The 700 MHz auction could usher in 4G wireless, but it presents bidders with a diverse -- and potentially treacherous -- mix of regulatory requirements.

One of the biggest events in telecom in 2008 undoubtedly will be the 700 MHz auction, which some are calling the last great spectrum auction. The new spectrum is expected to pave the way for 4G networks based on long-term evolution and ultra mobile broadband technology, add capacity for incumbent wireless operators, and support a hybrid network that will serve public safety as well as commercial users.

The spectrum also has captured the attention of nontraditional players such as Apple and Google — although some question whether the auction ultimately will yield any major new market entrants. Whether the hybrid network actually will materialize is also in doubt, as are the FCC “open-access” rules that would require network operators to allow devices not of their own choosing to function on a portion of the spectrum.

The 700 MHz spectrum is attractive to network operators in part because of its relative scarcity. The spectrum will become available in 2009 because UHF television stations currently occupying the band must vacate it by then. Adding to the spectrum's appeal are its propagation characteristics. These make the 700 MHz band more attractive than other bands such as the advanced wireless services (AWS) spectrum auctioned last year, noted Andrew Seybold, founder and principal of the consulting firm that bears his name. The 700 MHz band, he said, “has better penetration inside buildings and requires fewer sites to get the same coverage.”

The 700 MHz auction will comprise a total of 62 MHz of spectrum to be auctioned off in five separate blocks. The A-, B- and E-blocks are broken into relatively small geographic areas. The A- and B-blocks each include 12 MHz of spectrum, while the E-block comprises 6 MHz.

Most potential auction bidders are keeping their plans secret, but industry observers expect A-, B- and E-block licenses to end up largely in the hands of existing wireless operators, who will likely use the spectrum to expand capacity of their existing networks. The 734 B-block licenses could be particularly well-suited to smaller operators, as their boundaries are virtually identical to those of existing cellular licenses.

The block that has garnered the most attention is the C-block: a 22 MHz block divided into 12 regional licenses for which the FCC will accept nationwide bids. The C-block is the largest single block of spectrum in the auction and the one that bears the open-access requirements. Those requirements were added at the urging of Google, which told the FCC this summer that it would be interested in bidding on the spectrum if certain conditions were imposed.

The FCC did not adopt all of Google's suggestions. Notably, a requirement for network operators to offer the spectrum on a wholesale basis was omitted. But although Google did not get all the conditions it wanted, many industry stakeholders expect to see the company bid on the C-block — even if the company does not ultimately enter the network operator business. Some also expect Apple to make a bid, but that company's seriousness also is in question.

“I don't think Google or Apple really understand the limitations of wireless and shared bandwidth,” Seybold said. “At 700 MHz, you can build fewer towers, but as more people share the capacity of a cell site, and you get to a point where you can't put any more people on, the only way to get capacity is to build another cell site closer. It's a long, expensive process.”

Seybold said, however, that if a nontraditional player such as Apple or Google were to win the C-block auction, “they don't necessarily have to build a network. After the auction is over, the currency becomes the spectrum, not the dollars. Google or Apple could sit down and make a deal with an incumbent or a number of incumbents and slice and dice the spectrum.”

Iain Gillot, president of research firm IGR, had a similar take. Google is using a carrot-and-stick approach to wireless operators, he said. “The stick is open access, and the carrot is the Linux operating system, co-branding and sharing ad revenue,” Gillot said.

The fate of the open-access requirements, however, is in question. In September, Verizon asked a federal court to set aside the FCC's open-access requirements. Another concern is that if minimum bids are not met in the auction's first round, the FCC could potentially relax or eliminate the open-access requirements in future rounds.

And even if they are upheld, some industry observers question how powerful the requirements would really be. “The biggest unknown is who's enforcing it,” said Blair Levin, managing director for Stifel Nicolaus. “A Chairman Copps would enforce it quite differently than a Chairman McDowell.”

“I seriously question the open-access idea,” said Gillot. He asked what would happen if, for example, a consumer experienced problems with a network-connected device, but the manufacturer and network operator blamed each other for the problems.

Seybold raised another concern. “Open access is just on that one band,” he said. Noting that incumbents with other spectrum are not required to provide open access on their other bands, he said, “I don't know who'll buy a device that only works on one portion of a complete network.” Seybold also said that nothing in the open-access requirements prevents a manufacturer from offering a device exclusively to a single network operator.

Although he expects a wide range of players to bid in the C-block auction, Seybold believes incumbent wireless operators ultimately will win because they are the ones who want the spectrum the most — and because the new spectrum is more useful to companies that already have wireless networks. Seybold questioned whether 22 MHz was enough spectrum to support a new player. “It's not enough by itself for a new nationwide broadband network, regardless of the technology,” he said. “There's not enough capacity unless you built it out so every home had its own cell site.”