With Valentine’s Day fast approaching, many of you may be struggling to find the perfect gift for your better half. But if you find chocolates and flowers hackneyed, and you happen to have an extra $5 billion in cash lying around, you may want to consider purchasing the gift that keeps on transmitting: a chunk of the electromagnetic spectrum.
On Feb. 17, 2009, all analog over-the-air television broadcasts will cease existing entirely, having been replaced by digital broadcasts. Digital broadcasts offer service of equal or greater quality than analog broadcasts, and they occupy less bandwidth, meaning more channels can be transmitted in the same portion of the electromagnetic spectrum. Digital broadcasts will save so much bandwidth, in fact, that there will be an excess of unused spectrum. Since unoccupied spectrum is a highly limited resource, and not all portions of the spectrum are equally useful, this makes the 700 MHz band (technobabble for this particular portion of the spectrum) veritable electromagnetic beach-front property.
Since Jan. 24, the FCC has been conducting an auction of the 700 MHz band. Several big-name players have been involved in setting up the auction, including AT&T, Verizon and intriguingly, Google. Last year, Google fought hard to force any auction winner of the “C Block” (the largest chunk of spectrum being sold) to meet four “open” requirements: open applications, open devices, open wholesale services and open network access. To translate, Google wanted consumers to be able to use any sort of software application or hardware device on the C Block, and it wanted the C Block winner to be required to resell access to its network, instead of simply keeping it under lock and key.
In order to better understand these requirements, consider what they would mean if applied to today’s wireless industry. Currently, wireless companies such as AT&T and Verizon strictly control the applications that customers can use on their phones. You may be able to download and install a game on your phone without issue, but any application that will make use of the network itself is subject to the approval of the wireless company. Similarly, Verizon is under no obligation to allow phones purchased from third parties to function on its network, making it the sole provider of legitimate network equipment. It’s as if you could only purchase televisions from the network you planned to watch.
The other two requirements, open services and open access, are less interesting to the consumer, but have the potential to greatly increase competition in the wireless industry. Competitors could purchase services at wholesale prices from the auction winner, then resell them to consumers, offering different (and, in theory, cheaper) wireless plans. Internet giants, like Google, could offer data services to all users, regardless of which wireless company customers actually pay. These requirements would fundamentally change the nature of the industry, drastically reducing the cost of entry for newcomers and spurring innovation in a tightly controlled sector of the market.
Unfortunately, the FCC only adopted two of the proposed requirements, and even these were the relatively toothless ones: open applications and open devices. While this is better than nothing, it’s only a small improvement over the current situation in the wireless industry. Open applications and open devices were already on their way: Verizon recently announced that by the end of this year, it will allow access to third-party software and hardware that meets a “minimum technical standard” to function on its network.
Despite only receiving half the provisions it had hoped for, Google went ahead and decided to bid in the auction anyway. It had originally committed at least $4.6 billion, which is the reserve price for the C Block. Last Thursday, the price for the C Block passed $4.7 billion, cementing the open applications and open devices requirements and ensuring that someone will walk away from the auction with a large chunk of the electromagnetic spectrum. Since the bids are private, there’s no way to tell who that will be.
The lesson to be learned from all of this is that the oligopolistic wireless industry will have to be dragged kicking and screaming into any deal that will increase competition. Despite the naysayers who predicted that open access requirements would result in a failed auction, the spectrum is indeed going to be sold. If only the FCC had implemented all four of Google’s requirements, we might have been facing a revolution in wireless services. But as it stands now, we’ll probably just end up with more of the same. In the wireless industry at least, this Valentine’s Day heralds yet another year of chocolates and flowers.
You can watch the progress of the auction online. Visit FCC.gov, click on “Auctions” and look for auction number 73.
Gabriel Michael is a graduate student in the Divinity School. His column runs on alternate Wednesdays.