A Scramble for the Perfect Wave

Why the upcoming auction of prime wireless spectrum is firing up players like Google and Intel

Later this year the most valuable slice of American airwaves is set to be auctioned off by the Federal Communications Commission. A growing number of consumer groups and technology titans, including Google (GOOG ), Intel (INTC ), and Yahoo! (YHOO ), argue that the auction is the last, best chance to create a broadband competitor to the phone and cable companies.

This patch of UHF wireless spectrum--television channels that must be vacated when broadcasting goes digital in February, 2009--is viewed as beachfront property because it can penetrate buildings, mountains, and earth. Moreover, a network in this band would be cheaper to build than existing Wi-Fi and WiMAX networks, since UHF signals travel much greater distances. The auction could generate as much as $20 billion for the U.S. Treasury.

But big tech players are likely to pony up bids only if they can change the way the auction operates, which will be determined by July. Unlike auctions on eBay (EBAY ), wireless spectrum sales are governed by an incredibly complex and changing set of rules. The problem, say critics, is that the rules have favored incumbent wireless giants. In last year's auction, Verizon Wireless (VZ ), AT&T, (T ) and T-Mobile bought a combined 61% of the $13.7 billion in spectrum licenses.

Google, Intel, and other techies are pushing the FCC to create licenses for larger geographic areas and allow "package bidding" so one company could assemble a nationwide franchise by bidding on a combination of licenses. "If you have that much power concentrated in a few players, they will have the incentive to limit or forestall innovations," says Richard S. Whitt, Google's Washington telecom and media counsel.

Verizon is vehemently against proposed rule changes that would prevent incumbents from bidding or allow winners to sell spectrum wholesale--moves that might make it easier to create a new nationwide player. "The best thing the government can do to ensure that the country remains competitive in broadband is to open the auction to all bidders," says Steve Zipperstein, vice-president for legal and external affairs at Verizon Wireless.

Despite the fervor for a new entrant, most analysts believe it's unlikely one will materialize. Few companies can afford the multibillion-dollar price tag required to build a national network; even Google and Intel have refused to commit to entering the auction. FCC Chairman Kevin Martin, though, favors package bidding and remains optimistic: "I'm hopeful about a new entrant if we set it up right."

By Spencer E. Ante

Before it's here, it's on the Bloomberg Terminal.