Broadband bundles to drive wireless spectrum sale

The so-called quadruple-play service package--which would add wireless voice and data services to an existing bundle of high-speed Internet access, telephony and television--is driving interest in the Federal Communications Commission's biggest spectrum auction in a decade, as cable operators and satellite operators vie for a piece of the action along with big names like T-Mobile.

The auction, which had been delayed several times, could run through September. The sale of the 1,122 licenses, now being used by the military and law enforcement, is expected to raise about $15 billion. The licenses will cover 90 megahertz of spectrum at 1710-1755 and 2110-2155 MHz.

While traditional wireless operators, such as T-Mobile, are expected to bid aggressively, a slew of nontraditional wireless players, such as cable operators and satellite TV providers, are also throwing their hats into the ring in an effort to bolster their service packages to compete against big phone companies, namely Verizon Communications and AT&T.

Satellite providers DirecTV and EchoStar are teaming up under the name Wireless DBS to put down $972.5 million in bids for spectrum. Cable operators Comcast, Cox Communications and Time Warner have joined forces with Sprint Nextel to form a group called SpectrumCo that is bidding $637.7 million for licenses.

Cingular Wireless and Verizon Wireless, which already have plenty of spectrum, have also made separate deposits to bid on the spectrum, according to public documents filed with the FCC. These companies are likely bidding to ensure that others don't get the spectrum too cheaply, some analysts say.

Acquiring spectrum and adding wireless services is crucial for satellite and cable operators trying to compete with phone companies. Phone companies are already starting to offer a package of services that includes telephony, broadband and now television service. What's more, Verizon and AT&T both own large stakes in wireless phone companies. And it's very likely these companies will soon begin bundling that wireless service into their offering as well.

"We are seeing the advent of wireless broadband services," said Amy Lind, an analyst with IDC. "And wireless is something that neither cable operators nor satellite companies have right now. Adding wireless will allow them to expand their offerings."

Cable operators, which have effectively used their own bundles to win new customers, see wireless as an important opportunity. Companies such as Comcast and Time Warner have proven that the more services they can offer as part of a bundle, the more leverage they have to compete on pricing. Instead of slashing prices on individual services, they can market the value of the entire package.

The strategy has worked well so far, with both Verizon and AT&T admitting during their second-quarter conference calls that the cable bundle had affected their voice businesses.

Wireless services could become an important fourth element in the cable operators' service package. But more important, cable companies see wireless services as a way to differentiate their existing offerings, by adding products that complement the services they offer today. For example, customers may use a wireless network to remotely program their digital video recorders or to take their wireless broadband service with them on the road.

Cable operators bidding in this latest auction have already indicated their interest in wireless. Last November, Comcast, Time Warner, Cox Communications and Advance/Newhouse Communications announced a joint venture with Sprint Nextel to offer cable customers a bundled wireless telephone service. Now these same companies are joining forces with Sprint to bid on additional spectrum.

While Sprint already owns a large amount of spectrum, particularly in the 2.5GHz band, the cable operators are dependent on Sprint as part of the joint venture to allow them access to its network. Bidding on spectrum themselves will give them some control over the underlying infrastructure, say some analysts.

"The cable companies are bidding so that they have an ace in the sleeve if the joint venture goes badly down the road," said Roger Entner, a telecommunications analyst at Ovum Research.

The auction is also crucial for satellite providers, such as EchoStar and DirecTV. Right now satellite companies offer TV service, and they partner with phone companies to deliver broadband. Because they don't own a terrestrial network, it's difficult for satellite providers to offer broadband services that can compete in terms of speed as well as price with cable companies.

As phone companies deploy more fiber into their networks and offer their own television services, they could dissolve their relationship with satellite providers. For this reason, some analysts believe that satellite providers may actually be in greater need of wireless spectrum than the cable companies.

"I think the satellite companies are limited in what they can offer consumers," IDC's Lind said. "They have partnerships with DSL providers, but now that AT&T is putting fiber deeper into the network, they could cut them off. Satellite needs to have some stake in the ground to provide their own broadband service."

The new spectrum licenses could allow satellite providers to offer competitive broadband services using a technology such as WiMax, which is able to deliver at least 2mbps to 4mbps of download capacity. Although it wouldn't be comparable to fixed-line broadband services from DSL providers or cable operators, it would be a start.

If cable operators and satellite providers miss out this time around in the spectrum auction, they'll at least have another opportunity to bid on a different band of spectrum that's expected to come up for auction in 2008.

The FCC is required to start auctioning the remaining unsold spectrum in the 700MHz band of spectrum by Jan. 28, 2008, under the Digital Television and Public Safety Act of 2005. Originally, the 700MHz spectrum was occupied by UHF or analog TV channels 52 through 69 (698MHz-806MHz). But it has been reallocated for use for other communications services.

In the first round of auctions for the 700MHz licenses, Aloha Partners and Qualcomm won the majority of the available licenses. Aloha Partners plans to use the spectrum for fixed and mobile broadband Internet services. Meanwhile, Qualcomm is using its licenses to build its MediaFLO, which will provide a wholesale mobile video network for cellular phone companies.

The 700MHz spectrum is attractive for wireless broadband operators because it can travel longer distances and penetrate walls. And because signals can transmit farther, less equipment is needed to build the network, which greatly reduces the cost of the network.

Because wireless spectrum is a fixed commodity, it's very important for players wishing to get into the game to make their moves when spectrum is available, Entner said.

"If a company doesn't win licenses in this auction, they better win some in the 700MHz spectrum auction," he said. "Spectrum is like money, you can never have too much of it. It's also a limited resource, so once it's gone, that's it."