Start-Ups Prep for Wireless Auction
Monday, December 3, 2007
As Google and other major companies line up to participate in an auction of coveted airwaves for high-speed wireless, smaller firms are waiting in the wings for their piece of the action.
Two lesser-known local start-ups -- District-based Frontline Wireless and McLean-based Cyren Call -- are positioning themselves to help build a network to be shared with public safety agencies.
Companies planning to participate in next year's auction, which is expected to raise about $15 billion for the government, must file their application to the Federal Communications Commission by today. At stake is the last big swath of radio spectrum available for the foreseeable future, key to many companies' plans to offer new mobile Internet features.
Under the auction's terms, a certain portion of the airwaves sold must be available for emergency use. Frontline's goal is to build a national network for emergency responders and lease excess capacity to other carriers in order to sell speedy Internet service to consumers. Cyren Call is advising public safety agencies as they negotiate with companies, including Frontline, that are interested in bidding on the spectrum. If it wins, Frontline would work closely with Cyren Call to hammer out the details of building the network.
The FCC boosted Frontline's chances of success when it changed the rules two weeks ago to allow the company to resell wireless service to other companies, rather than having to sell directly to consumers. This would be cheaper for Frontline because it would not have to set up stores and market the services. The company would also get a 25 percent discount on its bid because it is considered a small business.
Frontline's chairman, Janice Obuchowski, who was chief of telecommunications policy in the first Bush administration, said the FCC decision was a "substantial help" to the company. "Bidding at auction is extremely expensive, especially for us, because we are building a brand new network," she said.
Reed Hundt, Frontline's vice chairman and FCC chairman during the Clinton administration, said the rule change has helped the firm line up investors to support its bid. Frontline may be up against deeper-pocketed companies such as AT&T and Verizon.
Cyren Call, led by Morgan O'Brien, founder of Nextel Communications, said it has talked to several companies interested in building a network to share with public safety agencies. Cyren Call lost a bid to get Congress to grant airwaves for a public safety network that Cyren Call hoped to manage. The company is now aiming to oversee the construction of the network as a liaison between the winner and public safety groups.
But by far the biggest impact of the auction for consumers would be determined by the rivalries between the cellphone giants and Google.
This summer, Google, along with Frontline and other technology companies and consumer groups, helped persuade the FCC to require the winner to open the network to any device or software -- a move that could ultimately mean consumers would have more choice about which phone they use and what they can do on their phones.
Google and other Internet companies are seeking more-open network policies to make it easier for users to access their services. Separately, Google recently launched a system to encourage developers to create cellphone programs.
Initially, Google's proposal met with stiff opposition from carriers, which typically exert far more control over what consumers can do with their phones. But in a surprise move last week, Verizon Wireless said it would start allowing customers to use any device or software on its network. Many analysts say the sudden change in course is a sign that Verizon will make a serious bid for the airwaves and could keep Google on the sidelines.
Google said it plans to participate in the auction, but it's unclear if it is willing to spend enough to outbid its competitors.
Taken together with Google's proposal, Verizon's pledge to open its network means "Google can more easily bow out of the auction," said Rebecca Arbogast, a telecom analyst with Stifel Nicolaus.
Google would still have an incentive to make sure the tougher open-access standards put in place by the FCC are applied to the winner's network.
Although AT&T, the largest U.S. cellphone carrier, was once considered a serious contender for the same spectrum eyed by Verizon and Google, the company in October agreed to pay Aloha Partners $2.5 billion for wireless licenses similar to those being auctioned off in smaller pieces.
"Now that AT&T owns smaller chunks of spectrum, filling in the gaps with other small pieces makes the most sense," said Paul Gallant, a telecom analyst with the Stanford Group.
No matter which company ends up winning the various pieces of spectrum, the auction has spurred wireless firms to rethink their strategies, said Ben Scott of Free Press, a public interest group that pushed for open-access conditions for the airwaves. "The role of regulatory pressure is clearly something we can't ignore."