video and other data services.

Google is likely to bid the minimum $4.6 billion to trigger an FCC "open access" condition, analysts say. Those rules require the winner of the licenses to allow consumers to use any device or mobile software they choose on the new network.

Google has already pressured the wireless industry by successfully proposing the open-access condition and then joining the auction. Google also has backed open-standards mobile software and joined in the Open Handset Alliance.

However, broader economic woes could deter Google's expected bid, said Blair Levin, an analyst with the Stifel, Nicolaus & Co. investment firm and a former FCC chief of staff.

Whether Google bids or not, Verizon Wireless is the most likely winner for the expensive C block, analysts say. Verizon lags AT&T in spectrum holdings.

After the FCC set its rules and as the open-access debate flared, Verizon Wireless announced in November that by the end of 2008 its customers will be able to use cell phones and mobile applications from other companies.

That major reversal was a break from industry practice. U.S. carriers typically tightly control which devices and programs consumers can use.

Verizon Wireless, the No. 2 U.S. carrier after AT&T, is jointly owned by New York-based Verizon Communications Inc. and Vodafone Group PLC.

Levin said that if the open-access condition is met, then the business built on those airwaves will use a structure "closer to what you get with the wired Internet, where you buy your device separate from the service and you use applications that aren't related to the service or the device."

San Antonio, Texas-based AT&T may be interested in the A and B blocks, which include licenses for regional coverage areas.

Bidding for those blocks may also come from smaller carriers such as Dallas-based Metro PCS Wireless Inc. and cable firms including New York's Cablevision Systems Corp. and Atlanta-based Cox Communications Inc., a sister company to Cox Newspapers.

AT&T and Verizon Wireless may also be interested in the national reach of the D block. Those are the airwaves that must be shared with public safety agencies and have a $1.3 billion minimum price.

The E block, which only allows for one-way broadcasts, may be of interest to EchoStar Communications Corp., which operates the Dish Network satellite service, or Qualcomm Inc., which broadcasts TV to mobile phones with its MediaFLO service.

David Ho is a New York correspondent for Cox Newspapers.