A Political and Economic Policy Game

Airwave auctions and a growing wireless telecommunications industry create a high-stakes market

P> NextWave Communications, Washington, D.C., wants to build hotels on Park Place and Boardwalk.


Well, actually it plans to sell wireless phone service in some of the biggest cities in the country, which amounts to the same kind of high-stakes real estate game you'd find in Monopoly.


The "real estate" here is spectrum -- the gold of the airwaves. Like land, a lot of spectrum exists, but some of it is more desirable. Airwaves at certain frequencies, for example, are prime spots, like Manhattan real estate. Certain uses, such as television or satellite communications, are designated to each chunk of spectrum, also raising the stakes (think commercial use or liquor license). And not all of it is available: The government has reserved some spectrum for its own communications use, the airwave equivalent of eminent domain.

Especially in the past few years, spectrum allocation and management has erupted into a cutthroat, big-money industry that makes real estate look like a walk in the park.

The telecommunications business has exploded, with businesses and individuals demanding more and better cellular, television, radio and paging services.

"Spectrum has turned out to be worth twice as much as anyone thought it would," said Jack Linthicum, the Federal Communications Commission's spectrum expert.

The frenzy began in 1993, when Congress passed a law requiring the FCC to auction chunks of spectrum. Previously, the FCC held lotteries where companies, regardless of capital, reputation or anything else, could win the right to use spectrum by having the same number as the winning Ping-Pong ball. That method resulted in private auctions, where winners would sell to the highest bidder.

Now, the FCC holds high-profile auctions that last for months and are accompanied by lawsuits and accusations of unfair dealings. "Over the past few years, there has been a real sea change in spectrum assignment policy," said Mark Golden, vice president of industry affairs for the Personal Communications Industry Association.

So far, the FCC has received $20.2 billion in seven auctions, with several more planned or in progress. When Congress passed the 1993 law, the House Budget Committee estimated auctions would bring in $10.2 billion over five years. "We have exceeded all expectations," said FCC Chairman Reed Hundt in his latest praise of the auctions.

At press time, NextWave seemed to be inching toward a major win for the right to provide personal communications services, a new wireless phone technology. So far, NextWave has bid $4 billion in the Block C auction that began in December and is expected to be wrapped up this month. This auction was designated for small companies, but bidders raised the pot considerably through financial backing from larger companies. In fact, the C Block companies will end up paying higher prices than the A and B designated powerhouses, which include AT&T and Sprint.

"It has been a long, drawn-out process," admitted NextWave spokesman Kevin Christiano. However, he said, auctions are much better than the old lottery method. And in the end, it's just part of the business NextWave has chosen. "You can't run a wireless business without licenses," Christiano said.

Selling licenses is only part of the extremely complicated spectrum allocation process. Another part is "refarming," which means redeveloping a chunk of spectrum. That includes relocating current users, or determining how to share space.

The FCC must make sure that even if it auctions off chunks of the spectrum now used by a utility, for example, the new licensee either works peacefully with or relocates the company.

Certain markets, such as paging, have matured so much that almost all of its designated spectrum has been taken. The paging industry is now lobbying to get new frequencies as competition gets more intense.

Because spectrum has become so valuable, the way government regulates it has profound economic impact. "It's like currency," said Bennet Z. Kobb, author of "The Spectrum Guide." "You can't just print money without there being a ripple effect." It makes sense, therefore, that the real questions and controversies today in spectrum are more economic than scientific.

The most common and important communications systems today, such as cellular, radio and television, are under 1,000 MHz. Personal communications services come in under 2,000 MHz and microwave ovens are at 2,500 MHz. Way up at 12,000 MHz is television satellite spectrum. Higher frequencies development is sparse.

But some of the "new" spectrum is not as valuable, said Kobb, because it had been used by the government and now has technical constraints that would make it difficult for others to use.

All spectrum is designated either fixed, such as a television set-top box, or mobile, such as a pager.

While the FCC regulates private airwaves and the National Telecommunications and Information Administration -- part of the Commerce Department -- oversees the public spectrum, some members of Congress are calling for spectrum reform.

Digital television will be a major point of contention. The FCC has long been discussing whether to switch the United States to digital TV, a move that would have far-reaching impact on the broadcasting industry. "There's a real environment of horse trading going on," said Kobb.

No matter how much lobbying or how many licenses a company has managed to win, there is no guarantee of business success, said Golden.

NextWave's Christiano concurred, but added: "Hopefully the amount of money a company has reflects its business plan."

If NextWave wins the spectrum auction, the company may be well on its way to success. David J. Roddy, chief telecommunications economist at Deloitte & Touche Consulting Group, Atlanta, said the winners of the personal communications services spectrum will have an automatic window to the extremely profitable international telecom market. "The big winners in the spectrum auction will have to be integrally linked into the global telecommunications marketplace -- and that is where wireless profits will come from over the next decade," said Roddy.


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