On February 19, 2009 TV stations will end an era by ceasing to broadcast in analog. What this means is that a large chunk of spectrum that the government originally gave to broadcast television will revert back to government control and will be auctioned off or otherwise opened up for new uses. This new spectrum is very intriguing and valuable because it transits large distances and can penetrate quite thick walls. Accordingly, there has been rampant speculation over the past year or so about who will buy this spectrum, how much will be made available for purchase/use, and what it will be used for. Beyond this speculation though there is, I believe, an intriguing parallel or comparison that can be drawn to AT&T’s aggressive purchase of cable companies almost a decade ago. There are obvious differences between the two situations, but I think that in comparing the facts of the AT&T debacle with the facts and speculation about what will be done with TV’s broadcast spectrum there may be lessons that can be learned for those companies buying some of this spectrum, or questions that those companies must carefully consider before going forward.

In the late 1990’s and the early years of this decade AT&T CEO Michael Armstrong charted a bold and risky new path for his company by buying up cable companies. The two main acquisitions that Armstrong oversaw were the purchase of Tele-Communications Inc (TCI) and Media-One. Collectively these deals cost AT&T over $110 billion and gave them over 40 percent of the US cable market. The primary goal of this massive plan was to use these cable companies as a way to become a local phone service provider once again. AT&T was, at the time, only a long distance provider and had been ever since the 1984 break-up of “Ma Bell” into the six regional “Baby Bells,” but it had recently been losing some of its market share to other companies. However, beyond this primary goal, Armstrong and AT&T saw the potential profit to be gained by one company being able to directly provide cable, local and long distance phone service, and high-speed internet.

There were very large problems with both of these plans though. First of all, it is hard to understand why AT&T wanted to become a local phone service provider again in an age when it is not clear that there is much profit left in that field. Fewer people are using local phones in today’s increasingly wireless world. Secondly, in order to achieve the goal of providing consumers with a “Triple Play” type of package, AT&T had to sink a very large amount of money, above the $110 billion they had already spent, into infrastructure improvements at a time when they could not easily afford it. In the end, the plan failed and brought Armstrong down with it, culminating in 2002 when AT&T sold its cable company (which consisted of more than just the TCI and Media-One cable capacity) to Comcast for $72 billion.

The two main types of spectrum that are being offered up are the 700MHz block and “white spaces” which are unused portions of spectrum between UHF television channels and are located between 512MHz to 698MHz. The 700MHz block was auctioned off in chunks (the government kept one large central chunk which they claim will be used for public safety purposes), netting over $19.5 billion dollars for the FCC. The two largest “winners” in this auction were Verizon and AT&T. Verizon apparently spent roughly $9.3 billion (including outbidding Google for the $4.7 billion “C Block”) and AT&T spent $6.6 billion. What they plan to do with this spectrum remains very unclear. The most common speculation is that they will use it to provide wireless broadband to laptops and cell phones. People had hoped that Google or another similar company might buy up enough licenses to form a possible new competitor in the wireless internet business, but in the end, Google did not win a single license.

What complicates these winning bids though is a “open-platform” provision that was activated by the high price paid by Verizon for the “C Block” and the recent FCC decision to open up some of the “white spaces” to unlicensed devices. Because the “C Block” eventually sold for more than its $4.6 billion reserve price, an “open-platform” provision which requires Verizon, the winner of the C Block licenses, to allow access to any device compatible with the network’s chosen technology. As for the “white spaces” it is still unclear what they will be used for. Dell has already come out and publicly stated that they plan on equipping new laptops with “white space radios” that will allow them to tap into this new spectrum. What is interesting about the “white spaces” is that unlike the 700MHz block of spectrum, they are unlicensed which means that any company that wants to use them can.

So even though all of this spectrum has been opened up and auctioned it is still unclear what this means in terms of technology and the companies that are involved. It seems unlikely that we will eventually see a cheap, wireless broadband competitor emerge from this field, but then what will we see. It is possible that we might see some sort of add-on to already extant services, something like a long-range Bluetooth technology. Whatever happens though one thing is clear: there will need to be some serious investment in research, development, and new technology in order to use this spectrum commercially. Even if a new wireless network were to emerge, people would still need to buy “white space radios” or another piece of hardware in order to connect to the network. The expense in this case will certainly be less than it was for AT&T to improve and overhaul a $110 billion cross-country cable network, but it still may be rather large. To be perfectly honest, I am not sure what this means. There is no guarantee that the same mistakes will be made, nor is there evidence that companies will regret these purchases as AT&T did its acquisition of Media-One and TCI. However, seeing the same company that so badly botched a similar foray into the cable world now spending billions of dollars on broadcast spectrum raises a flag for me, and is something that I think bears further investigation. Hopefully others will help me figure out what the more specific questions that we should be asking are.

-- AlexLawrence - 25 Nov 2008