TIA Forecasts 3.1 Percent Loss for ICT Industry in 2009- Broadband still THE growth driver for telecom

The Telecommunications Industry Association (TIA), whose primary membership is network equipment vendors, has just released its annual report and outlook for the global telecommunications industry. For the first time in its 23 years of forecasting, TIA predicts a 3.1 % loss for the global ICT Industry in 2009. Further, they anticipate a 5.5 % decline for 2009 US ICT revenue. Much of this loss may be attributed to a 27 % fall in the U.S. broadband equipment market.

TIA’s negative outlook is significant, because its report has always been a flag waving signal of hope for the telecom industry- even in years like 2002 and 2003, when there wasn’t much to cheer about. TIA’s annual global forecast report usually manages to find a silver lining somewhere in the world that shows an upward growth trajectory. TIA is optimistic about mobile data services (especially when compared to equipment sales). They think that some growth lies ahead, but not really until 2011.  Global telecom revenue is predicted to grow 1.2 percent in 2010, 6.4 percent in 2011 and 7.9 percent in 2012.

"Broadband will be a driver for recovery in all areas, from healthcare IT to smart grid technology, public safety networks to education, as well as for businesses and consumers," said Grant Seiffert, TIA President. "While TIA was instrumental in obtaining the $7.2 billion for broadband, other funding for energy, health IT and R&D will also spur recovery, especially in reviving some of the hundreds of thousands of jobs lost recently. The sum of increased productivity and revenue amongst all other industry segments whose growth broadband deployment contributes to is often underrated and perhaps immeasurable."

Growing demand for high-volume data applications is driving all segments, say the independent, unbiased analysts at Wilkofsky Gruen Associates who help to develop the Market Review & Forecast. Despite the recession, TIA predicts that wireless and business data revenue will grow by 73 percent during the next four years to $110 billion in 2012 from $64 billion in 2008.

Further analysis shows that economic recovery during 2011-12 will be driven by pent-up demand for equipment upgrades. Growth in data traffic will strain network capacity and stimulate investment; availability of financing will fuel investment; and broadband growth will expand the platform for VoIP and IPTV.

Recognizing that comprehensive market intelligence is more critical than ever for ICT companies positioning themselves to survive — and thrive – when the economy begins to rebound, TIA is offering an interactive version of the Market Review & Forecast as part of the new TIA Market Intelligence Service. TelecomTV is collaborating with TIA in offering the new online service, augmented by value-adds such as news updates, webinars, industry analyses and more.

The report is optimistic on WiMAX for broadband fixed wireless access, especially in rural areas of the U.S. where DSL and cable modems are not available. In answer to a question I had during the press briefing, the speaker identified WiMAX as the largest beneficiary of the growth in fixed broadband access (vs mesh WiFi or proprietary technologies). TIA believes that WiMAX will make initial inroads in rural areas — areas where subscribers are beyond 18,000 wire feet of a central office or public network access node. TIA also thinks that there is no competition for Mobile WiMAX in the U.S., because of the time to market lead it has over LTE.

Quoting from a Press Copy of the report, TIA states:

"WiMAX still faces strong competition from entrenched fixed-broadband technologies such as DSL and cable modems and from emerging 3G technologies in the mobile segment. With respect to fixed broadband, WiMAX will likely make initial inroads in rural areas where DSL and cable modems are not available — areas where subscribers are beyond 18,000 wire feet of a central office or node. If WiMAX becomes established in rural areas, it may then seek to expand to areas already served by DSL or cable, using the experience of direct broadcast satellite (DBS) as a guide. DBS initially penetrated rural areas not served by cable television and only later began marketing its services head-to-head against cable in urban and suburban areas.

There is currently no competition for mobile WiMAX, as the widespread deployment of alternative 4G technologies is still years away. Verizon has announced it will be using LTE as its 4G technology, has accelerated its testing and expects to have initial deployment of the technology by the end of 2009."

TIA’s 2009 ICT Market Review & Forecast includes:

-Detailed activities and metrics from prior years
-Projections, trends and anticipated performance for short-term (upcoming year) and mid-term (3-5 years out)
-The target audience includes equipment manufacturers, service providers, software vendors, content providers and the media.

