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FCC allows one bidder to take majority of spectrum

Oh, we’re definitely not happy about this. It appears that in the official 700 MHz spectrum auction rules, there is no provision limiting how much bandwidth a single company can bid on. Yes, that means that AT&T or Verizon could swoop in and gobble up an enormous chunk of the spectrum, thereby setting America further back in wireless communication technology. It’s a harsh assessment, but it’s essentially what’s going to happen. Verizon in particular is apt to make an enormous bid on the majority of the spectrum, knowing that they’ll see a return on that investment.

To fully explain, there are 62 megahertz of airwaves being auctioned (700 MHz is just the frequency of the spectrum). That number will be divided into smaller parts, which companies will bid on. Of that 62, 22 megahertz is dedicated to open-access, which will be divided into six separate licenses. Ten megahertz will be reserved for the public safety community — though one company will have to bid on this spectrum, too.

Those two compose half of the spectrum. The other half are smaller licenses, likely to be bought by smaller, regional carriers like US Cellular, MetroPCS, Leap Wireless, or even Alltel.

It appears that public safety lobbyists were the reason for the absence of a bidding limit. If companies are limited on what they can bid on, they’re likely to put their money into spectrum that can directly benefit their business — i.e., the 22 megahertz portion — rather than the public safety sector.

The absence of a rule prohibiting a major swoop by a bidder doesn’t mean such a move is likely. It would cost upward of $7.5 billion if the forecast price for the entire 62 megahertz of airwaves is correct.

Honestly, we can see Verizon throwing down $7.5 billion on this, knowing full well that they’ll recoup it in a couple of years. We can’t imagine how much money they invested in their fiber optic network, and they’re just starting to see an increase in customer base, which will yield great returns. We see the same thing happening with this spectrum; it will put them head and shoulders above AT&T, which makes the spectrum doubly valuable.

We don’t expect AT&T to take this lying down, though. They have the iPhone to protect, and the available spectrum will only boost the device’s performance. Plus, they have that exclusive five-year agreement, so future generations of the iPhone will also benefit from this spectrum.

The sad part is that this likely rules out Google as a serious bidder, unless they want to go for broke on this project. As any other company, they could bid on the entire 22 megahertz of open access spectrum. It would be a gigantic leap for the company, who would then have to spend even more money to develop the network and offer it to the masses.

Possible dark horse: T-Mobile. They’ve been creeping up on Sprint, and could even the playing field with the Big Two if they won a few key licenses. In fact, failure to secure at least one of the six licenses of the open-access 22 megahertz could be detrimental to the company’s future.

Still, through it all, we have our money on Verizon taking at least four of the six 22 megahertz licenses. If they do, we’ll end up beating our heads against a wall.

[CNN Money]