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Phone, Satellite Companies to Redevelop Airwaves for New Wireless Products

The airwaves currently carry television UHF channels 52 to 69. Those might be second-rate properties on analog television, but they’re prime real estate in the wireless world — likened by the FCC to “beachfront property” from which providers will be able to develop nationwide, high-speed Internet products.

With data speeds potentially 1,000 times faster than what is currently available in the wireless marketplace, industry analysts are waiting to see what the auction’s big winners — AT&T Inc. and Verizon Wireless — and smaller buyers will do with their new property.

Some 1,090 wireless licenses in the 700 MHz microwave spectrum were sold. Right now, most cellular systems in the U.S. use signals in the 1,800 to 1,900 MHz range, although some can go as low as 800 MHz.

The 700 MHz signals have longer wavelengths than the higher-frequency signals. They can penetrate buildings and travel longer distances than current cellular technologies. Because of that, operators would have fewer costly cell towers to construct and maintain. Plus their higher capacity could potentially mean lower costs for consumers.

The FCC had hoped the auction would spur a vibrant market of advanced wireless services, complementing established phone and cable offerings, but the two largest cell phone companies, AT&T Inc. and Verizon Wireless, emerged as top bidders for the best bandwidth last week, strengthening their dominant market positions.

The spectrum was auctioned in blocks, with the “C-block” being the most desirable. This block covered enough geographical ground to create a nationwide wireless network, while other, smaller blocks covered regional areas.

Verizon Wireless bought a national presence in the choice C-block auction, as well as other smaller bands, buying a total of $9.4 billion worth of licenses, while AT&T paid $6.6 billion for a patchwork of licenses covering 95 percent of the U.S. marketplace. A pre-auction deal gives AT&T coverage in the top 200 markets, according to a company statement. A variety of smaller companies bought the rest of the licenses.

Proceeds of the auction will go toward preparing the public for the transition to digital television on Feb. 17, 2009, including digital-to-analog TV converter box subsidies. It will also help offset federal budget deficits — although legislators will likely battle over what do to with additional funds the auction produced.

Anti-collusion rules bar winning bidders from commenting on their plans for the bandwidth until April 3 — when down payments are due — but both AT&T and Verizon said before the auction they would aim to increase coverage and download speeds and continue development and testing of third-generation “3G” wireless technologies.

“No one knows what the other players are going to do, because this spectrum doesn’t dictate what wireless technology you use,” said Alan J. Weissberger, a Silicon Valley telecommunications consultant with DCT Advisors.

With their new 700 MHz bandwidth, the companies could introduce a stream of new media services such as video, games, cameras and electronic books — all connected through a ubiquitous wireless Web.

“That’s what the carriers are shooting for, because after a while, everybody has a cell phone,” said Tole Hart, a mobile technology research director at the consulting firm Gartner Inc.

In an additional twist, Google, Inc. — which did not win any of the bandwidth in the auction — did successfully lobby the FCC for an “open-access” provision that will force the winners of the C-block of spectrum to allow any software or hardware to work on that chunk of the airwaves. Under current spectrum rules, cell phone companies can dictate wireless device features, then sell consumers gadgets based on their exclusive access to a piece of the network.

“Consumers soon should begin enjoying new, Internet-like freedom to get the most out of their mobile phones and other wireless devices,” Google lawyers Joseph Faber and Richard Whitt wrote on the company’s official blog.

But some advocates fear the provision, publicized as consumer-friendly, favors Google and phone companies.

“You would be free to bring on new devices, but you’d still have to have a contract with Verizon or AT&T,” said Craig Aaron, a spokesman for Free Press, an advocacy group for competition in media. “They might say it’s an open network, but they’re going to do everything they can to sell you their products.”

A bigger mystery surrounds the plans of the television providers who won licenses in the E-block, a set of closed-access lower frequency bands better suited for broadcasting than communications.

Qualcomm Inc., which operates the video-over-phone service MediaFLO over 700 MHz spectrum purchased in 2003 and 2004, spent about $560,000 for bands in select major markets New York City, Los Angeles, San Francisco, Philadelphia and Boston, while satellite provider EchoStar Corp. purchased the remaining licenses for about $710,000. With a near-national geographical reach, EchoStar acquired the ability to transmit a national wireless television service to complement its Dish Network satellite television.

Analysts were surprised by EchoStar’s move and remain uncertain whether the company will reveal an interactive video product, a partnership with another player such as Qualcomm, or a wait-and-see strategy.

“They certainly need more capacity for broadcast TV to make it more attractive to customers,” Hart said. “Video could be a killer app — mobile TV — but I have to get an indication of whether networks can handle that. With these new networks, they tend to hype it up and then the reality sets in after they roll it out.”

Analysts predict the wireless companies will need at least a year — and possibly years — to develop new products on the bandwidth, but the FCC has no plans to release more spectrum, leading to concerns over the competitiveness of the wireless marketplace.

“Why would Verizon or AT&T introduce a product to compete with what they’re already doing? They might introduce something new that costs more, but they’re not going to compete with themselves,” said Aaron of Free Press.

Almost two-thirds of Americans have now tapped in to the Internet through mobile devices such as cell phones and Blackberries, according to a December Pew Internet Project poll. It is yet to be seen, however, how much of a premium Verizon Wireless and AT&T will be able to charge for exclusive mobile TV or ever-present Internet access, while facing competition from carriers such as Sprint, T-Mobile, Alltel, Leap and MetroPCS for “basic” services.

“You’ll still have guys nipping at their heels,” Hart said.

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