-Sectors covered in the publication include:

 

  • Landline
  • Wireless
  • Enterprise
  • Network equipment
  • Broadband
  • VoIP
  • Data transport
  • Internet access 

For further information and to purchase the report, please contact:

Mike Snyder, PR Manager

Telecommunications Industry Association (TIA)

2500 Wilson Blvd., Ste. 300

Arlington, VA 22201

W: 703.907.7723; M: 703.869.3968; F: 703.907.7727

msnyder@tiaonline.org

 

New apps and smart phones to drive demand for 4G mobile networks

We now believe that smart phones and "all-in-one" gadgets will drive the need for more bandwidth and QOS and accelerate mobile network movement to 3.5G (EVDO, HSPA, mobile WiMAX, etc) and 4G (LTE and Advanced WiMAX- IEEE 802.16m).

UK research firm Mobile Squared reports that Apple to hit 1 billion app downloads on April 23rd!  Please see:

http://www.mobilesquared.co.uk/?p=593

They observe that the number of downloads from App Stores is growing exponentially: Apple is now experiencing average daily downloads of 5.1 million apps and requires another 38 million apps to reach 1 billion. At this download rate, the billion mark will be surpassed in a few days. At the start of December Apple announced that it has passed the 200 million download mark. And this was promptly followed by a similar announcement of 500 million downloads by January 19th.

We would expect to see the same growth from other smart phone and "all-in-one" gadget makers (e.g. RIM, Palm, Nokia, etc) who have started their own on-line app stores.

Many of the new apps will require massive amounts of bandwidth, e.g. video sharing, multi-media conferencing, interactive games, Video on Demand, real time broadcast video, Location Based Services, etc. The amount of bandwidth and real time, rich media content demanded by smart phone users will necessitate the need for new mobile networks with higher bandwidth and QOS.

And it appears that more powerful iPhones are just around the corner.  The San Jose Mercury reports: Speculation grows over new Apple products

"Kaufman Bros. analyst Shaw Wu, in a recent note to investors, wrote that Apple could be ready to release a new iPhone packed with a powerful application processor to run more complex software. And Wu anticipates improvements to the device’s battery, which does not last much more than a day during heavy use."

http://www.mercurynews.com/businessheadlines/ci_12167258?nclick_check=1

and here is more proof:

Apple’s App Store: a rapidly growing marketplace

http://www.mercurynews.com/ci_12037710?IADID=Search-www.mercurynews.com-www.mercurynews.com

Implications::

The big problem for network operators is that bandwidth and need for QOS is exploding, while revenues are increasing at a much slower rate. Hence, revenue producing services must be developed and come to market quickly for operators to get a decent ROI on their investments in next generation mobile broadband networks.

Smart phones and all in one gadgets will likely dominate the 4G mobile hand held market (that does not include netbooks and tablet PCs). We see little room for MIDs that do not have voice, conferencing or LBS capability.  The functions envisioned for MIDs will likely be built into smart phones and multi-purpose gadgets (e.g. web based cameras).

Perhaps, the notebook and netbook PC user will be content with nomadic/ portable Internet access and related services (either from WiFi hot spots or WiMAX with USB dongles). The exception is Internet access in high speed trains, e.g. in Japan and Taiwan. In those cases, mobile WiMAX networks are being planned for notebook and netbook users.

Telecom Council panel session: Update on U.S. Broadband Policy

Abstract:

In a lively Telecom Council panel session sponsored by AT&T, seven industry executives discussed the ramifications for the U.S. government’s stimulus package and federal budget proposal as related to broadband policy. The sober and candid assessments offered a realistic view at what is involved in building out broadband, particularly using wireless technology, to underserved and rural areas in the U.S.

Backgrounder:

The Obama Team pitched improved broadband access and "Network Neutrality" as key priorities during the Presidential campaign. The stimulus bill the new administration initiated and the U.S. Congress passed (as the American Recovery and Reinvestment Act) on February 17, 2009, set aside $7.2 billion in funds for broadband build-outs. Of that, the Commerce Department’s National Telecommunications and Information Administration (NTIA) will administer $4.7B, while the Department of Agriculture’s Rural Utilities Service (RUS) will control $2.5B. Wireline, unlicensed wireless broadband (WISPs), and high-speed cellular data service are all eligible for grants and/or loans. Companies can tap into one, but not both of these pools of funds, if their application is approved by the respective government agency (NTIA or RUS).

