FCC Chairman Talks About Need for More Mobile Spectrum

Verizon CEO Says Market Can Sort Out Tough Issues

Ivan Seidenberg, Verizon CEO, said at a Council on Foreign Relations meeting that there was a danger of government regulatory overreach of several types in the current environment.

" I always worry about unintended consequences of government reaching into our business," Seidenberg said. "But I believe the players in the industry--like Google, like Microsoft, like the Silicon Valley players, as well as AT&T, and us and the rest of the industry--we're creating a better dialogue."

Seidenberg also thinks the industry has to do a better job of self-policing, though, more on the model of the advertising industry. That would lessen the need for very-detailed rules crafted "in advance" of a particular problem occurring, rather than a focus on fixing such problems as actually do arise.

"In the telecom business we need industry to do a better job at policing behavior, because, in the final analysis, government could never possibly regulate every condition, in every single circumstance that could ever happen, and do it efficiently," Seidenberg said.

Seidenberg thinks one of the key problems with proposed "network neutrality" rules that would prohibit virtually any sort of packet prioritization is that it makes very hard the task of providing different types of service to customers who may want it, at the lowest-possible prices.

 "Most people think a carrier wants to charge for every minute on a linear basis in perpetuity, infinity," he said. But "we don't really want to do that."

"What we want to do is give you a chance to buy a bundle, a session of 10 megabits or a session of 30 megabits," he says. "The problem we have is five percent or 10 percent of the people are the abusers that are chewing up all the bandwidth."

"So what we will do is put in reasonable data plans, but when we now go after the very, very high users, the ones who camp on the network all day long every day... we will throttle and we will find them and we will charge them something else," he says.

"We don't want to have a linear pricing scale," he said. "We do want to find a way to give the majority of people value for bundles, but we have to make sure we find a pricing plan that takes care of that 10 percent that's abusing the system. And it's that simple."

"And therefore you have to have rules, give us discretion to run our business," Seidenberg said. "Net neutrality could negate the discretion to run your business."

"Anytime government, whether it's the FCC or any agency-decides it knows what the market wants and makes that a static requirement, you always lose," he said.  Seidenberg noted that although access speeds might be higher in Korea or France, household penetration in the U.S. market is higher than in any country in Europe, he said.

"Japan may have faster speeds, but we have higher utilization of people using the Internet," said Seidenberg.  "So our view is, whenever you look at these issues, you have to be very careful to look at what the market wants, not what government says is the most important issue."

"If you look at minutes of use, the average American uses their cell phone four times as much as the average European," Seidenberg says. But what about penetration rates?

"If you look at Europe, they publish penetration rates of 150 (percent), 160 (percent), 170 percent meaning that people have more than one phone, two phones, three phones," he notes. Seidenberg suggests the high roaming rates are the explanation.

"My guess is you probably have two or three different phones to carry to use in different countries because your roaming rates are so high," he adds. "So my point is it's a fallacy to allow a regulatory authority to sit there and decide what's right for the marketplace when it's not even close."

In fact, Seidenberg argues that the U.S. market is more advanced in ways that count.

"Verizon has put more fiber in from Boston to Washington than all the Western European countries combined," he notes. Also, "if you look at smart phones, they have exploded this market in the U.S. market."

"Ask any European if they're not somewhat envious of the advancements of smart-phone technology in the United States," he says.

The FCC is "overreaching in regulations," he says. "It's a real problem to have well-intentioned people in Washington regulating the business as they understood it to be in 1995. Bad idea."

"I don't think there is no role for government," he says. "I just worry about, when you allocate capital and you look at consumer behavior, that is not a strength of, I think, everyday transactional activity of government agencies, particularly federal government agencies."

On the technology front, Seidenberg pointed out that the opportunities for distributed, remote or cloud-based applications is growing very fast.

"But here's the thing about the iPad that's very interesting," Seidenberg said. "We look at it as a fourth screen."

