Wireless Broadband: (Buy It and) Build It and They Will Come

The 700 MHz auction is winding down to a close, with experts saying it may well end in the next few days. Already the activity seems over in the critical C block, where it''s expected that a major carrier, probably Verizon, has won.

The bidding has been blind, and no one will know who bid what until it''s all over, but Google is believed to have bid to the point at which the FCC minimum of $4.6 billion was met. At that point, the open-access rules that the FCC imposed, at Google''s behest, will govern the operation of the eventual network.

That is, whoever runs the network will have to allow its customers to use their own devices''customers won''t be limited to cellphones and data cards sold by the carrier. Similarly, developers can create applications and services for the network without having to work with the carrier, whether it''s a game like Tetris or a collection of ringtones.

The Register has an interesting article concluding that the C block winner just about has to be a major carrier. It''s a long and complicated argument, but, briefly, it goes like this: The 700 MHz band being auctioned have been called ''the last beachfront spectrum'' because of its excellent propagation characteristics, but it''s not really ideal for all possible uses. In particular, its ability to transmit signals over long distances is great for rural areas, where carriers can cover more terrain with fewer base stations. But it can have problems in urban areas (even though does a better job of punching through apartment and office walls), because the very excellence of its propagation make it more likely that signals will trail into other nearby cells, causing interference there.

The upshot is that, in the view of the Register, the 700 MHz spectrum is probably best used in a nationwide network that blends other 3G spectrum, such as the 1.9 MHz bands that AT&T and Verizon already control, for urban areas, with 700 MHz spectrum in urban areas.

Increasingly in the world of cellular there are such combinations in existence already. A device may have a radio operating in 800 MHz, 900 MHz, 1.9 MHz and shortly 1.7 MHz, 2.1 MHz and 2.5 MHz, all potentially in the same device. [....]

In the end it is more likely that a fat 2.5 GHz (90 MHz wide) will become the best way to transmit large chunks of two way mobile internet access in a town, and that networks will eventually emerge combining that with longer wavelengths (lower MHz) out of town. There are lots of combinations possible.

Which leads us to one of the first points we made, that 700 MHz is fundamentally a rural get out clause for operators that ''already have'' networks. It makes rural build out cheaper, more effective, and it can happen more rapidly. So that in turn makes if more valuable to companies that already have nationwide wireless networks. As a result AT&T and Verizon are likely to be the major bidders.

The reference to 2.5 GHz is, of course, to Sprint and its under-construction 4G network, dubbed Xohm, which we picked as a winner in our January 2008 isssue (see ''Sprint''s Broadband Gamble'').

Recently there''s been a lot of speculation that Sprint can''t afford to build Xohm, or that its shareholders won''t let it. But, as CNet reported last week, Dan Hesse, Sprint''s new president and CEO,

indicated that Sprint is moving forward with its WiMax network, called Xohm. Previously, there had been some speculation that Sprint might abandon its WiMax efforts.

''Leave no doubt that the first priority is our core business," he said. "But Sprint has an enormous asset in the 100Mhz of spectrum (that is being used to build Xohm), and we have a three-year head start with Xohm.''

Getting back the Register''s argument, I''m not convinced''after all, the 700 MHz spectrum will have been bought and paid for in urban areas as well as rural ones, at premium prices, the spectrum will have to be used for there to be a return on that investment.

The conclusion seems right, though''the likely winner is either Verizon or AT&T, and there''s reason to think it''s Verizon. First, they made clear before the auction that they would bid aggressively on the C Block, and it was Verizon that protested, initially, against the Google open-access rules. Second, experts expected AT&T to be more attracted to the piecemeal A and B block bands, which involves lots of little geographical areas. AT&T already has a robust 3G network which only needs to be filled in here and there, the thinking has been.

Let''s consider again the fate of Xohm. Despite Dan Hesse''s assurances, Sprint faces some enormous challenges, as the CNet article spells out. Sprint posted ''a $29.5 billion loss for the fourth quarter of 2007 and warned that the company would continue to lose customers at an alarming rate in the coming year.'' It eliminated its dividend and ''had to borrow some $2.5 billion just to get access to cash.'' Churn is an enormous problem, having lost 683,000 customers in Q4 and ''likely lose another 1.2 million post-paid customers in the first quarter of 2008.'' The old CEO was fired last summer. A planned WiMax partnership with Seattle-based Clearwire has fallen apart.

Not long ago, I went to an invitation-only press briefing by the high-tech analytical firm, ABI Research. We journalists, naturally, grilled the gurus there about Xohm''s prospects in the face of these difficulties.

We were told that Xohm is such a good idea, that the uses for wireless broadband are so great, and the need for a third, competitive, nation-wide broadband offering into each home beyond cable and DSL, so compelling, that Xohm will succeed even if Sprint has to sell it to someone who will build it. Craig McCaw, the founder of Clearwire, could buy it and build it. Or a group of investors could.

But it occurs to me that Google, having not bought the 700 MHz C Block despite seeming to have compelling reasons for doing so, could turn around and snap up Xohm. For a company that''s worth more than twice the entire U.S. car manufacturing industry, stranger things have happened.


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