The final version of the bill maintains that projects funded by NTIA must adhere to "nondiscrimination and openness principles." The funds must be dispersed before September 30, 2010, to projects that can be completed within two years. The RUS funds, to be awarded by Sept. 30 of this year, focus more on rural broadband access, requiring that at least 75 percent of an area receiving funds be in a rural area without sufficient high-speed broadband access. The RUS will give priority to projects that give consumers a choice of more than one service provider. Although rural telcos are not the only companies eligible to receive RUS money, they may be best positioned to receive it because many of them are already familiar with the process. Recipients of RUS funding traditionally have been required to use equipment approved by RUS, and that is not expected to change. The approval process relies heavily on the experiences of fund recipients, who must install and use a product for six months before it can be approved. That requirement favors companies that already have RUS approval.

It’s hoped that this new funding will create jobs and provide broadband Internet access to many communities that don’t have it now. Maybe the U.S. telecom industry will become more competitive and innovative as a result? But there are many issues involved and many industry players may stay on the sidelines. There are also many rules and regulations that have yet to be set by the government agencies before funds will be dispersed. For example, there is no part of the bill that defines the terms "broadband," "unserved area," or "underserved area." The NTIA will work with the Federal Communications Commission (FCC) to define those terms and spell out guidelines for funding.

While the focus of this panel session was on wireless broadband access, wire-line solutions (e.g. Fiber to the Node/Premises, Broadband over Power lines, etc) are also possible.

For more information, please refer to:

Stimulus bill includes $7.2 billion for broadband

http://news.cnet.com/8301-13578_3-10165726-38.html

Author’s note: The rural or underserved includes 12M households and 35M people in the U.S. According to Pew Research, 38% of rural Americans have broadband, which implies that 62% don’t.

http://pewresearch.org/pubs/888/home-broadband-adoption-2008

Prior definitions of Broadband, and “served area” in the USA have been deceptive at best. Historically, residents of a zip code were said to be in a “served area” if only a single subscriber in that zip code had broadband access. This distorts the US availability numbers and paints a deceptively positive picture.

Panel Discussion:

The panel was co-moderated by Derek Kerton of the Kerton Group and Jon Metzler of Blue Field Strategies. The five panelists were:

  • Christopher Boyer, AT&T, AVP – Internet & Technology Policy
  • Danielle Coffey*, Vice President, Government Affairs for Telecommunications Industry Association (TIA)
  • Mike Masnick, founder Techdirt; CEO, floor64
  • Robert Rini*, Partner, Rini Coran, PC (Washington DC based law firm representing WISPA)
  • David Pejcha, Marketing Director, Silver Springs Networks

* These two panelists dialed in from DC as Dulles Airport was closed and their flights cancelled.

Jon Meltzer noted that the $7.2B for broadband is the largest such government funded disbursement ever. It is about the size of the Universal Service Fund (USF)- which was approximately $7.6B total at last check. The USF is a fund that is mandated by the U.S. Federal government for the purpose of subsidizing rural, low income, and health/ education telecommunications customers. Jon notes that USF subsidization of broadband is still expected (perhaps to decrease its bias toward copper wire voice service).

Chris Boyer stated that AT&T was supportive of a flexible framework to deploy broadband services. However, AT&T was not seeking funds from the stimulus bill during the legislative process. However they are looking at how the legislation may advance their already substantial investment in broadband and projects currently in progress. Chris sited AT&T’s experience in California remarking that AT&T currently makes available broadband to around 90% of its service territory and getting broadband to the last 10% of the population (that does not yet have the infrastructure in place to realize broadband service) was a very expensive proposition. He later commented that AT&T’s broadband network is closer to 85% (give or take) built out elsewhere in the U.S.

The panelists agreed that the requirements for filing grant/loan applications needs to be clearly defined as do the previously mentioned terms- "broadband," "unserved area," or "underserved area." It would also be useful to define "over served area" for contrast with "underserved area." While creating jobs is the number one goal of this legislation, it’s equally important that the technology selected meets the need of the targeted user community.

If “rural” is defined as 20,000 or less, and grants/loans are contingent on addressing the “unserved” or “underserved” rural markets, the likelihood that an incumbent carrier would use the funds to roll out a broadband network for a city of 250,000 or so would be unlikely, according to Jon Meltzer.

Danielle Coffey said that TIA would ask for the time for grant/loan disbursement be accelerated, that the filing requirements not be too onerous, and that the selection criteria be technology neutral.

