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Summary:

[qi:004] Some folks have taken umbrage to my previous post about making 700 MHz spectrum unlicensed, and they are making good arguments. The focus is obviously on the 22 MHz (C-block) of spectrum, which comes with open access requirements. My discontent over the 700 MHz spectrum […]

[qi:004] Some folks have taken umbrage to my previous post about making 700 MHz spectrum unlicensed, and they are making good arguments. The focus is obviously on the 22 MHz (C-block) of spectrum, which comes with open access requirements. My discontent over the 700 MHz spectrum auctions is because there are so many details missing and that makes me nervous.

The lack of mandated wholesale access on this network makes it a non-starter from competitive perspective. Susan Crawford does a great job of explaining why it is the most important issue pertaining to the this new wireless spectrum.

I wholeheartedly agree with her when she says that if FCC was trying to bring more competition to the high speed internet business, it failed. Even if you totally disagree with me, here are some issues you might want to ponder over.

1. Theoretically, there is a put option on this spectrum. FCC says the bidding is going to be anonymous, and if a bid of $4.6 billion in not reached, then the auction is going to be restarted, and won’t have any open access requirements.

2. Access Not Gadgets. Today, wireless carriers subsidize the devices and use the discounts to control the application access. Theoretically open (unlocked) devices are available today and you can use them on one of the two GSM networks, but the percentage of unlocked devices isn’t that high. Susan is right when she says

This approach to the public interest is that it puts gadgets ahead of access. Nothing wrong with gadgets – they’re very empowering. Gadgets are a means, though, and not an end in themselves.

3. Carriers can layer their locked (or closed) devices with incentives such as more minutes and new handsets every year — and basically render open access pretty useless.

Update: Google is still interested in the spectrum, but is playing its cards close to the chest.

“There will definitely be a new entrant in the auction, I don’t know if they’ll succeed. There’s an opportunity for an incumbent to dominate the bidding and keep out a new entrant,” (

Chris Sacca, who is head of special initiatives) Sacca said.

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  1. Right again, Om. A lot of otherwise intelligent friends of mine were easily swayed by the shininess of the iPhone, and sold their souls to AT&T’s crappy EDGE service for two years. If your average consumer is given a choice between a more expensive unlocked device and a cheaper locked one, they’ll go for the cheapness.

    Martin may be counting on Google’s not putting up the money for the bid, in hopes that they can restart the auction and give the spectrum completely to Verizon and AT&T. It would be a classic move of his, to feign support for one position while doing the exact opposite.

  2. Why would Google bid their $4.6B on mandated shared spectrum, but not on spectrum where they don’t have to share?

    Someone please explain!

  3. What is infuriating is that the FCC has not even given a valid reason for not allowing wholesale access! What the heck! Is it their family property that they are auctioning off, to do as they please? Don’t they have a responsibility to the public?

  4. Can GSM be used on the 700 mhz spectrum?

  5. Google is forced to bid on the “C” block or risk losing the “open device,” “open application” conditions. Susan underestimates just how important this is to Google. The same day it was clear that wholesale was dead, Google filed this letter with the FCC.

    http://gullfoss2.fcc.gov/prod/ecfs/retrieve.cgi?native_or_pdf=pdf&id_document=6519560216

    Google obviously anticipated the outcome and had the letter ready to go. This may have been their objective all along, or they may be making the best out of the situation, but as they showed in the Sprint/Clearwire announcement, Google has a plan for applications deeply integrated into wireless networks. “No locking, no blocking” is key to Google pulling this off without having to cut custom deals with every single carrier.

  6. Rightly or wrongly (I opt for the latter) the FCC believes that in order to compete you need something to compete with. If you want to compete in the airline business you need a fleet of airplanes. If you want to compete in the search business you need a clever algorithm and mountains of computing resources. Etc. Etc.

    If you want to compete in the broadband access market you need to build and operate a network that physically touches your customer. You can use copper or coax or fiber or radio waves but there is no getting around this fundamental competitive challenge. In 1996 the Congress (using the TRA) tried to make believe this wasn’t the case by forcing those with networks to wholesale to those that lacked networks. Since most businesses (included Google) are somewhat reluctant to sell to their competitors, incumbent service providers were forced to do so at rates set by Government (and, outside of Venezuela and Zimbabwe, most governments are inept at price setting).

    A decade on, with loads of empirical evidence, we now know this was a bad idea.

    With the matter at hand (the spectrum auction), the FCC is hoping to create a nationwide third alternative for broadband. In addition to the telcos (with DSL or fiber) and cable guys (with coax), we’ll have wireless guys vying for your business and mine. A highly competitive triopoloy will replace an actually-pretty-competitive-in-most-markets duopoly.

    This isn’t so much about competition within the wireless space as it is about broadband competition in general.

  7. Richard Bennett Friday, August 3, 2007

    Om, Susan Crawford is a law professor with a background in news media. She doesn’t understand networking, especially wireless networking. Don’t waste your time on her, she’s clueless.

    One thing needs to be done to ensure that this spectrum auction succeeds at creating a third pipe to the Internet, and only one thing: forbid wireline Internet access providers such as AT&T and Comcast from bidding on it. There does not need to be an open access requirement, simply an anti-monopoly requirement. The market will take care of the rest.

  8. The FCC is patting themselves on the back for a major advancement in opening up the networks and all they’ve really done is said, “Hey, let’s be on par with Europe.” Which allows for unlocked phones and customers to move from carrier to carrier. This “win” is barely going to influence the carriers. They will still control users and they can still put software hooks into their phones kind of in the same way Microsoft does.

    I met Scott Slater yesterday at the Personal Broadband Industry Association and he offered the view that Google is trying to push the FCC to create a nationwide broadband wireless infrastructure. I’ve got a very detailed post about it here with all the issues going on.

  9. Jesse Kopelman Monday, August 6, 2007

    Richard, the FCC already tried something similar to the approach you suggest around 10 years ago with the C & F band PCS auctions. It was a colossal failure and all of that spectrum is today in the hands of AT&T and Verizon. The problem is that that not only do you need money to win the spectrum auction, you also need money to build the network. It is very hard to raise $10B if your business model is that you are going to compete against entrenched behemoths in a market that is already at least semi-competitive. If the FCC really wanted a 3rd pipe, while maintaining something compatible with their licensing regime, they would award a national license via beauty contest, with deferred payment (continued deferment based on meeting buildout criteria).

  10. Richard Bennett Tuesday, August 7, 2007

    I don’t think it would be so difficult, and if it fails, we’re no worse off than we are today. The “open access” requirement, like the “unbundling” requirement in the last telecom act is simply an invitation to protracted litigation, with the courts finally ruling that the FCC exceeded its authority.

    We’ve seen it all before.

    In any case, I don’t want to see a bidder winning this spectrum and then refusing to deploy any services on it.

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