Providers affiliated with the major wireline carriers largely have dominated wireless services in the United States. By analyzing the bid winners in last month’s FCC spectrum auction for Advanced Wireless Services, we can gain some insights into the future.
The spectrum involved is in the 1.7- and 2.1-GHz range, which is not the space usually used for U.S. wireless services. AWS spectrum is available for flexible use, meaning licensees can use it for mobile 3G, WiMAX and so on. Only the nature of each bid winner gives some hint to the possible application of the spectrum it has acquired.
The top bidder in dollar terms was T-Mobile, which outspent Verizon by more than $1.4 billion. T-Mobile got spectrum in key metro areas, making it more likely that it can compete with the big guys based on coverage. The bid was a must-win for T-Mobile: Without the coverage the new spectrum offers, the carrier would likely have been compromised in a competitive sense. T-Mobile is likely to use the spectrum for 3G services but also could add WiMAX appliances to its service offerings.
SpectrumCo, the Sprint partnership with major cable companies, was the second-highest dollar bidder and also second in the number of licenses. The entry of RBOCs into video, and of cable companies into wireline voice, has made it inevitable that the two classes of access carriers compete in the wireless space. By purchasing spectrum of their own, the cable companies can counter RBOC incumbency in wireless. It’s likely that this spectrum will be used in 3G and fixed-mobile convergence (FMC).
Even if they don’t deploy their own FMC offerings next year, the cable companies are likely to be the drivers behind FMC. SpectrumCo won bids worth $2.3 billion, only half a billion short of Verizon’s total, and won the second-largest number of licenses (137), vs. 120 by T-Mobile and 13 by Verizon. Cingular won 48 licenses for a total of $1.3 billion in bids. The high bidding by SpectrumCo sends a message that cable operators will be pushing FMC. In response to this expected bid success, the RBOCs have started their own FMC projects to beat the cable guys to the punch, and they’ll likely start to deploy in 2007.
It was widely believed that the satellite players would cooperate in a bid for spectrum for possible WiMAX use, and that Clearwire, the McCaw venture into WiMAX, also would put in a bid. Neither bid in the auction, but NextWave’s subsidiary AWS Wireless won the largest number of bids (154) and is expected to deploy WiMAX services based on the spectrum beginning in 2007. The key with WiMAX seems to be bypassing areas where too much competition would make profitable market entry problematic, so the AWS Wireless wins are primarily in small metro areas.
So what can we learn from this? First, it seems clear that 3G is still the dominant use of spectrum in the United States, and that WiMAX is seen more as a back-fill technology where other forms of access aren’t fully efficient. The big problem with WiMAX is that the 50Mbps of capacity that users of a single WiMAX cell share is far too small to support significant content networking. Bidders are likely to try to limit their exposure to congestion generated by video content downloading by using special-purpose devices, as NextWave proposes to do. Moral: Don’t expect WiMAX to destroy the DSL and cable market.
The second lesson is that wireless consolidation is probably overrated. It is true that traditional voice wireless services, and even 3G services that build on subscriber relationships established through voice, are big-player games, but it seems there are some who are willing to look beyond the traditional 3G services and into WiMAX. We can expect the wireless market to expand in the number of providers, but the expansion will be most noteworthy where there is a specialized target service such as WiMAX or a special competitive situation such as the cable companies’ FMC drivers. Innovative new services might make the wireless market larger, and more exciting, in the future.
