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Sunday Gazette - Mail; Charleston, W.V.

By Amol Sharma

Satellite companies, cable providers and small telephone companies are vying for stakes in a precious slice of the nation's airwaves as they seek to provide the wireless Internet and phone services that consumers increasingly demand.

The Federal Communications Commission will kick off one of its largest auctions of radio spectrum next Wednesday, and dozens of companies - including many that aren't traditional wireless- industry players - have qualified to bid.

Cellular operators like T-Mobile USA and Verizon Wireless will be at the table, looking to complement their existing holdings and expand their cellular broadband services. But they'll be joined by some powerful and deep-pocketed new entrants that are aiming to offer consumers their own versions of wireless Internet and cell phone service within a few years.

The broad interest in the spectrum auction may be good news for consumers, foreshadowing more competition in the high-speed Internet- access market, which is dominated by large phone and cable companies. It could also lead to more offerings of advanced cell phone services such as music and video downloads. But it isn't clear whether the investments will pay off for the companies. Six years ago, European carriers spent billions of dollars in a similar auction of third-generation, or 3G, spectrum, but they have yet to get a significant return on that investment.

A consortium that includes satellite providers EchoStar Communications Corp. and DirecTV Group Inc., a News Corp. unit, put down a deposit of almost $1 billion to reserve the right to bid, the biggest such "upfront" payment. Meanwhile, several large cable providers, including Time Warner Cable Inc., Comcast Corp. and Cox Communications Inc., also jointly registered, putting down $638 million, a strong signal that they are interested in acquiring spectrum.

"You're not going to see anything overnight, but this is the first step in potentially bringing very different competitors to the marketplace," says Sharon Armbrust, senior media and telecom analyst for Kagan Research, a unit of JupiterKagan Inc. "It's a defining moment for the wireless industry."

Satellite companies are trailing cable providers and telephone giants such as Verizon Communications Inc. in the race to offer consumers a one-stop shop for phone, wireless, TV and Internet service. Their high-speed Internet services are slower and less popular, and they don't offer phone service.

For now, the satellite providers are joining forces with the large phone companies, providing the video component of service bundles. But that strategy won't work long term, analysts say, because the phone companies are getting their own TV services off the ground. "That's just a marriage of convenience for the telephone companies," says J.H. Snider, research director of the wireless- future program at the New America Foundation in Washington.

Building a wireless broadband network would help the satellite giants develop more reliable Internet services - and potentially even voice services - so they could serve consumers with bundles of their own. Acquiring spectrum is one route to that goal, analysts say, but there are others.

Cable operators, meanwhile, have quickly rolled out phone service and are the furthest along in providing a "quadruple play" of services for consumers. They can offer TV, phone and Internet service, but they lack a wireless service. Leading cable providers like Comcast and Time Warner have joined with Sprint Nextel Corp., the third-largest wireless carrier by subscribers, enabling them to resell Sprint's wireless service as part of their packages. But that, too, is seen by many analysts as a short-term solution.

Cable and satellite executives have been quiet about their plans in advance of the auction, partly because of FCC rules restricting what they can say, and partly because they don't want to tip off competitors. "We're not going to comment on what we're doing there while that process is ongoing," Jeffrey Bewkes, Time Warner Inc.'s president and chief operating officer, said in an earnings conference call Wednesday. He said the cable deal with Sprint gives Time Warner "a third screen beyond just the television and the PC screen."

It's not clear how quickly new wireless Internet services will come to market, or what specific services will emerge. The placeholder payments don't require companies to bid. Instead, they give companies eligibility to bid on a certain number of spectrum "licenses." And there's no way to tell whether the companies that acquire spectrum will roll out new services quickly. "It could be anything from a head fake, to getting your feet wet, to a full- blown desire to offer service," says Joe Nordgaard, managing director of Spectral Advantage LLC, a wireless consulting firm.

But the upfront payments are a good gauge of overall interest in the spectrum, analysts say. The FCC collected $4.3 billion in upfront payments from a total of 168 bidders who met the agency's qualifications. The Congressional Budget Office expects the auction itself could raise as much as $15 billion for the U.S. Treasury.

The heavy upfront commitments from the cable and satellite TV companies helped derail an FCC plan to make the bidding anonymous. That plan was designed to prevent collusion among top carriers, but the broad interest in the auction convinced the agency there will be enough competition even if bidders know each other's identity.

Smaller providers are entering the wireless market as well. An entity linked to Aloha Partners LP, which plans to provide wireless Internet access to consumers and broadcast TV service for cell phone companies, pledged an upfront sum of $52 million. Several rural telephone companies also signaled they will bid.

Meanwhile, leading carriers like Verizon Wireless and Cingular Wireless, which have already begun rolling out 3G services on cell phones using their existing spectrum, may want to acquire more. T- Mobile, the fourth-largest operator, is expected to be an aggressive bidder because, unlike its larger competitors, it doesn't have enough spectrum to roll out 3G services. Sprint Nextel has less of an incentive to bid because it already controls a wide swath of spectrum for deploying wireless broadband services.

The FCC has been auctioning off portions of the nation's airwaves since 1994. Congress wanted to raise new revenue to decrease the budget deficit, and lawmakers figured spectrum auctions would help toward that goal. Before auctions, the FCC handed out cellular licenses through lotteries, but the wireless industry complained that the system was flawed. Winners of many licenses were investors and "spectrum speculators" rather than companies that were actually interested in offering wireless services.

For companies that miss out on this round, there will be other opportunities. In 2008, the FCC will auction what may be an even more valuable spectrum slice, the one now occupied by local TV stations.

(c) 2006 Sunday Gazette - Mail; Charleston, W.V.. Provided by ProQuest Information and Learning. All rights Reserved.