The New Wireless Wars

[David Farber <dave () farber net>]

Begin forwarded message:

From: Dewayne Hendricks <dewayne () warpspeed com>
Date: May 20, 2006 9:20:19 AM EDT
To: Dewayne-Net Technology List <dewayne-net () warpspeed com>
Subject: [Dewayne-Net] The New Wireless Wars
Reply-To: dewayne () warpspeed com

MAY 15, 2006
<http://www.businessweek.com/technology/content/may2006/ 
tc20060515_848569.htm>

The New Wireless Wars

By Olga Kharif

Uncle Sam's spectrum auction opens the door for small fry like Craig  
McCaw's Clearwire, reversing a trend to consolidation

On May 11, 2006, a low-profile company called Clearwire Corp., headed  
by wireless pioneer Craig O. McCaw, filed with the Securities &  
Exchange Commission to go public. The initial public offering is  
expected to raise $400 million, and, in its filing, the company says  
it will use the proceeds to expand its network for offering wireless  
broadband services.

In particular, Clearwire says it will use the money to acquire radio  
spectrum, which suggests it could be one of the major bidders in a U.  
S. government auction of wireless spectrum this summer. "We intend to  
deploy our advanced wireless broadband network broadly both in terms  
of geography and categories of subscribers," the company said in its  
SEC filing. That's a big promise, but as Clearwire's SEC filing  
notes, giant chipmaker Intel (INTC ) spent $20 million in 2004 for a  
stake in the company.

McCaw's Clearwire and Intel are just a couple of the players  
jockeying for position in the derby that's been labeled Auction 66.  
Scheduled to kick off on June 29, it's shaping up to be much more  
than just another sale of the airwaves by the Federal Communications  
Commission. It involves the biggest chunk of wireless spectrum ever  
to come up for auction in the U.S., worth an estimated $8 billion to  
$15 billion.

Other possible participants include Microsoft (MSFT ), TimeWarner  
(TWX ), and News Corp (NEWS ). "It's likely to be the most exciting  
auction we've ever seen," says Richard Doherty, director of  
consultancy the Envisioneering Group.

MORE TURMOIL.  What's grabbing the attention of such big players is  
that the spectrum is considered particularly valuable. Chris Hardy,  
vice-president and general manager of the consulting firm Comsearch,  
which is working with several of the bidders, says the winners could  
build three or more new nationwide wireless networks, offering voice  
service, broadband Internet access, or mobile TV services. "This  
spectrum is wide open to applications," says Hardy. "Virtually any  
wireless [technology] can be put in."

What this means is that the communications industry, after a five- 
year shakeout, is headed for more turmoil. Just as the wireless  
industry has consolidated down to three major players, the survivors  
could face a new crop of competitors who could kick off pricing wars  
and change the industry's dynamics like never before. Companies that  
want to participate in the auction had to express their interest to  
the FCC this month, but those names won't be made public until mid- 
June. Bidding in Auction 66 is expected to run one to two months.

Within four to five years, this auction's winners could have these  
wireless networks up and running, competing directly with entrenched  
carriers like Cingular, Verizon Wireless, Sprint Nextel (S ) and T- 
Mobile, also expected to participate in Auction 66 (see BW Online,  
05/08/06 "At Sprint, Full Speed Ahead").

THE McCAW FACTOR.  In effect, this auction could wipe out two years  
of wireless industry consolidation, when Cingular swallowed AT&T  
Wireless, and Sprint acquired Nextel, cutting the number of  
nationwide cellular service providers from six to four. Thanks to  
Auction 66, the number of national wireless networks in the U.S.  
could potentially balloon from four to seven or more within a few  
years, says Hardy.

New wireless players could come from a range of industries and  
backgrounds. Clearwire, which wouldn't comment on the auction or its  
network plans, is just one of the likely bidders. Its chairman and co- 
CEO, McCaw, achieved fame for cobbling together cellular spectrum in  
the 1980s to build McCaw Cellular, which he sold in 1994 to the old  
AT&T for $11.5 billion. In the process, he became one of AT&T's  
largest shareholders. Auction 66 could mark the hatching of a similar  
spectrum plan, this time involving Clearwire.

Another potential bidder is small service provider Leap Wireless. On  
May 9, Leap announced a $250 million sale of its common stock  
specifically to finance participation in Auction 66. Other potential  
bidders could include ventures backed by Microsoft Chairman Bill  
Gates and Microsoft co-founder Paul Allen, says Doherty. "It's a  
billionaires' high-stakes poker game," he says.

CABLE CALLING.  While portals Yahoo (YHOO ) and Google (GOOG ), at  
the top of analysts' list of potential bidders, won't participate in  
the auction directly, they could play a role through partners. Both  
portals tell BusinessWeek Online they have not applied to take part  
in the auction. Still, Google is expected to participate in the  
auction through EarthLink, an Internet Service Provider (ISP) with  
which the search company has partnered to build out a wireless  
network in San Francisco. EarthLink would not comment on whether it  
has applied to take part in the auction.

[snip]

Weblog at: <http://weblog.warpspeed.com>



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