FCC Auction Results

In the recent FCC auction for the upper 700 MHz band (previously used for television broadcasting), Verizon and AT&T won an astonishingly large number of licenses. Verizon invested $9.6 billion and won nearly the entire coveted C block. AT&T invested $6.6 billion and won 227 B block licenses; this is in addition to their $2.5 billion purchase of spectrum in the lower 700 MHz band last October. In all, Verizon and AT&T invested $9.6 billion and $9.1 billion (respectively) in acquiring new spectrum for developing their networks.

These numbers represent a major investment in the future of wireless communications; they also represent a significant victory for the two main wireless communications carriers in an effort to maintain their current business model. To understand the significance of this, it is important to understand the two competing communications models: Infrastructure and Application.

Infrastructure and application models

The infrastructure model is concerned with providing the infrastructure irrespective of how it will be used; this is best exemplified by the Internet itself. The Internet is a collection of interconnected networks; it is not defined by how it is used. Further, no one "owns" the Internet, and hence, no one controls what applications or devices are used on it. In contrast, the application model is concerned with providing a limited number of applications (ways in which the network is used) and is typically owned and controlled (perhaps even policed) by a single entity which is able to determine how the network is used and what it is used for. There are a great number of examples of this type of network, including the current wireless networks, the (wired) phone network, and even the electrical grid. Each model has advantages and disadvantages. The infrastructure model is like an unpaved road; it lends itself to openness and innovation but requires a more sophisticated user (driver) and suitable devices (vehicles). The application model is more of a limited-access highway; it is better suited to low-maintenance, ready-made uses (like a daily commute or cross-country drive). Innovation and openness are sacrificed to ensure a consistent and suitable environment for the existing applications and uses.

Open access and comprehensive networks

What is more telling about the future of the wireless telecommunications networks is the recent Verizon open-access announcement (dubbed "Any Device, Any App"). Verizon has committed to opening their network to provide new uses (applications and devices). However, they have done so only with the caveat that the new uses not unduly interfere with the existing uses. In concrete terms, business users have come to rely on mobile voice and e-mail communications in their daily lives. Imagine if (or when) mobile video-conferencing becomes common for the mobile worker. Without safe-guards, video-conferencing could easily swamp the network's capacity, making calls and e-mail unreliable. Verizon's goal is to open their network, but also to retain the right to limit the impact new applications (such as video-conferencing) will have on the existing applications (i.e. voice and e-mail).

The other significant impact of the recent auction is that AT&T and Verizon are both investing in comprehensive (geographical) networks. While the original 800 MHz (cellular) band was divided up into 734 Cellular Marketing Areas (CMAs), the 700 MHz block C is divided into 12 Regional Economic Area Groupings (REAGs). Verizon won 7 of the 12 REAGs, covering the entire continental U.S. and Hawaii. The remaining 5 REAGs (not won by Verizon) are: Alaska, Puerto Rico, the U.S. Virgin Islands, the Gulf of Mexico, Guam and the Northern Mariana Islands and American Samoa. For its part, AT&T's winning bids will supplement their existing 700 MHz spectrum (lower 700 MHz Block C, purchased from Aloha partners in October).

Lower frequency—better reception

The last important detail is the spectrum frequency itself. Shorter frequency waves (represented by smaller numbers) penetrate solid-matter (like walls) better than longer frequency waves. The effect of this is simple and significant: better reception, especially inside office buildings.