The Spectrum Showdown

What is telecom "spectrum," and why is it being auctioned?

Cell-phone networks operate on bands of airwaves, or spectrum, parceled out by the federal government. At first, phone companies got free spectrum to build cell networks around the country. Their systems locked consumers into using one carrier and only the features they sold or approved. Later, the government auctioned spectrum. This latest slice is being vacated by TV broadcasters switching to digital.

What makes this auction so important?

Google (GOOG )and other big tech players want to use these airwaves to create a new national mobile network that would let consumers choose their phone model and the software and services running on it. This is the last big piece of the airwaves that will be available for years. And the characteristics of UHF signals mean they can penetrate buildings and travel longer distances than can spectrum used for Wi-Fi. That makes them ideal carriers of high-speed wireless services.

How would this system differ from existing ones?

In setting auction rules, the FCC adopted two of four conditions proposed by Google (GOOG ) and its allies including Yahoo (YHOO ) and eBay. Currently, wireless carriers restrict the kinds of phones that work on their network. Under the new rules, the winner of a big piece of the spectrum must let consumers use any handset. Also, shoppers will be able to use any company's software application--maps, entertainment, or e-mail services--on their cell phones.

So the insurgents won?

Not necessarily. Few companies besides AT&T (T ), Verizon Wireless, Sprint Nextel (S ), and T-Mobile (DT ) can afford the price tag for building a nationwide wireless network. Licenses only account for about 25% of the cost. Billions more must be spent on equipment. Even cash-rich Google so far has refused to commit to entering this auction. That's why many analysts believe the big telcos still may get the largest share of the airwaves up for auction.

By Spencer E. Ante

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