700 MHz Auction Will be Different - Sort Of

Implications: The large wireless incumbants (AT&T, Verizon, Sprint and T-Mobile) will participate heavily in the auction.  AT&T and Verizon will likely spend the most, given their deep pockets and affinity for low-frequency spectrum. If Frontline (or some similar entity) acquires the 10 MHz public safety band, it is unlikely to see meaningful use. Google may well participate in the auction, even though it didn't get the full suite of open access rules it wanted.

Analysis: With the 700 MHz auction rules announced today, positioning for the Q1 2008 can start shaping up.  The auction will feature some innovative elements:

• 10 MHz reserved for a public/private public safety network 
• "Open access" requirements on the 22 MHz C block, mandating that network operators allow access to any phone or application (but not requiring provision of wholesale access, as requested by Google).
• Aggressive buildout dates, in many cases requiring 40% coverage within 4 years.
• Blind bidding.
• Package bidding.
• A record-high reserve price ($4.6B) on the C block.

Despite these tweaks, expect auction participation to follow past patterns.  AT&T and Verizon, with nationwide networks and extensive portfolios of 800 MHz cellular spectrum, have an abiding fondness for low-frequency spectrum with its superior propagation characteristics.  Expect both companies to bid aggressively.

Of course, all eyes will be on the C block and the potential for a new entrant like Google.  Despite the open access requirements, expect to see both Verizon and AT&T bid on this block.  The open access requirements have a loophole allowing the network operator to block applications or devices posing secuirity or performance problems, making these restrictions manageable for the incumbants.  While Google will likely bid, it remains to be seen how aggressive they will be and in what form a new "Google network" would take.  Given the cost (around $10B in spectrum and network capital) and relative "thinness" of the available spectrum (22 MHz), expect to see either partnering, a contricted bandwidth service, or both. 

As for the reservation of 10 MHz of D block spectrum for a public/private partnership, expect to see this flail about for a few years if purchased on a stand-alone basis.  Although the allocation allows the potential for commercial access to 34 MHz of spectrum for the price of 10 (the commerical operator theoretically gets access to the 24 MHz of public safety spectrum not being auctioned that is contiguous to the D block), it's difficult to see a commercially viable competitor emerging from a framework involving so many bureaucratic players and many obstacles to providing a commerically reliable network.  It may well turn out that one of the incumbants acquires this spectrum and adds it to their portfolio for additional non-emergency use.  Assuming the engineering challenges could be overcome, an incumbant, with a large portfolio of spectrum not subject to the public/private rules, could continue to support commercial customers even during periods of peak emergency use.