"Now, the interesting thing about the iPad, from how Verizon looks at it, from a network person, first of all, it has no hard drive, right?" he said. That means lots of need to get applications from the network, sort of reversing the trend of the client-server era to put more processing and storage at the edge of the network. That has postive implications for a firm such as Verizon.

Seidenberg also does not think the FCC should attempt to take spectrum away from broadcasters and reallocate it for mobile use, Seidenberg says, although Verizon has said it generally supports FCC plans to reallocate spectrum for mobile use. "I think the market's going to settle this," he said.

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A Decade After the Bubble, Another Round of Spectrum Auctions

It has been roughly a decade since European mobile operators placed big spectrum bets on "third generation" mobile broadband, and then largely watched as killer apps failed to emerge, customer use of the new networks remained sluggish, and executives ruefully noted they had overpaid for spectrum.

Now European mobile operaters are about to embark on a new round of broadband spectrum investments for fourth-generation mobile networks. You can expect them to try to be more-prudent investors this time around. In the 2000 round the German government, for example, raised 50 billion euros, or about $67 billion, on 3G licenses. Some anticipate the government will raise five billion to 10 billion euros this time around.

We'll see. The difference between the 2000 auctions and the current 2010 round is that Internet access has emerged as the "killer app" for mobile broadband, and the difference between 3G and 4G is that 4G looks to be a potential replacement for fixed-line broadband.

"With LTE, mobile phone networks will become a real alternative to cable or DSL (broadband telephone connections)," says Herbert Merz, head of the German hightech association Bitkom.

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700 MHz Auction: Not the Best, Not the Worst

For many observers anticipating the soon-to-begin auction of valuable 700-MHz wireless spectrum in the U.S. market, there is some combination of great hope and fear that it will all be business as usual and that nothing much will change.

The great hope scenario calls for some new entrant to win the C block and create a national, open, Internet style broadband wireless network. The great fear is that at&t or Verizon will be the big winner, stifling innovation once again.

For mobile industry service providers, you can reverse the hope and fear positions. Incumbents hope at&t or Verizon will win, precisely to prevent the emergence of an open national broadband mobile network. They fear an outsider could snatch the spectrum away and actually do that.

In the end, he outcome will not be so wildly good for innovation, but not stultifying either, even if an at&t or Verizon wins the spectrum. Change is coming simply because the mobile Web is coming, and no contestant can stop that. Innovation will continue to flourish on the Web side of the business, no matter what is done on the walled garden sides of the business.

Consider the mobile music business. We are far from knowing how the use cases and business models play out. But we already can point to some facts. Walled garden services featuring downloads or rental have been seen as the logical evolution, and that certainly is where early efforts have focused.

Over time, users might do other things. They might sideload their music, then share with their friends using Bluetooth, Wi-Fi, 3G or 4G. You might say this is a laborious process, and you would be right, if all we have is today's tools. That will change. Somebody will author an elegant program for syncing sideloaded music with other handsets. It might not be iTunes that drives this, since iTunes is quite sharing-unfriendly by design.

But somebody will do so. And then the business might shift as it grows. Online downloads and sideloading will increase. But then sharing will kick in. Then it might turn out that walled garden download services aren't as big a deal as we once thought, but open download services are. Maybe the sharing software is simple enough that users can see each others' playlists and trade songs, one for one.

Maybe there's even some monetization scheme possible where songs are traded or shared. Most people don't seem to mind paying a fair price to get a song they like. Maybe they won't mind paying some amount to share songs with friends or even bystanders.

The point is that walled gardens might be the logical way a service provider approaches building a new business. That doesn't mean other ways are precluded, especially when the mobile Web really gets to be popular.

In a sense, the very existence of the mobile Web ensures that innovation will happen. Some might argue a better way to approach things is structural separation, where transport and access are separated from the retail side of the business. Others will argue that it is more feasible simply to "functionally" or "operationally" separate wholesale transport and access from retail operations.

