WATPA: FW: Internet, Media Outfits Could Bid For Spectrum

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Internet, Media Outfits Could Bid For Spectrum

BY REINHARDT KRAUSE

INVESTOR'S BUSINESS DAILY

Posted 4/10/2006

Analysts are speculating that Internet and media companies could team up to
bid for radio spectrum in order to launch wireless broadband services, as a
way around the phone companies.

Rumors that nontelecom companies could bid for wireless spectrum have
floated around for a few years. The new speculation focuses on large
Internet content firms such as Google, (GOOG) Amazon.com, (AMZN) and eBay.
(EBAY)

Fueling the talk is a regulatory battle < the network neutrality issue <
pitting Internet firms against phone companies AT&T, (T) Verizon
Communications, (VZ) and BellSouth. (BLS)

Phone companies want to charge Internet firms for moving movies, video
games, music and other bandwidth-hungry content over their networks. This is
aside from the subscription fees they charge broadband subscribers.

Under their plan, Internet firms would pay extra to transmit content via
faster and more secure lanes on the Internet highway.

Internet firms object. They want lawmakers and regulators to guarantee
network neutrality. That means all Internet traffic would be treated the
same, and that phone company customers couldn't get special treatment over
others.

Phone companies and cable TV operators provide most high-speed connections
to homes. Cable firms are part of the debate, but for now phone outfits are
in the forefront.

By owning their own radio spectrum, Internet and media firms could deliver
services to homes via their own wireless broadband pipe. But that's only if
they pay the billions of dollars the spectrum is expected to garner at
auction, plus build wireless networks.

Few Taking Any Bets

That's a big if, but phone companies are watching closely because the stakes
are so high.

"It wouldn't shock me to find a range of unusual bidders in the upcoming
spectrum auctions," said Jim Cicconi, AT&T senior vice president for
legislative affairs.

But there's no question about his point of view.

"Experience has shown that some companies haven't needed a well thought-out
business plan to bid (in earlier auctions)," he said.

The federal government has two big spectrum auctions in the works. One is
scheduled for June and involves spectrum in the 1710-1755 and 2110-2155 MHz
frequency bands.

The second auction would involve frequency in the 700 MHz band. That auction
depends on TV broadcasters returning spectrum to the government after they
move to high definition. That auction might not occur until 2008.

Cicconi suggests that wireless broadband might not be the best business for
Internet or media firms. He says they might be better off cutting a deal
with AT&T or other phone companies, which are experienced network operators.

"Any content provider would have a build vs. buy (bandwidth) decision to
make," he added. "What's the cost of building out your own network as
opposed to contracting for a service?"

Real-Time Video Isn't Easy

Cicconi adds that it would be challenging for Internet firms to deliver
streaming video services reliably via wireless broadband.

Some methods that Internet and media firms seem to be eyeing don't involve
real-time streaming.

Instead, video or other content could be downloaded to a computer, digital
video recorder or portable device. That's less taxing on a network.

AT&T and other phone companies have promised not to block network access or
degrade service to companies that don't agree to pay a premium rate.

And current services that gobble up bandwidth < such as Google's video store
and Apple Computer's (AAPL) iTunes music service < seem to be doing fine.

Internet companies are eyeing bigger bandwidth-hungry services, analysts
say. Amazon, for one, is expected to launch a digital distribution service
including music and movies by year-end.

Phone carriers say it's unfair for them to invest more in network
infrastructure to carry Internet firms' content if they can't make more
money as the middleman.

It's unclear whether Congress or the Federal Communications Commission will
adopt any broad policies involving network neutrality. One bill in Congress
would let the FCC address complaints from content firms on a case-by-case
basis.

Web companies that have pushed for Congress' help include Google, Amazon,
eBay, Microsoft (MSFT) and Yahoo. (YHOO)

Walt Disney (DIS) has said it doesn't think legislation to guarantee network
neutrality is yet needed.

Yahoo has kept a low profile on this issue. It has big plans to deliver
on-demand content. It also is an Internet partner of AT&T and Verizon. Both
AT&T and Verizon use Yahoo's Internet portal for their broadband DSL
(digital subscriber line) customers.

Yahoo didn't return phone calls or e-mail messages seeking comment.

Bidding Could Reach $15 Bil

It's expected that bidding in the June and 700 MHz auctions could reach $10
billion to $15 billion.

Many observers say Internet and media firms will bid in June. But George
Dellinger, an analyst at research firm Washington Analysis, says the 700 MHz
auction is the one to watch. That auction offers a bigger block of spectrum
at a likely lower cost.

"A consortium of new media companies could wind up leading the pack to buy
that spectrum and provide a third (broadband) pipe into homes," he said.

Much speculation centers on Google. It will have close to $10 billion in
cash after it completes a planned $2 billion secondary offering. And it's
already a player in municipal Wi-Fi wireless broadband networks. Last week,
a San Francisco panel approved a bid by it and EarthLink (ELNK) to provide
Wi-Fi to that city. A basic service would be free and a premium service
would cost $20 a month.

Some question whether Internet firms will bid for spectrum. Stifel Nicolaus
analyst Blair Levin said companies might back off when "it's time to put
down the money."

Paul Gallant, an analyst at Stanford Research, said it would be a tough call
for any media company to "venture out of their core expertise in creating
content and into running a network."
Received on Thu Apr 13 22:15:36 2006