Spectrum Bridge automates, Webifies wireless deals
SpecEx.com is billed as the first fully online, fully automated exchange for buying, selling and leasing spectrum licensed by the FCC. The Web site is run by a start-up called Spectrum Bridge, which aims to bridge the gap between buyers and sellers in the secondary spectrum market.
Sometime after Oct. 30, you can expect a buyer and seller to get together on what could become the eBay of wireless spectrum.
That’s the launch date set for SpecEx.com, which is billed as the first fully online, fully automated exchange for buying, selling and leasing spectrum licensed by the FCC.
The site is run by a start-up called Spectrum Bridge. The name is suggestive: The newcomer aims to bridge the long-standing gap between buyers and sellers in the secondary spectrum market, where the FCC has granted to some licensees the right to unbundle the spectrum they’ve been awarded and resell it, lease or even timeshare it. The company says it has received or been promised spectrum listings with a total current value of $250 million.
That could be just the beginning, because according to a number of studies and experts, the majority of licensed spectrum in the United States is unused or under-used at any given time. The FCC in recent years changed its rules to encourage a secondary market in spectrum, and much easier leasing of larger amounts of spectrum. It’s part of a shift in thinking by regulators, academics and business leaders. Having a more efficient mechanism for marketing spectrum could put this valuable resource to work in new wireless services, either by carriers and providers or directly by enterprises seeking private networking capabilities.
Until now, this market has relied on middlemen who cultivate industry contacts to find out what spectrum might meet a buyer’s requirements, and what spectrum holders might be interested in selling — provided the two sides can figure out what the spectrum is worth.
The eBay of spectrum?
Enter SpecEx, the eBay for wireless, or the wireless equivalent of the real estate industry’s Multiple Listing Service.
Spectrum Bridge was founded in March 2007 by an executive team that had launched Mesh Networks (later bought by Motorola). They rounded up $2 million from investors including True Ventures; the Telecom Development Fund, which is funded by the FCC with interest collected from holding deposits for federal spectrum auctions; and Milcom Venture Partners.
Rick Rotondo, chief marketing officer and a co-founder of Spectrum Bridge, says the start-up estimates that well over 5GHz of spectrum is eligible for the secondary market, a huge amount. “Most cellular carriers out there today have about 150MHz or less to run their entire business,” he says.
One company with spectrum listed on SpecEx is Marcus Holdings of Cambridge, Mass. It’s run by managing director Stephen Marcus, who describes himself as a venture developer, mainly in wireless, who has bought, sold and leased spectrum for years. “SpecEx is a major game-changer,” Marcus says.
“Once your spectrum license is issued by the FCC, you can virtually hold it forever, unless you violate the FCC rules,” he says. “Most of the time, people buy spectrum for a purpose. But purposes change. People are going to come here [to SpecEx] and realize that they can re-purpose their spectrum.”
One month after the Sept. 11 attacks in 2001, Marcus showed up at a sparsely attended auction for paging spectrum. He bought the most expensive licenses being offered, for New York City and Boston. He planned to use the spectrum as part of a carrier that he was preparing to launch. But the business models didn’t add up and he cancelled the project. Two years ago, he decided to sell the spectrum.
He spent months approaching people he knew to find a buyer. Then he hired a well-known spectrum broker, who did the same thing. Six months later, he had a buyer: the Massachusetts electric utility National Grid, which was looking for spectrum to support a variety of wireless services for its fleet of trucks and field technicians. From beginning to end, the process took two years, and for that entire time, scarce spectrum in two lucrative markets went unused.
FCC shifts gears
Changes at the FCC have paved the way for a company like Spectrum Bridge.
Starting around 2000, the FCC took several key steps toward more efficient spectrum management. First, Rotondo says, the agency dramatically simplified the regulatory filing process for the secondary market. In many cases, applicants can get overnight approval, according to Rotondo. Second, the FCC granted what amounts to limited property rights to spectrum holders by allowing more of them to lease their licenses to others.
Related to this, the FCC also clarified a bunch of rules that let spectrum holders disaggregate their spectrum. “If you are licensed to cover a certain geographical area, you now can divide that up,” says Dale Hatfield, formerly chief technologist for the FCC and now an adjunct professor at University of Colorado, Boulder and co-chair of the U.S. Department of Commerce’s Spectrum Management Advisory Committee.
Spectrum can also be subdivided by channels, and even timeshared. For example, an electric utility might lease spectrum from another holder during the hours of 12 a.m. to 3 a.m, when it’s not being used by the holder to wirelessly read electric meters.
It was a major shift. “If you look back, the government has tightly controlled spectrum,” Hatfield says. “To make any changes in the license, you had to go through a lengthy process, taking years in some cases.”
“But the FCC threw a party and no one came,” Rotondo says. “No one came and said ‘we’ll build a centralized marketplace, and reduce transaction costs, and do it in an open environment.’”
Spectrum meets Web 2.0
Now SpecEx.com does that. License holders open an account on the Web site, and Spectrum Bridge validates the FCC Registration Numbers (FRN) for any licenses being listed. Members detail license listings, including the FRN number, call sign, information about how the license was acquired, any special restrictions and so on. Other forms allow a member to set pricing rules such as minimum prices, or to geographically partition the license using different criteria such as counties, zip codes or FCC boundaries.
Buyers can sift through all this data using either a simple or advanced search interface. SpecEx offers standardized legal agreements and contracts, secure third-party payment clearing, and tools to simplify and automate documentation required by the FCC.
Prospective buyers are intrigued. “This is an interesting model to finally put a lot of people [virtually] into the same room,’” says Jeff Thompson, CEO of TowerStream, a wireless broadband service provider based in Middletown, R.I. “A few times, people have tried to go down this road. This one has actually pulled it together.”
“To my mind, any market that aims for a level of robust competition must develop strategies for lowering search costs and transaction costs more generally,” says Philip Weiser, professor of law at Colorado University Law School and executive director of its Silicon Flatirons Center in Boulder. “If you need to go through the difficulty of finding spectrum holders yourself and asking about spectrum leasing arrangements, or hiring expensive lawyers to aid you in that process, you may as well give up, and consumers will be the loser.”
Weiser authored the recent Brookings Institution paper, “The Untapped Promise of Wireless Spectrum,” arguing that the FCC should more effectively measure unused and underused spectrum, establish an accessible database to profile all licensees, and encourage greater amounts of spectrum leasing. In a limited way, as a market, SpecEx begins to do some of this.
Spectrum holders today are being offered a free account for six months on the exchange. They can create listings for their licensed spectrum, and search available listings. Still missing are some back-end components to fully automate online financial transfers, contracts and FCC filings. Those are due to be in place and operational by Oct. 30.
Some transactions are already pending, being shepherded along manually by Spectrum Bridge’s customer support team, according to Rotondo.
There have been some other attempts at creating a market for spectrum, notably that by Cantor Fitzgerald. The financial services firm offers the Cantor Spectrum Exchange, headed by Darrin Mylet.
But SpecEx seems to be in a class by itself. “To my knowledge, this is the first clearinghouse approach to allocating otherwise unused spectrum,” says Craig Mathias, principal at wireless advisory firm Farpoint Group. “You can think of it as a real-time market for spectrum. I love the idea.”
