Over the summer, the FCC released long-awaited rules on the 700-MHz spectrum auction, to be held in January. The spectrum, which will be vacated when TV broadcasters move to digital transmission in February 2009, is considered "the Riviera of beachfront property," says Scott Cleland, founder and president of telecom research and consulting firm Precursor LLC. Signals in this patch of spectrum pass more easily through barriers like walls, so a network operator would need to build fewer base stations, making it less expensive to deploy.

The FCC rules incorporate some novel features. In particular, after intense lobbying by Google, the FCC declared that one large, commercial, 22-MHz spectrum block would be "open access," meaning that the licensees will provide a platform that allows customers, device manufacturers, application developers, and others to use any device or application they want on the network. "This would allow consumers to use the handset of their choice and download and use the applications of their choice in this spectrum block, subject to certain reasonable network-management conditions that allow the licensee to protect the network from harm," said the FCC announcement.

Would such open access prompt a wave of innovation in wireless services and devices, as Google claims? That's hard to predict, and may take years to play out. The open-access rule is already being challenged by Verizon Wireless, which filed suit in federal appeals court in September. And even if it survives the challenge, new devices and services wouldn't begin to emerge until the spectrum is actually awarded and paid for, and the winner builds out its network.

And finally, it all depends on who that winner is. Would Google actually bid on the spectrum itself? Cleland doubts it. "If Google becomes a regulated wireless carrier, it would crush their margins and compress their stock-valuation multiple, because they would have to spend out the ears and assume debt," he says. He speculates that Google might find a proxy partner that would bid for the spectrum and build the network for Google.

Indeed, one of the biggest advantages of the new rules for Google is that they free the company from relying on the "old-boy" wireless network, according to Francis Sideco, senior analyst of wireless communications at iSuppli Corp. "Now they don't have to talk with any of the established players in the wireless industry," he says. "They can bring their own armada to the table."

Under open access, consumers would still pay a fee to use the network, but would be able to use any product that was certified to use the network's technology (such as CDMA), just as anyone with a laptop incorporating a Wi-Fi chip can connect to a Wi-Fi network, explains Iain Gillott, founder and president of iGR Inc., a consulting firm covering the wireless industry. "It would be like the Wi-Fi model, except with a subscription service behind it," he says.

Yet analysts foresee potential problems. Today's model works well, they say, and that's in no small part because of the restricted access to service-provider networks. Unlike the wired Internet, wireless is a very noisy environment, says Sideco. Having closed access means the network operator can control what the devices can do and make sure that they are designed to block out interference, he notes.

In an open-access network, the operator would have no control over bandwidth-hogging applications that might bring down service for other users, notes Cleland. "In an open environment, anybody can run anything whenever they want," he explains. "That means you never know when the high-bandwidth applications are going to knock everybody else for a loop. One Slingbox on a busy cell site can bring down that site."

Or a badly designed device could interfere with the network. "In wireless, if you've got a device that's not up to par, it could take all the capability of the base station to service that device," notes Sideco.

Consumers also benefit in the current system by getting inexpensive handsets, which are subsidized by the network operator, Gillott says. With an open-access model, handsets could end up costing consumers a lot more. "The wholesale cost of a CDMA handset is in the $120 range," he says. "So [in the retail market] it would easily be $200." What's more, when a product doesn't work on the network, it could lead to a round of fingerpointing among service providers, device manufacturers, application developers, and retail outlets, which could be a frustrating experience for consumers. The device maker, for example, would claim the problem is with the Google network. Google might claim it's a bad chip in the hardware. "Who does the consumer call?" Gillott asks.

For these reasons, if Google were to win the spectrum, the company would still likely control which devices connected to the network, perhaps through a certification process, Sideco says.

In fact, hardware maker Motorola doesn't see that the new model will present problems. "Whoever owns the spectrum will choose the technology, and then it'll be up to the equipment vendors to make sure their devices comply with the requirements to ensure the viability and protection of the network," says Steve Sharkey, director of corporate spectrum and standards strategy for Motorola.

Whatever happens at the auction, the industry won't see any effects immediately. The spectrum won't even become available until February 2009. Then it would take a year or two to build a network to use the spectrum, says Cleland. "Then Google would have to earn customers one at a time, and it would take them a long time to build up any significant market share."

By: DocMemory
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