Even in the absence of those mechanisms, the mobile Web is going to allow innovators to do things "without asking permission" of the retail wireless operators. The Federal Communications Commission's rules on open network attachment for the C block will help ensure that regime, as the operator of the C block network will not be able to block the use of "open" or "third party" devices.

The likely outcome of the C block auction is that either at&t or Verizon wins it. Whichever contestant does not win the C block will pick up A and B block spectrum where it is needed to reinforce existing operations or extend the current service footprint.

Verizon and at&t simply have the business motivation to win the auction. Sprint won't be bidding and T-Mobile arguably can't afford to bid. Still, it won't halt innovation, though we won't see as much change as if an outsider with no vested interest in today's revenue models were to win the auction.

But the mobile networks are going open in some significant ways, even if the basic business model doesn't change as fast. But T-Mobile already offers a "data-only" service plan, with no need to buy voice to get the data. In principle, it should be possible for this to happen on a much-wider scale, and then users can draw their services entirely from the mobile Web, rather than using walled garden services.

The auctions probably won't be as good as some hope, but certainly not as bad as feared. And that might be case no matter which viewpoint one has. Those who want change will see measurable "goodness." Those who have reason to fear the coming changes will have time and resources to adjust and embrace the change.

When all is said and done, the auctions will neither be a disaster nor a revolution. Neither will they honestly be anything other than another important step towards more openness and choice, however. It's coming.

Google 700 MHz Auction: "Bid to Lose"?

Perhaps nobody outside Google really knows how serious the search giant will be in the auction for C block spectrum in the 700 MHz range. There remains some thinking that Google's primary objectives--getting more openness in wireless networks--are well on the way to being satisfied.

Using that line of thinking, Google will submit the minimum required bid, but nothing more, essentially "bidding to lose."

But one never knows. Given the current economic climate, and the failure of any takers for a smaller segment of spectrum that carried a requirement for public service services, the final auction price might not be as high as some had forecast just a year ago. If it appears prices might be low enough, even Google might decide it is worthwhile to play a while longer.

The 700 MHz spectrum is attractive for any number of reasons. It is the last chunk of spectrum likely to be made available for mobile use. And it's nice spectrum, with greater range than the 2.5 GHz spectrum used for much of today's mobile service. The signals also have greater ability to penetrate walls and buildings, a big advantage, as anybody who uses a mobile phone inside a building can attest.

Those signal propagation characteristics also might mean lower costs to construct the network. True, it can be argued that Google doesn't need to own that, or any other spectrum, to accomplish its mobile Web and mobile advertising objectives. But you never know. The auction might not require as much capital as many had thought just a short while ago. An opportunistic buy always is possible.

What Google Wants

Confused about what Google really wants in the mobility space, and in particular what it wants from the 700 MHz spectrum auctions? The simple answer is that Google is for mobile what the Internet was to telecom service providers: an alternate communications medium whose value does not hinge on access, but on applications.

Wireless service providers will fight Google without quarter for the same reason they learned to loathe the Internet: it is difficult for them to extract revenue when value lies in applications not dependent on recurring payments for access.

That doesn't mean Verizon and at&t, in particular, won't try to make a business out of it. After all, despite the margins, despite the gross revenue implications, both are fierce competitors in the broadband access business. But the tack will be to stop it if possible, slow it where possible, but adapt if necessary.

But Google is not the only force pushing against the old order. iPhone, for example, seems to be the first of any number of approaches to thinking about what a mobile handset is, what an operating system is, what a platform is and where value can be extracted in the ecosystem.

As Skype and UK cellphone operator 3 reportedly are working on a new mobile handset that promises to "make Internet calls mobile," rumors continue to swirl about a possible Gphone or Google phone. Nokia is rolling out N95 series devices that also raise the question of where the leverage lies: operating system, user interface, handset, application or extended application ecosystem.

It’s an important question. Remember back when people seriously thought the browser would somehow translate into “ownership” of the user? That largely proved incorrect.

