Tuesday, July 31, 2007

FCC to Set Airwaves Auction Rules as Google, AT&T Take Sides

By Molly Peterson

July 31 (Bloomberg) -- U.S. regulators today set the rules for the government's biggest auction of wireless airwaves, with Google Inc. fighting against carriers such as AT&T Inc. to force the winning bidders to open up the spectrum to more users.

The sale may fetch as much as $15 billion and may shape the legacy of Federal Communications Commission Chairman Kevin Martin, who is pushing for regulations that would force winning bidders to allow more access to some of the airwaves than current rules demand.

``Ten years from now, this is what we'll remember the Martin commission for, this auction,'' said Stifel Nicolaus & Co. analyst Blair Levin in Washington, who helped write rules for airwaves auctions in the mid-1990s as chief of staff to former FCC Chairman Reed Hundt. ``It can be a tremendous stimulant to the economy; it can also be a bust.''

The airwaves in question, which the FCC must auction off by the end of January, will be freed up when television broadcasters convert to digital signals in February 2009. It's the first such auction since last year and will be the last of its kind for decades because no other airwaves of that quality are expected to be vacated in the foreseeable future, the carriers say.By Molly Peterson

July 31 (Bloomberg) -- U.S. regulators today set the rules for the government's biggest auction of wireless airwaves, with Google Inc. fighting against carriers such as AT&T Inc. to force the winning bidders to open up the spectrum to more users.

The sale may fetch as much as $15 billion and may shape the legacy of Federal Communications Commission Chairman Kevin Martin, who is pushing for regulations that would force winning bidders to allow more access to some of the airwaves than current rules demand.

``Ten years from now, this is what we'll remember the Martin commission for, this auction,'' said Stifel Nicolaus & Co. analyst Blair Levin in Washington, who helped write rules for airwaves auctions in the mid-1990s as chief of staff to former FCC Chairman Reed Hundt. ``It can be a tremendous stimulant to the economy; it can also be a bust.''

The airwaves in question, which the FCC must auction off by the end of January, will be freed up when television broadcasters convert to digital signals in February 2009. It's the first such auction since last year and will be the last of its kind for decades because no other airwaves of that quality are expected to be vacated in the foreseeable future, the carriers say.

AT&T, the biggest U.S. wireless carrier, and No. 2 Verizon Wireless want the airwaves so they can offer more of their own mobile Web content at faster speeds. The carriers consider these airwaves ideal for high-speed mobile Internet service because they can carry signals over long distances and penetrate walls.

New Alternatives

Web companies including Google and EBay Inc. are seeking rules they say would spur the creation of a wireless alternative to services sold by the entrenched phone and cable companies. That would create new competition for San Antonio-based AT&T and Basking Ridge, New Jersey-based Verizon Wireless, whose networks now work only with technologies they approve.

Martin sparked controversy this month, when he proposed rules giving Google some of what it wants, saying the buyer of one piece of the airwaves being sold should be forced to allow any device or application to work on its network.

Martin says his proposal would give consumers more choices and spur advances in the U.S. wireless industry, which lags behind those of other industrialized countries in network speeds and device features.

Google wants the FCC to go even further. It argues not only for access to all devices including laptops and mobile phones and all kinds of software such as applications that provide driving directions, but also says the owner should be forced to rent the airwaves at wholesale, discounted rates instead of the full price a retail customer would pay.

`Robust Competition'

The owner of the most popular search engine is developing new wireless Web services and looking for a new way to reach people in a bid to boost ad sales.

``If the FCC ultimately decides not to adopt `wholesale open access' license conditions, we do not see how significant new competition can emerge from this auction,'' Google lobbyist Richard Whitt in Washington wrote in a blog posting yesterday. ``The prospect for fostering robust competition in this slender but valuable slice of spectrum hangs in the balance.''

Mountain View, California-based Google has pledged to bid at least $4.6 billion for a slice of spectrum, if the FCC approves additional rules such as Google's wholesaling proposal.

Verizon and AT&T say they may bid less if more restrictions are placed on the winners, reducing the potential revenue the government receives.

`Unnecessary Restrictions'

``We have made our position clear about the FCC not putting any unnecessary restrictions on any of these blocks,'' Verizon Communications Inc. Chief Executive Officer Ivan Seidenberg said on a conference call yesterday. ``What we need to do now is see what the rules say and then develop a bidding strategy accordingly.''

