Airwaves Auction May Raise $20 Billion

The wireless future goes on sale today when the federal government puts a huge swath of radio-wave spectrum on the auction block.

With the use of cellular telephones and other wireless gadgets booming, the invisible bands of spectrum that serve as the nation’s data highways are getting overloaded.

Putting valuable frequencies now used by the Pentagon and other agencies to commercial use is expected to help cellular phone carriers as well as cable and satellite TV providers expand their services.

One of the largest spectrum auctions ever, the sale could bring as much as $20 billion into federal coffers that could be used to offset the nation’s budget deficit.

The sale, which combined with another auction planned for early 2008, would nearly double the amount of bandwidth available for advanced wireless devices in the United States.

It also promises to jump start the spectrum land-rush for the next generation of wireless services. Known as 3G, for third generation, the technology can enable cellphones to access e-mail, music and video content at high speeds.

“This is sort of the birth of wireless broadband,” said Rudy Baca, a partner at Rini Coran, a Washington telecommunications and media law firm.

The last big reallocation of spectrum occurred between 1994 and 2001, when several large chunks of bandwidth were auctioned, setting off the current wireless boom. The competition for exclusive licenses to slices of this spectrum could be intense. About 168 bidders have qualified for the complex, online auction by the Federal Communications Commission that starts this morning and could take several weeks to complete.

“It looks like there’s a lot of strong interest,” FCC Commissioner Robert McDowell said Tuesday. “Let the games begin.”

Major cellular phone companies such as Cingular Wireless, Verizon Wireless, and spectrum-strapped T-Mobile USA, want to add more bandwidth so they can transmit the large amounts of data required for mobile TV and other cutting-edge services. Dozens of small, rural phone carriers plan to bid for bits of spectrum in their areas as the most cost-effective way to expand and improve services.

But they aren’t the only players in the high-stakes bidding war.

Eager to add wireless voice and data into bundles of high-tech services for customers, some major cable TV companies, including a consortium of Time Warner Cable, Comcast Corp. and Cox Communications Inc., will try to win some of the spectrum. So will satellite TV providers DirecTV Group Inc. and EchoStar Communications Corp., which plan to jointly bid under the name Wireless DBS so they can offer wireless high-speed Internet access.

All the competition for spectrum assures at least one winner in the upcoming auction -- wireless customers.

“If what’s good for consumers is lower prices then everything that’s happening now is good for consumers because there are more competitors,” said Sharon Armbrust, a senior analyst for Kagan Research.

Customers who buy packages of services may see lower prices, but most of the spectrum probably will go to large telecommunications companies, blocking the emergence of significant new players that really could drive down prices, said Jennine Kenney, a senior policy analyst with Consumers Union.

When the auction begins, companies will be fighting over something they can’t see or touch.

Radio wave spectrum is a form of electromagnetic radiation traveling invisibly through the air. Each wave varies in length -- measured in units called hertz -- and is suited for different uses, from baby monitors to TV signals. For example, the frequency bands between 88 and 108 megahertz are allocated to FM radio stations.

The federal government assigns licenses for most of the spectrum, which is considered public property and can be allocated regionally.

The last major auction of prime cellphone spectrum was completed in 2001 and generated about $17 billion.

But the wireless industry has grown dramatically since then. By the end of 2005, the number of cellphone subscribers had nearly doubled, to 208 million, according to the Cellular Telecommunications and Internet Assn. And those phones are being used much more -- 1.5 trillion minutes last year, up from 259 billion minutes in 2000.

That has crowded the airwaves. The U.S. has about a third as much cellphone spectrum as Europe, said Michael D. Gallagher, the former director of the Commerce Department’s National Telecommunications and Information Administration.

Gallagher worked with the Pentagon and 11 other federal agencies to free up some of the 90 megahertz of spectrum being auctioned today.

“The goal was to find just the right spectrum for today’s mobile technology and this spectrum is it,” said Gallagher, now a partner at the Washington law firm Perkins Coie.

Revenues from the auction will pay the approximately $936 million to move existing functions such as precision guided weapons and outdated long-distance microwave communications equipment to new bands of the spectrum. The transition will take about two years to complete.

T-Mobile is the cellular phone company with the most at stake in today’s auction, analysts said. The Deutsche Telekom unit was a late entry to the U.S. wireless market and has substantially less spectrum than Sprint Nextel Corp., Verizon and Cingular, which added to its licenses when it acquired AT&T; Wireless.

“They are desperately in need of spectrum in order to evolve their service and try to get to be a big player alongside Sprint and Verizon and Cingular,” Charles Golvin, a wireless analyst at Forrester Research.

Qualified firms must buy initial bidding credits to participate in the auction. T-Mobile has put up more than any other cellular phone company: $584 million upfront. Cingular put up $500 million, to Verizon’s $383 million.

Cable and satellite TV providers are even more desperate for wireless spectrum.

Sprint Nextel has teamed up with Time Warner Cable, Comcast and Cox, in a joint bidding group that has put up $638 million. For cable companies, adding wireless services to the current bundle they offer customers would transform what they call their “triple play,” which includes TV, phone and Internet access, into the “quadruple play,” Armbrust said.

The biggest upfront payment -- $973 million -- was made by the DirecTV/EchoStar joint venture. It has fueled rumors of a possible merger of the two satellite TV providers.

Satellite TV has lagged behind cable in offering high-speed Internet access. Wireless broadband, along with cellular voice service, could be the key to satellite’s future, Armbrust said, although it could take the companies several years to roll out the new offerings.

“They don’t have enough services if the competition is going to be triple and quadruple play,” she said.

DirecTV, which is controlled by Rupert Murdoch’s News Corp., and EchoStar “have to do something to stay in the game otherwise they really would be ... nothing more than a good video company.”

Asked in a recent TV interview when DirecTV would offer broadband Internet access, Murdoch alluded to the upcoming auction.

“The technology doesn’t seem to be a problem,” he said. “It’s getting the frequencies.”