Robert Rini’s law firm (Rini Coran, PC) has been working with several wireless companies and Wireless ISPs (WISPs) who have asked how they can gain access to licensed spectrum to deploy wireless broadband technologies. The WISPs are interested in receiving government funding to build out wireless broadband in "small, granular service areas."

Derek Kerton observed that it’s a natural tendency of SP’s to deploy new wireless technology in densely populated areas, (e.g. Towerstream’s fixed WiMAX deployment in major U.S. cities) so they can get a better ROI. Greenfield operators often prefer to be the fourth or fifth provider in a dense city than the first provider in an underserved rural zone. So if rural deployment is the priority, then special requirements need to be attached to the funding. The population addressed by the new deployments is also important and should be taken into consideration when approving grants/ loans. Derek was concerned that job creation was more likely to come from incumbent SP’s, but they were not the likely candidates to provide broadband to rural areas (it’s the independent telcos and WISPs). Would a stimulus whose goal was to provide jobs also move the country forward in terms of the global broadband race?

Mike Masnick opined that more broadband competition in the market would create more jobs than a narrowly targeted government sponsored program, and especially so over the long-term. A narrowly defined jobs program would not really help the U.S. economy, which would face the same problems in 12 to 18 months.

Bob Rini, along with several other panelists, felt the final bill "was not stimulating enough." While Clearwire and Digital Bridge Communications may benefit from the bill, due to their synergy with educational institutions and ownership of 2.4G-to-2.5GHz spectrum, the WISPs would also benefit because they are well positioned to provide wireless broadband to rural and underserved areas. WISPs are generally very small businesses operating on a shoestring budget. They have expressed a keen interest in building out wireless broadband in their service areas, perhaps using WiMAX technology at 700MHz or 2.3G-to-2.5GHz licensed frequencies. WISPs (along with this author) believe that licensed spectrum is necessary to provide a carrier grade service- to eliminate interference, noise and signal distortion. Note that AT&T wireless broadband services operate on licensed spectrum.

Some WISPs are considering the 3.65GHz “lightly licensed” band for fixed WiMAX service, but there is no method yet defined by the FCC (or anyone else) to resolve contention amongst multiple possible users of that band. The rural telcos would have to work out spectrum re-use zones or other sharing agreements prior to turning on wireless broadband service. WISPs have not competed well at auctions for licensed spectrum, so a lightly licensed approach would be better for them if a contention or spectrum sharing arrangement can be defined. Rini said, "The FCC has one year to figure this out."

David Pejcha company (Silver Springs Network) builds smart power grids– a communications overlay over the last mile for electricity distribution. Utilities are considering smart grids to better manage their electricity distribution, provide automated remote meter reading, electricity switching for efficient distribution to customers. In addition, they plan to offer on-demand customer notification of electricity use. Electricity demand is outpacing supply so the power delivered needs to be more efficiently managed and usage monitored automatically. Solar energy producing modules might also connect to a smart power grid. Silver Springs Networks builds wireless communications systems using unlicensed 900MHz spectrum. Their network provides a direct link between the electric utility and its customers. It is an "Open IP network" that permits many different devices to attach to it. AT&T provides backhaul transport for some smart grids.

The discussion returned to licensed spectrum being more "investable" than unlicensed spectrum. Again, licensed spectrum prevents noise and interference. It was noted that cordless phones, microwave ovens, and wireless microphones operate at 2.4GHz, which would create interference for any unlicensed service at that frequency, e.g. long range/mesh WiFi. Further, the transmit power levels might be too high in an unlicensed service arrangement. Licensed spectrum, on the other hand, provides a de facto monopoly for the network operator- he has paid for the right of exclusion to keep competitors away.

Where will the licensed spectrum come from? The FCC is freeing up vacated UHF spectrum ("white spaces") for wireless Internet access and intends to make it available to SP’s as unlicensed spectrum for two classes of wireless broadband service: fixed access and personal/ portable access. The white space rules currently specify a 30-foot antenna on the receiver, fixed or portable. That’s a vestigial holdover from the TV broadcast world, according to Jon Meltzer.

