FCC Auction Results: Half Open? Half Closed?

One of the key takeaways from Open MIC’s March 11 policy forum “Wireless America: Closed or Open?” was that definitions of “closed” and “open” have been historically difficult, and may be even trickier as we look toward the emerging wireless future.  This week’s announcement by the Federal Communications Commission of winners in the much-ballyhooed 700MHz radio spectrum auction confirmed that the journey on the path of openness is not – and will not be - a simple one.

The auction attracted some $19.6 billion in bids, almost double the $10 billion most analysts had expected.  That’s one indication of the premium the industry places on wireless as consumers increasingly turn to the mobile Internet for phone service, music, video, games and a host of other applications.   But in most other respects, the auction outcome was decidedly mixed.

For starters, incumbent wireless carriers Verizon Wireless and AT&T maintained their positions, with no serious competitors emerging.  Together, Verizon Wireless and AT&T accounted for 83 percent of the winning bids. Verizon agreed to pay $9.6 billion for 108 licenses. AT&T bought 227 licenses for $6.6 billion.

On the other hand, the auction has nudged wireless ever so slightly toward a more open environment. Blair Levin, the astute market watcher at Stifel Nicolaus, and a panelist at our forum, noted this week that Google, an important bidder in the auction, “walked away the happy loser” with no winning bids, but having forced bidding high enough to trigger open access provisions established by the FCC.

In fact, Google lawyers Richard Whitt and Michael Faber, writing on the company’s policy blog, were downright ebullient:

“One thing is clear: although Google didn't pick up any spectrum licenses, the auction produced a major victory for American consumers.”

Others aren’t so sure.  Just what does “open” mean? How it will be implemented? To what degree will incumbent carriers have the wisdom to embrace consumer-driven demand for more freedom of choice in the wireless future?  In a thoughtful analysis of the auction outcome, Cardozo Law professor Susan Crawford is skeptical:

The bottom line.  Verizon has won spectrum it arguably didn’t even need, given its existing spectrum holdings.  It retains the discretion to act as a traditional cellphone-model company - picking and choosing among applications and devices, underselling “open” devices, and discriminating against traffic that undermines its business model.  This isn’t great news for the Internet model of access.

On the other hand, openness is more popular and more talked-about than it used to be.  It may be that the pressure of consumer preferences makes Verizon provide a truly open Internet and truly open devices to the rest of us.  (The pressure of competition won’t be doing that - AT&T and Verizon have divided the U.S. between them, and the other players in the wireless space are far behind.)  The Android project, Verizon’s own words about openness, and concerns about the place of the U.S. in the international race for innovation may all push towards a more open future.

We’ll see.  The results of this auction don’t suggest that we’ll be seeing such a move any time soon.

In fact, just days before the auction results were announced, Verizon was busy holding a conference in New York City for hardware and software developers interested in its newly-announced “open” network positions.   Business Week reports a mixed audience reaction. 

Many of the attendees at the Open Development Device Conference said the event marked a good first step toward defining an open-access model. But they noted that many questions remain.

Among the biggest concerns: Verizon did not divulge any details of the pricing plans customers would be offered to use such devices. Nor did it publish any specifications to help software developers create applications for the network. In fact, the company distributed materials to attendees online, stressing that the company "will not approve, test, or service third-party applications that customers load onto their Open Development Devices."

And despite numerous claims by Verizon executives that testing and certification for new devices could take as little as four weeks, many attendees are skeptical the process will be that easy. "I was most impressed with how they thought through the process," says Bill Alberth, Motorola's (MOT) chief technology officer for mobile devices based on CDMA, which is the wireless technology used on Verizon's network. "But I want to see more details on testing."

Mobile carriers such as Verizon have always tightly controlled which devices and applications ran on their networks, supporting only phones sold through their own retail stores or distribution partners. The carriers have insisted this approach assured customers better service and fewer glitches. But critics have long argued that those restrictions steered revenues to the carriers while imposing costs on partners, thereby stifling the incentive for innovation. "[Wireless operators] could be doing so much more if they weren't so darn frustrating to work with," says Adam Grosser, a general partner with the venture capital firm Foundation Capital, who has worked with many telecom carriers over the years. "The qualification to get a product in their network is averaging 20 months. It's just brutal."

Why is all this so important? Because accountability is critical, and there’s a lot of evidence that the message is not penetrating the wireless carrier mindset.

At the Open MIC Forum, panelist Mark Lloyd, of the Leadership Conference on Civil Rights, predicted that in the near future, consumers will be increasingly surprised at how much of their personal data resides in the hands of wireless carriers and marketers. There will be calls for greater protection of personal information, he said.

Jason Devitt, CEO of Skydeck, a wireless services startup, felt the hot button issue of the next twelve months will be political censorship.   Pointing to last year’s incident involving Verizon Wireless and Naral Pro-Choice America – in which Verizon rejected a Naral text messaging campaign because it was too “controversial” – Devitt noted that “Verizon reversed their position…said it was a mistake, said that it was an old policy, refused to say what the old policy was, refused to say what the new policy was, and reserved the right to do it again.”

“I think we’re going to see more issues along those lines,” said Devitt. 

Stay tuned.