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Cable Operators

Cable Firms Eye Spectrum

5/12/2006 8:06 PM Eastern

The disclosure that the top cable operators aligned with Sprint Nextel Corp. have filed applications to take part in a major wireless-spectrum auction next month has fueled speculation that they might move to acquire their own wireless-network assets to add mobile services to their communications bundles.

The Federal Communications Commission’s auction of 1,222 Advanced Wireless Spectrum licenses in markets across the nation could also draw Internet service competitors into the fray, but a quick check indicates notable players Google Inc. and EarthLink Inc. are going to pass. The filing deadline for the auction was May 10 for the auction, which is set to begin June 29.

Air Battle
Advanced Wireless Spectrum
Source:
MCN research

What It Is: Radio spectrum to be used for fixed and mobile terrestrial wireless applications. That includes voice and data, such as Internet browsing, message services, and full-motion video content.
Where It Is: 90 Megahertz of total spectrum distributed in the 1710-1755 MHz band and in the 2110-2155 MHz band.
Who’s Interested In It: Cellular providers, broadband service providers.
How They’ll Get It: Competitors will bid in rounds for the blocks of spectrum. The auction is blind, so the FCC will release information on the bids submitted and their amounts but not the bidder identity. It will then announce the winning bids, including the bidder identity.
When Bidding Begins: June 29

BIG CABLE NAMES

The FCC will not release the official bidders’ list for another two weeks, but among the names that will appear are the Sprint Nextel joint venture partners, including Time Warner Cable, Comcast Corp., Cox Communications Inc. and Bright House Networks. The four operators have been working with Sprint to develop co-branded wireless services that will start rolling out later this year. News of the cable companies’ potential interest in the auction emerged during a Time Warner Cable investor meeting last Wednesday.

Google spokeswoman Megan Quinn, meanwhile, confirmed late last week the search-engine and targeted-advertising juggernaut did not file an application to take part in the auction.

Nor is EarthLink Inc. taking part. Communications director Jerry Grasso said that while the Internet-service provider is delving into Wi-Fi services using unlicensed spectrum — most notably working with Google to build a network in San Francisco — it did not submit a bid application.

Microsoft declined to comment on whether or not it had submitted an application.

For the cable companies, the application doesn’t mean they will take part in the auction — it just gives them the option to do so.

In a statement, Time Warner Cable said the joint venture partners are still evaluating whether to participate in the auction “should we decide it makes business sense to do so.”

The auction will offer up a generous block of spectrum consisting of 10-Megahertz or 20-MHz chunks in two frequency bands — one between 1710-1755 MHz and the other between 2110-2155 MHz. The licenses can be used for fixed or mobile broadband applications, including broadband cellular services.

With licenses being offered for specific markets, each of the cable operators could bid for spectrum specific to their service territories, according to Adlane Fellah, senior analyst for spectrum analyst firm Maravedis Inc.

“How much they have to pay depends on others’ bids, too,” he added, saying the auction could bring in as much as $15 billion in revenue for the government.

Cable operators would also have competition from traditional cellular carriers. During AT&T Inc.’s first-quarter earnings call last month, senior executive vice president and chief financial officer Rick Lindner said the Bell operator is talking with its Cingular Wireless subsidiary and would likely apply to take part. But like the cable operators, Lindner stopped short of saying AT&T and Cingular would submit bids.

Tole Hart, research director specializing in wireless for analyst firm Gartner Inc., said T-Mobile USA and Verizon Communications Inc. are expected to be major bidders in the auction, because they don’t have as much spectrum as rivals Sprint Nextel and Cingular Wireless.

Given the competition, even if there is less bidding interest in some of the rural licenses, “you are going to need to spend a lot of money to get all of the licenses you want,” Hart said.

Fellah also points out there are significant costs beyond just the spectrum licenses — and said that might be where Sprint figures into the equation. It could supply the critical towers needed to build a new wireless network in tandem with auction winners spending millions for spectrum.

NEW DEVICES NEEDED

Any spectrum winners will have to develop the devices with radios that can tune to the 1700 or 2100 Megahertz frequency bands, which are outside of the frequencies used for existing cell phone services.

Cell phone manufacturers, including Motorola Inc. and NEC Corp., have already said they are working on devices that will tune to the new spectrum.

For now, the big question regarding the operators is whether or not they’re willing to make a big investment in spectrum in order to gain more control of their future wireless services.

Gartner’s Hart seemed skeptical. “It seems like a long shot to me,” he said. “If Time Warner wants to be a full-service player, with control of their own destiny, that may be the route they might have to take.

“But they are going to have to spend a lot of money to do it, and is that money worth it? Or are they just better off working with Sprint and having wireless as a service?”

September