Open vs Closed Networks, the future of 700 MHz wireless spectrum

There is a big battle brewing over control of the 700 MHz wireless spectrum that the US government will auction off in January. The winner of the battle will determine if cell phone wireless networks remain closed, or will be opened up to anyone like the Internet. This is a high stakes game, probably costing $7 to 10 Billion. However, US wireless carriers collected $95 Billion in revenues.

The Wall Street Journal reports that Google is seriously considering making a bid and building out a wireless network. Microsoft has declined to bid, and instead will work with carriers and manufacturers by providing Windows Mobile operating system.

What is special about this spectrum? The 700 Mhz wireless spectrum was formerly used by UHF TV stations, so it is very powerful and capable of transmitting long distances, even through walls and barriers. Most of us grew up in the cable TV generation so you may not remember when TV was broadcast over the air and picked up by an antenna at your house. Back then the  VHF channels (1-13) were used by the major networks and affiliates, and UHF channels (14-69) were used by public TV and smaller private stations. With the advent of cable TV, and now full digital TV in 2009, the 700 Mhz UHF spectrum is no longer used. The auction will be for the spectrum used by channels 52 through 69.

More powerful and cheaper to deploy - The 700MHz spectrum is more powerful than the current cell phone spectrum and can go through walls much easier. It is cheaper to deploy because the spectrum is more powerful so it requires fewer transmitters and towers, making it 50% to 70% less expensive to build out a nationwide network.

Open versus Closed? Everyone has a different definition of open, but what it boils down to here is the difference between the Internet (open) and the cell phone network (closed). 

Cell phone networks are closed. Verizon, Sprint, or AT&T control the networks. They decide which hardware manufacturers (Motorola, Nokia, Samsung, etc) can work on their network, and which applications (maps, games, music, etc) can be used on their network. The wireless carriers control their "walled garden", make all the rules, and collect most of the money.

The Internet is open to anyone who wants to launch a business and will carry any content; web pages, video, music, etc.

It is pretty obvious why there are millions of businesses and applications on the Internet and very few on cell phone networks.

Open doesn't mean free - The Internet backbone is owned by the major land line telecommunications companies. They own the fiber optic lines and networks, and some of the Network Access Points (NAP's). They sell usage of their bandwidth to Internet Service Providers (ISP's) like AOL, NetZero, and others. The ISPs in turn charge you each month for Internet access.

Who pays for the Internet? Both consumers and businesses pay in both directions, downloading and uploading. Most consumers pay a flat rate per month, around $50, for unlimited use, mostly downloading. Businesses pay more based on bandwidth usage, both uploading and downloading. Web based businesses pay a LOT more based on their bandwidth usage. You can imagine a business like YouTube serving millions of video streams pays a lot for the bandwidth they use. So consumers are paying a flat rate for what they download and businesses are paying for bandwidth in both directions.

Why aren't cell phone networks open like the Internet? In some European and Asian countries the cell networks are open. In those cases the governments made the spectrum available for free or at very reduced rates, and mandated that the networks be open to any business.

What is the FCC doing? The US government (FCC) is trying to have it both ways. They want to collect billions of dollars by auctioning off the spectrum, but they also want some of it to remain "open". The rules of the spectrum auction require the winning bidder to allow any device or application to access the network at "wholesale" rates, provided the winning bid meets the reserve price of $4.6 Billion. Google has already committed to bidding at least $4.6B, so that means the reserve will be met and the open rules will prevail.

Who will win? Everyone. Consumers win because they will have lots of choices. Entrepreneurs in hardware, software, and e-commerce win because they will be able to launch all kinds of new products and services. The winning bidder will win because they will own the future of the wireless business. That winning bidder could even be one of the "closed" network owners. Think about how they will juggle two very different business models; walled garden versus open networks. It will be interesting to see how the losing bidders respond to the open alternative. Competition always brings out the best.

The auction will be held on January 28, 2008. It could be a historic date for the wireless communications industry.

Comments

[Jun]

Thanks for a simple explanation of the 700mhz wireless spectrum.

[Agoracom]

Don, I had no idea about the importance of this issue - and now Jan 28/08 is both on our calendar and on our biz dev agenda.

Thanks a bunch.

George

[amirisetty.vijayaraghavan]

Thanks for the description of the 700 MHz spectrum and it's relation to google.
Does this have anything to do with the Open Handset Alliance (and Android - an open Mobile Operation system) that Google is into?