With the transition to Digital TV, analog TV broadcasters will free a great deal of spectrum up on June 12th (DTV Delay Act),. But Rini is concerned that the FCC has not comprehensively specified how that spectrum will be used and distributed to interested SPs. WISPs are lobbying the FCC to create a lightly licensed regime for the vacated analog TV spectrum. Meanwhile, the "White Spaces Database Group," plans on formulating a plan to create, govern and maintain a wireless broadband network on abandoned analog television spectrum. When the spectrum is finally vacated, the group hopes that system in place, which will allow for the creation of an open wireless broadband network, which could be accessible by any device.

Currently, there is a secondary market for licensed spectrum in the U.S. Incumbent operators are leasing spectrum at wholesale rates directly to smaller SPs. In addition, Spectrum Bridge has become "the eBay" of auctioned spectrum. The Spec Ex or spectrum exchange is offered by Spectrum Bridge (http://www.spectrumbridge.com/).

Which companies might benefit from the broadband grants/ loans?

Mike Masnick opined that the stimulus funding criteria would be based on the projected number of jobs created by the broadband build-out, rather than any consideration of the requesting company to turn a profit. Since start-up companies are too small to be on the government’s radar screen, they are unlikely to get stimulus money. And since they focus on keeping costs down, and NOT hiring excessive headcount, they are not aligned with the stimulus’ goals. Start-ups are about long-term value creation, and the stimulus is about rapid job creation, thus Silicon Valley’s innovators probably will not participate in the broadband funding program. That is somewhat of a disappointment, as it’s the start-ups that provide long-term job growth and keep the US competitive with the rest of the world.

Counterpoint: We think that independent telcos, utilities, and WISPs will apply for the funding and start-up network equipment manufacturers will likely benefit. On February 17, 2009 (date the final bill was passed by Congress) start-up Airspan Networks announced the availability of what they claim is the industry’s most complete FCC and Rural Utilities Service (RUS) certified lineup of fixed and mobile WiMAX Base Stations and Customer Premises Equipment (CPE) for the U.S. rural market. RUS approval is obtained from the U.S. Department of Agriculture, affirming Rural Development acceptance and “Buy American” status of equipment. Airspan is among a select few WiMAX equipment manufacturers with this coveted “Buy America” status.

How are Capex and Opex impacted by the broadband stimulus?

The panelists and moderator pointed out that capex and opex are different accounting items. Jon Meltzer believes that the broadband stimulus may help with capex, but it won’t help lower opex. Still, offsetting capex is a non-trivial benefit. Grants could be used to offset the civil and construction costs of putting up a cell tower for rural broadband.

What is the FCC’s role in determining U.S. Broadband Policy?

Bob Rini provided this information: The FCC has one year to deliver Congress a report containing a national broadband plan “to ensure that all people of the United States have access to broadband capabilities” and establish benchmarks for reaching that goal. The plan will include:

  • Analysis of the most efficient and effective mechanisms for ubiquitous service
  • Strategy for achieving affordable service
  • Evaluation of broadband deployment, including progress of funded projects
  • lan for use of broadband to support national purposes

The FCC is expected to invite public comment to help develop national broadband plan

Finally, a questioner asked about "spectrum fees" in Obama’s new budget. No definitive answer was provided regarding renewal fees for operators that already owned licensed spectrum. But it’s something to watch down the line.

Reference:

What the broadband stimulus package means to rural telcos

http://telephonyonline.com/independent/news/broadband-stimulus-rural-telcos-0223/?smte=wr

Acknowledgement: The author would like to thank Bob Rini, Jonathan Meltzer and Derek Kerton for their diligent review of this manuscript and very helpful comments and clarifications.

An Unhealthy Industry: Telecom reports indicate continued contraction in revenues and growth

Having just analyzed recent reports from telecom companies, we conclude that the telecom recession/ depression continues. Revenues are falling way short of expectation, growth is limited to mobile data, and profits are minuscule with the exception of Verizon (VZ). But even at VZ, the growth seems to be coming almost entirely from new wireless data services for mobile subscribers, while customer installations for FiOS seems to be stalling (despite the huge build-out cost and heavy promotion). Perhaps the most important earnings report tidbit was that VZW (a joint venture between VZ and Vodafone-UK) said its churn rate — the pace at which customers defect to other carriers — fell to 1.1 percent from 1.2 percent in the previous quarter. By comparison, Sprint Nextel has a churn rate of 2.45 percent.