But operating system ownership has proven a more durable lock on value and customer ownership. Facebook might be showing the power of the platform. But the iPhone seems to suggest the power of the device itself. In short, getting the answer right might confer genuinely significant leverage in the mobile business.

Much of the impetus for thinking about such things comes on the heels of rumors about a Google phone, Google mobile operating system or mobile platform. While the thrusts are not mutually exclusive, the strategic approach Google takes conceivably could redefine much of the existing mobile business.

The difficulty of pinning down the likely thrust is difficult, as Google has to be working on a number of aspects, all at the same time. It must create a mobile interface to the Internet while supporting voice services not significantly inferior to those handsets offer today.

That means Google has to convert the Internet experience for the phone and create or enable a suite of related applications and applets that all work smoothly together and share data.

Then it has to create awareness of some mobile features users didn’t know they wanted, such as location-aware services and features.

All of that means an Internet-connected device supporting voice, instant messaging, Web browsing, search, document storage, retrieval and creation, email, storing and playing entertainment. The applications must blend “knowing you are available” to “knowing where you are.”

Google has to do all that and also make the PC and mobile experiences similar and intuitive. And after all that is done, has to create a business process for supporting all of that with an advertising revenue model.

Of course, Nokia, Apple, Microsoft and Samsung—among others—will try to do the same thing, at some point. Unless it can be done, Microsoft will have a tough time making 25 per cent of its revenues, or about $14 billion, from advertising in the relatively near future, as it says it will.

The issue, perhaps, is how many of these sorts of things have to be handled by the handset. How “skinny” can the device be and still provide a reasonable user experience?

And how much does an actual handset matter, if a widely-distributed reference model can be propagated? Still, as Apple has proved time and again, a tightly-coupled hardware and software approach can yield outsized results in the user experience area.

Many argue that Google will want to avoid getting entangled in the consumer electronics business. True enough. Others make the same argument about any possible plans to bid for its own spectrum.

But Google executives have said mobile offers Google the biggest possible opportunities. If that is true, stretching into unfamiliar areas might be the best way to dominate the new business.

It’s just an opinion, but an “operating system” approach offers the least risk but the least reward. Devices and the ecosystem are much more risky, but offer greater reward. And since Google is sure to encounter resistance from the established wireless carriers, owning its own network might be the only way to get rapid adoption.

So that’s what Google is up to: creating a mobile broadband version of the open Internet.

Google Riding Global Wave

As much speculation as there has been about a possible Google bid for 700 MHz spectrum, there now are new reasons to think Google is deadly serious, and that provide new strategic reasons to win the auction, not just to bid for tactical reasons.

A U.N. telecom meeting has decided to give mobile service providers access to similar bandwidth currently reserved for terrestrial television broadcasts, making mobile Internet access a major new wireless feature globally by 2015.

Google simply would be early in the new business if it acquires and then operates a mobile Internet service. Significantly, global data roaming will be much easier as the new rules on spectrum use will rely heavily on common frequencies in diverse regions, meaning handsets will be able to interoperate. That promises higher sales volumes and hence lower costs, on both the infrastructure and handset fronts.

Consumers in the United States are to gain access to at least some of the spectrum in question by 2009, but it will take an additional six years before those in Europe, Africa, China, Russia and much of the Middle East will have the same access.

A U.S. government auction of key 700 MHz spectrum 698 megahertz to 806 megahertz range)is scheduled for February.

The same frequencies will be available for mobile services throughout the Americas, India, Japan, Korea and a number of other Asian countries, while the rest of the world will initially use only the 790 megahertz to 862 megahertz range.

Unlike many recent spectrum auctions, which essentially resulted in more bandwidth to support legacy services, most observers think the new spectrum largely will be used for IP-based Web applications and data.

Despite the challenges and risks, Google might want to move more aggressively given the new global implications.

First 700 MHz Winner: AT&T

at&t is the first winner of the battle to win 700 MHz wireless spectrum. Not, of course, because it has won anything in the upcoming auctions for C block and other spectrum. Instead, at&t is acquiring $2.5 billion worth of wireless spectrum licenses covering 196 million people in the 700 MHz frequency from Aloha Partners.

