FCC sets airwaves sale rule

WASHINGTON Tue Jul 31, 2007 6:47pm EDT

1 of 2. Walkman phones by Sony Ericsson are displayed at the Consumer Electronics Show in Las Vegas, January 3, 2006. The winner of valuable wireless airwaves the U.S. government plans to sell by early next year would have to permit consumers to connect using any device or software, U.S. regulators decided on Tuesday.

Credit: Reuters/Steve Marcus

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WASHINGTON (Reuters) - The Federal Communications Commission voted to shake up the wireless market on Tuesday by approving rules for a big airwaves auction that would require the winner to make them accessible to any cell phone or other device.

The sale would likely begin in December or January and the government expects it to raise at least $10 billion. The airwaves are being returned by television broadcasters as they move to digital from analog signals in early 2009.

The access requirement would apply to 22 megahertz of the 62 MHz of spectrum to be sold. Two Republican FCC commissioners, who expressed reservations about the idea, stressed it would not apply to existing airwaves held by carriers like AT&T Inc. and Verizon Wireless.

The agency stopped short of a broader requirement sought by potential bidder Google Inc. that would force the winner to resell access to its network on a wholesale basis.

Currently, wireless carriers restrict the models of cell phones that can be used on their networks. They also limit the software that can be downloaded onto them, such as ring tones, music or Web browser software.

Republican FCC Chairman Kevin Martin, who proposed the access concept, received support from the agency's two Democratic commissioners.

The two Republican commissioners expressed support for parts of the auction plan but one, Robert McDowell, warned the highly tailored access conditions might end up suiting no bidder, and the other, Deborah Tate, cautioned there could be safety concerns if a network operator could not control the applications being used on its airwaves.

Martin said he hoped the carriers would apply the policy to their existing airwaves.

"I hope that will actually spur a more open platform on this new piece of spectrum, but also make sure that some of the benefits of innovation are then able to flow to some of the other networks as well," he told reporters.

The FCC suggested a $4.6 billion minimum price for the 22 MHz block of airwaves. If that price is not reached, the airwaves would be auctioned again, but without the access requirement, according to the agency.

The spectrum being sold can travel long distances and penetrate thick walls, making it particularly valuable. The auction, to be done with anonymous bidding, is seen as a last chance for a major new player to enter the wireless market.

Stifel Nicolaus analyst Chris King said that while the open access conditions would be disappointing for service providers, it should not hurt them in the near term.

"Opening to any device is probably something the wireless carriers didn't want to see," he said. "I don't think you'll see another nationwide carrier develop out of thin air."

NO WHOLESALE ACCESS

The lack of a wholesale access provision drew criticism from the agency's two Democrats.

"Several sophisticated companies and financial institutions have concluded that wholesale is indeed a viable economic model," said Democratic Commissioner Michael Copps. "Smaller entrepreneurs deserve an alternate path to wireless access."

Commercial providers will be able to bid on the 22 MHz in large regional licenses, as well as additional airwaves broken into smaller individual market licenses.

A 10 MHz swath of spectrum will be sold to a nonprofit entity for public safety officials to use, but it could be shared with commercial operators.

Supporters of the open-access approach, including Google and some U.S. consumer groups, say it will spur new competition and innovation in the market for wireless services.

Google said it would have to review details of the order before deciding whether it would bid in the auction, but praised the decision. "The FCC took some concrete steps on the road to bringing greater choice and competition to all Americans."

No. 1 U.S. wireless provider, AT&T, supported Martin's proposal, which would allow consumers the ability to move their wireless handset from network to network.

A Verizon Wireless spokesman declined comment, but an AT&T executive said the decision was a reasonable compromise.

"If Google is serious about introducing a competing business model into the wireless industry, Chairman Martin's compromise plan allows them to bid in the auction, win the spectrum, and then implement every one of the conditions they seek," said Jim Cicconi, an AT&T senior executive vice president.

(Additional reporting by Peter Kaplan in Washington and Sinead Carew in New York)

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