Comment:  With all the consolidation that has taken place in telco land- both in the network operator and equipment spaces- one would expect profit margins to be a lot higher, due to less competition and the power of scale. But they aren’t. The industry seemed to be a lot healthier in the late 1990s when competitive carriers were expanding their business to both enterprise and residential customers. But alas, they were wiped out after the dot com bust and stock market meltdown of 2000-2002. An entire food chain/ ecosystem collapsed shortly thereafter as the innovative new equipment companies had no one to sell to and the software and services companies had no one to support.

Growth engines: Telecom growth today seems to be restricted to developing countries which have little or no fixed line infrastructure. Mobile data continues to grow everywhere with more and more people wanting to access the Internet on the move. Mobile video and multi-media services over broadband wireless networks (e.g. WiMAX, HSPA, LTE) may provide an engine for future growth, but that remains to be seen. We hope telco video (both FiOS-RF and IPTV based delivery of broadcast video) will succeed, as it would provide real competition for the monopolistic cable companies that charge ever higher prices for digital video and provide terrible customer service. However, we are concerned with FiOS apparently stalling as indicated in the VZ report below.

Here’s a roundup of relevant telecom company reports in the past week:

Nortel warns of U.S. market woes, shares fall

Wojtek Dabrowski ,  Reuters  August 01, 2008
 
TORONTO – Nortel Networks Corp said on Friday its quarterly loss tripled on restructuring charges and currency exchange losses, and its shares fell as the telecom equipment company warned that a tough U.S. market is choking wireless spending by carriers.  The loss widened to $113 million, or 23 cents a share, from $37 million, or 7 cents a share, a year earlier. The latest results included $67 million in restructuring charges and a loss of $21 million, primarily from mark-to-market losses on interest rate swaps.
 
"The macro environment in the U.S. and the U.S. carrier spend continues to be challenging," Chief Executive Mike Zafirovski told analysts during a conference call. He said this has hurt sales related to CDMA, or Code Division Multiple Access, wireless technology….

Bell Canada to Cut 2,500 Jobs

by the Associated Press July 29, 2008
BCE Inc. said it is cutting about 2,500 positions at Bell Canada, representing about 6% of the unit’s total workforce, as it attempts to streamline its management and lower costs……

SK Telecom Profit Dented By Marketing Costs

WSJ By IN-SOO NAM July 25, 2008

SEOUL — SK Telecom Co. reported a worse-than-expected 26% decline in quarterly net profit, pressured by higher marketing costs and a fall in wireless-data revenue…….

Sprint to Sell Cellphone Towers, Use Money to Pay Down Debt 

WSJ By AMOL SHARMA July 24, 2008

Sprint Nextel Corp. agreed to sell nearly all its cellphone towers to a private-equity-backed firm called TowerCo in a deal that will generate about $670 million in cash for the struggling wireless carrier……

Write to Amol Sharma at amol.sharma@wsj.com

Earnings Rose at AT&T, but Revenue Misses Forecast 

By THE ASSOCIATED PRESS July 24, 2008

AT&T, the telecommunications company, reported second-quarter results on Wednesday that contained signs that the weak economy was catching up to its previously steady results…………

TV Service Stalls for Verizon, but Increase in Wireless Customers Keeps Earnings Strong 

 The New York Times,  By LAURA M. HOLSON July 29, 2008

Verizon Communications is having a harder time pushing its television service, which competes with the big cable companies, but the company said the slowing economy had not hurt its cellphone business.

Motorola Reorganizes Unit before Earnings Report

Forbes ByElizabeth Woyke, 07.28.08

In an ongoing attempt to revitalize its business, Motorola will restructure one of its largest units into three groups. Analysts, however, are focusing on how the Schaumburg, Ill.-based telecom equipment maker plans to shore up profits……..

Chairman Tchuruk, CEO Russo To Step Down From Alcatel-Lucent

By LEILA ABBOUD and JETHRO MULLEN  July 29, 2008
 
PARIS — The architects of the trans-Atlantic merger that created Alcatel-Lucent two years ago are stepping aside, leaving a telecommunications-equipment firm still struggling to figure out how to survive in an industry plagued by increasingly brutal competition and eroding profits……
 
 
Comment:  The founders of the French-US telecom equipment maker are finally leaving the company created by the merger from hell. Their departure should help end the group’s nationalist paralysis. But the timing is awful.  No successor has been named for either post. Without a succession plan Alcatel-Lucent looks as lost as ever.  The outlook doesn’t look much brighter for the rest of the year, as economic woes make telecom operators reluctant to spend to upgrade their networks.  Alcatel-Lucent still expects the overall telecom equipment and services market to remain flat in 2008.   However, their share will likely decline.
 
