more on ] Spectrum Gold Rush

[David Farber <dave () farber net>]

Begin forwarded message:

From: David Josephson <dlj04 () josephson com>
Date: August 20, 2006 11:30:46 AM EDT
To: dave () farber net
Subject: Re: [IP] Spectrum Gold Rush

Dave, for IP if you like. The policy of spectrum auctions is  
seriously flawed, indeed,  and has more public policy nightmares in  
it than you might imagine. It has been tried here and in the UK and  
in both countries has resulted in the bankruptcies of many of the  
bidders, and their suppliers. Whole chunks of the spectrum are tied  
up, largely unused, because the prices paid were unreasonable. The  
tale of the 39 GHz band should be instructive for people looking into  
this. All of the source documents are available at wireless.fcc.gov/ 
auctions/30 ...

29 bidders won 2,173 licenses in May of 2000 for over $4 billion. 2  
GHz of spectrum, from 38 to 40 GHz, were sold off in regional  
licenses 50 to 200 MHz wide. The major bidders such as Winstar,  
Advanced Radio Telecom and Adelphia hoped to establish high speed  
connectivity to the premise (Winstar called itself Winstar Wireless  
Fiber). The business premise was that there was such pent-up demand  
for connectivity that people would pay more than fiber prices for  
short microwave hops. Such high frequencies are ideal for hops of 3  
miles and less, and narrow beams are possible with small antennas.  
But did no one notice that the densely populated areas where this  
would be practical already had a glut of dark fiber, providing far  
more bandwidth, far more reliably, than could even be imagined over  
radio at the time?

Tens of thousands of radios were built by companies like P-Com,  
Stratex, California Microwave and others. Prices were in the usual  
range of commercial microwave equipment of the time -- $30,000 -  
60,000 for a 2-mile link of 45 Mbps capacity. Winstar planned a huge  
buildout, and "lit up" hundreds of buildings in cities. I'll skip the  
intermediate steps. Today none of the high bidders or major equipment  
vendors is healthy, and most are gone. You can buy this equipment on  
eBay, much of it still with Winstar inventory stickers, for 1-2% of  
the original price. The last I tried to make it work for a local  
client, the companies that had bought up the licenses from the failed  
original bidders were still asking $50 to $500 per channel, per  
month, just for the license. This is contrasted with the usual FCC  
license fee of $1580 per channel for a 10 year license for  
frequencies in nearby non-auction bands, which still have capacity  
nearly everywhere.

FCC is an easy target for scorn, but most of the blame does not lie  
there. Through successive administrations they have been tasked with  
an absurd mandate, that the "public interest, convenience and  
necessity" test of the original Communications Act of 1934 was best  
served by allowing the market to set the price for spectrum as if it  
were real estate, urban planning be damned. In one instance we have  
seen it work -- if you consider the development of the cellular  
telephone industry -- but only because the public could be sold on  
needing a phone in every pocket. That approach doesn't work in every  
case.

--
David Josephson

> Begin forwarded message:
>
> From: Brett Glass <brett () lariat net>
> Date: August 19, 2006 11:50:00 PM EDT
> To: dave () farber net
> Subject: Spectrum Gold Rush
>
> Dave:
>
> For IP, if you'd like. Our wireless Internet service provider,  
> which has been seeking licensed spectrum for many years, knows how  
> much spectrum is worth; we know that even the FCC's minimum bid in  
> its current auctions is too high to allow profitable operation in  
> many rural regions. But we've consistently been aced out of these  
> auctions by large "spectrum barons," which bid far more than the  
> spectrum is worth and then hoard it -- perhaps seeking to drive its  
> market value up to what they paid by creating scarcity. These same  
> companies are also forming small "shell" companies so as to obtain  
> discounts which were supposed to be reserved for small entities  
> like ourselves. We urgently need licensed spectrum to serve our  
> customers, but the horribly flawed auction process is making it  
> unlikely that we'll ever obtain any.
>
> --Brett Glass, LARIAT.NET
>
> ----------------
>
> Bidders Convinced of Huge Pot at the End of the Spectrum
>
> By Arshad Mohammed
> Washington Post Staff Writer
> Friday, August 18, 2006; Page D01
>
> The country's biggest telephone and cable companies, already  
> fighting a ground war to sell consumers TV, phone and Internet  
> service, have taken their battle to the air.
>
> Both sides have spent the past two weeks bidding billions of  
> dollars against one another to buy electromagnetic spectrum -- the  
> frequencies that carry cellphone calls, TV broadcasts and wireless  
> Internet access.
>
> While they cannot see, taste or touch what they're bidding on, the  
> companies can smell profit if they can grab enough of the airwaves  
> at a government auction.
>
> It is an article of faith in the industry that, over time, more and  
> more communications will become wireless -- making spectrum a must- 
> have asset for any company that wants to be a player.
>
> "Spectrum is like money. You never have enough," said Roger Entner,  
> a wireless analyst at independent research firm Ovum.
>
> But it is a limited resource, and extremely expensive.
>
> The federal government is expected to raise as much as $15 billion  
> from its current auction. The airwaves up for grabs would be used  
> to offer fast wireless Internet access and ever-more-elaborate  
> cellphone service that puts e-mail, music and video into the palm  
> of your hand.
>
> This auction and another, due to be held by the end of January  
> 2008, are regarded as the last, best chance over the next several  
> years for companies to acquire "beachfront" spectrum that is  
> exceptionally well suited for wireless Internet and phone service.
>
> What has been most striking about the Federal Communications  
> Commission's Advanced Wireless Services auction -- which began Aug.  
> 9 and could last for weeks -- is that satellite TV providers and  
> cable companies were among the 168 bidders.
>
> Full text at
>
> http://www.washingtonpost.com/wp-dyn/content/article/2006/08/17/ 
> AR2006081701574.html
>
>
>
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