The 12 MHz of spectrum covers all of the top-10 U.S, wireless market and 72 of the top 100 markets overall.

Verizon Bends on Net Neutrality

Lowell McAdam, chief executive of Verizon Wireless, says the company would agree to 700 MHz spectrum auction rules requiring the network operator who wins a portion of the spectrum to allow any device onto its network.

Such a nod to the wireless equivalent of "Carterfone" suggests Verizon now believes some such requirement will be part of license rules for the 700 MHz frequencies. The compromise won't go far enough to satisfy contestants who think a mandatory wholesale regime is needed.

But the move would for the first time allow users to buy and use virtually any device of their choosing on the network. As much as wireless carriers might like to preserve their ability to lock all devices used on their networks, device independence would be quite helpful for end users, application developers and device manufacturers, since it would allow some degree of innovation without the direct cooperation of the network services provider.

Verizon draws the line at guarantees that all games, video and the Web applications on the new phones or devices will work on anything other than a best effort basis, in essence, however. Verizon also said it would reserve the right to continue blocking certain applications and features for phones it sells, if it were to operate networks under such rules.

at&t earlier had signaled that it wasn't going to stand in the way of such rules. Some people might not think half a loaf is worth having. But Carterphone was a very important advance, as this also would be. Verizon arguably would not be shifting its stance were it not convinced the move is inevitable in any case.

Perhaps Google Can't Lose in 700 MHz Auction

If Google succeeds in getting a mandatory wholesale access requirement for the C block of spectrum, it wins. Whether Google itself wins the spectrum (probably not) or not, somebody will, so Google and Google can lease spectrum directly, or work with somebody else who will lease spectrum on its behalf.

Even if it entirely fails to win a mandatory wholesale clause, Google is no worse off than it used to be, because existing provisions for the 700-MHz equivalent of "Carterfone" will still make it easier for Google and its ecosystem to create features, devices and applications optimized for mobility.

One fact seems certain: as hard as it is to build a "wholesale-only" national infrastructure play, if mandatory access conditions are attached to the C block of frequencies, the business case will be harder for owners of retail spectrum in the other two blocks. The pricing umbrella of course will be set by the C block providers.

Clearwire and Sprint will face some issues because the radio propagation characteristics of the 700 MHz spectrum are much better than those for the 2.5 GHz blocks Clearwire and Sprint will be using to build their national 4G network. Like the old UHF broadcast stations who used the 700 MHz frequencies, signals got through walls pretty easily, even to "rabbit ears" antennae. Digital propagation should be better, since today's signal processing chips can reconstruct a signal from weaker or more refracted signal sources.

In fact, he 700 MHz signals should provide the "best" "through the walls" performance of any wireless networks, period. The higher frequencies conceivably will offer higher raw bandwidth potential (for reasons related to the more rapid oscillations of the radio signals at higher frequencies).

And there remains the possibility that the auction rules might emerge in final form someplace between formal wholesale access for the C block and hard-to-enforce "Carterfone" principles. In any event, Google's odds of winning are higher than its odds of simply being no worse off than it currently is.

Open Network for 700 MHz?

It isn't clear whether the proposal will survive the inevitable challenges from established carriers who won't like the idea, but Federal Communications Commission Chairman Kevin Martin is said to be ready to propose an unusually "open" license for valuable 700 MHz spectrum being vacated by TV stations as they go digital.

Under Martin's proposal, mobile services in these airwaves would have to use of any compliant device and any application, with no restrictions, so long as the application is legal and doesn't harm the network.

As a platform for innovation, the new network would rival the Internet itself, moving far beyond "unlocked" phones and resembling nothing so much as a mobile version of the Internet, where any device can access any service.

Google would love it. So would most developers. So would Apple. A network of that sort basically obviates the walled garden approach the mobile industry has taken, and resembles the way any PC can access anybody or any application able to get onto the Internet.