Debra Lewis, a spokeswoman for Verizon Wireless, co-owned by Vodafone Group Plc, declined to comment further. Christopher Libertelli, a lobbyist for San Jose, California-based EBay's Skype Web-phone unit, couldn't immediately be reached for comment. Google spokesman Adam Kovacevich declined to expand on Whitt's blog remarks.

AT&T, which opposes Google's proposal, endorsed Martin's plan last week. Martin's measure strikes a ``creative balance'' between competing interests, said Jim Cicconi, AT&T's senior executive vice president for external and legislative affairs. AT&T spokesman Michael Balmoris declined to comment.

Martin, a Republican, says wholesale rules may discourage bidders from developing their networks. Republican commissioners Robert McDowell and Deborah Taylor Tate also oppose a wholesale requirement. Democratic commissioners Michael Copps and Jonathan Adelstein favor such rules.

``No matter who wins the spectrum, it would be helpful if it was opened up for different companies to come in and buy capacity on a wholesale basis,'' Adelstein said July 24 in an interview.

McDowell and Tate said last week that they hadn't decided whether to support Martin's open-device proposal.



AT&T, the biggest U.S. wireless carrier, and No. 2 Verizon Wireless want the airwaves so they can offer more of their own mobile Web content at faster speeds. The carriers consider these airwaves ideal for high-speed mobile Internet service because they can carry signals over long distances and penetrate walls.

New Alternatives

Web companies including Google and EBay Inc. are seeking rules they say would spur the creation of a wireless alternative to services sold by the entrenched phone and cable companies. That would create new competition for San Antonio-based AT&T and Basking Ridge, New Jersey-based Verizon Wireless, whose networks now work only with technologies they approve.

Martin sparked controversy this month, when he proposed rules giving Google some of what it wants, saying the buyer of one piece of the airwaves being sold should be forced to allow any device or application to work on its network.

Martin says his proposal would give consumers more choices and spur advances in the U.S. wireless industry, which lags behind those of other industrialized countries in network speeds and device features.

Google wants the FCC to go even further. It argues not only for access to all devices including laptops and mobile phones and all kinds of software such as applications that provide driving directions, but also says the owner should be forced to rent the airwaves at wholesale, discounted rates instead of the full price a retail customer would pay.

`Robust Competition'

The owner of the most popular search engine is developing new wireless Web services and looking for a new way to reach people in a bid to boost ad sales.

``If the FCC ultimately decides not to adopt `wholesale open access' license conditions, we do not see how significant new competition can emerge from this auction,'' Google lobbyist Richard Whitt in Washington wrote in a blog posting yesterday. ``The prospect for fostering robust competition in this slender but valuable slice of spectrum hangs in the balance.''

Mountain View, California-based Google has pledged to bid at least $4.6 billion for a slice of spectrum, if the FCC approves additional rules such as Google's wholesaling proposal.

Verizon and AT&T say they may bid less if more restrictions are placed on the winners, reducing the potential revenue the government receives.

`Unnecessary Restrictions'

``We have made our position clear about the FCC not putting any unnecessary restrictions on any of these blocks,'' Verizon Communications Inc. Chief Executive Officer Ivan Seidenberg said on a conference call yesterday. ``What we need to do now is see what the rules say and then develop a bidding strategy accordingly.''

Debra Lewis, a spokeswoman for Verizon Wireless, co-owned by Vodafone Group Plc, declined to comment further. Christopher Libertelli, a lobbyist for San Jose, California-based EBay's Skype Web-phone unit, couldn't immediately be reached for comment. Google spokesman Adam Kovacevich declined to expand on Whitt's blog remarks.

AT&T, which opposes Google's proposal, endorsed Martin's plan last week. Martin's measure strikes a ``creative balance'' between competing interests, said Jim Cicconi, AT&T's senior executive vice president for external and legislative affairs. AT&T spokesman Michael Balmoris declined to comment.

Martin, a Republican, says wholesale rules may discourage bidders from developing their networks. Republican commissioners Robert McDowell and Deborah Taylor Tate also oppose a wholesale requirement. Democratic commissioners Michael Copps and Jonathan Adelstein favor such rules.

``No matter who wins the spectrum, it would be helpful if it was opened up for different companies to come in and buy capacity on a wholesale basis,'' Adelstein said July 24 in an interview.

McDowell and Tate said last week that they hadn't decided whether to support Martin's open-device proposal.

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