"I don’t think it should be seen as good news," said WestLB analyst Thomas Langer. "What you need in such difficult times is true leadership." Mr. Langer, who has a "sell" rating on Alcatel-Lucent stock.
—————————————————————————————————————————————-
 
Addendum:  Unfortunately, More of the Same —— August 7, 2008
 
Deutsche Telekom Net Profits Slump
 
By Rhonda Wickham  WirelessWeek – August 7, 2008
 
Deutsche Telekom AG reported that its Q2 net profit fell 35% due to economic and business effects such as 1-time charges, a stronger euro and higher interest payments.
The operator posted net profits for the period ended June 30 of $607.2 million, down from $929.7 million a year earlier, when the company booked a gain from the sale of T-Online France.
Deutsche Telekom, parent company of T-Mobile USA, saw revenue fall 2.9%, due to the strong euro against the dollar and pound.  DT also saw a 7.1% decline in its German fixed-line customers to 29.82 million from 32.09 million. Its retail broadband customers grew 23.5% to 9.9 million. Total mobile customers increased 8.7% to 125 million, with the U.S. customer base rising 12.3% and Europe increasing 7.5%.
Sprint customers continue to flee, base drops to 51.9M
 
 By Sue Marek  Fierce Wireless-  August 6, 2008
 
Sprint Nextel disappointed investors once again with some less-than-stellar second quarter results. In particular, the company continues to lose customers at a rapid rate–it lost 901,000 customers in second quarter, giving it a total of 51.9 million customers, compared with 54 million the end of the same quarter last year. On the revenue front, the operator had a second-quarter net loss of $344 million, compared with a year-earlier profit of $19 million. Revenue fell 11 percent to $9.06 billion. Wireless revenue was $7 billion, also a decline of 11 percent year over year.
In a call with financial analysts and investors this morning, Sprint executives tried to mitigate the damages by singing the praises of the company’s "Simply Everything" unlimited voice and data plan and the introduction of Samsung’s Instinct smart phone. CEO Dan Hesse repeatedly talked about how Simply Everything is encouraging stabilization among its customer base and has performed better than expected. In addition, he talked at length about how the Samsung Instinct is driving more data usage among customers.
Sprint also said it plans to make an offering of $3 billion in cumulative perpetual convertible preferred stock but executives wouldn’t go into any details on that offering. Last month Sprint agreed to sell almost all of its towers to private tower company TowerCo for about $670 million in cash. The company planned to use the proceeds to pay off debt.
 
 
Qwest Q2 profit heads south, along with outlook

By Dan O’Shea  Fierce Telecom- August 6, 2008
 
On the heels of having its four-market forbearance petition rejected, Qwest Communications reported a 24 percent decline in profit to $188 million as part of its second quarter earnings summation. Revenue was down about 2 percent overall to $3.38 billion, and because the Federal Communications Commission rejected Qwest’s request for forbearance from access charge regulation, the telco will not be able to realize more revenue through higher wholesale pricing.
The telco adjusted its outlook lower for the rest of the year, saying that revenue growth will be only about 2.5 percent. Qwest also reported that access lines declined about 8 percent to 12.2 million. Positive news included an addition of 32,000 satellite TV subscribers via Qwest’s partnership with DirecTV, growth of about 9 percent in Internet and video revenue, and a rise of about 14 percent overall in broadband subscribers.   All in all, this particular earnings report could not have been how Qwest CEO Edward Mueller had hoped to celebrate his first anniversary as chief. Looking back at the past year, Mueller has made a few changes here and there, and a couple of major decisions–most notably Qwest’s icing of Sprint as its wireless partner (though that wasn’t really a hard decision), and the company’s $300 million commitment to FTTN, but not for video. Is the company any better off than it was one year ago?
 
 
Qwest Posts 24% Profit Drop, Cuts Outlook for Year
 
By ANDREW LAVALLEE   WSJ   August 7, 2008
Qwest Communications International Inc. reported a 24% drop in second-quarter profit and lowered its outlook for the year, as land-line losses and market-share declines in its broadband unit continued to drag down the company’s results.
Revenue fell 2.3% to $3.38 billion.  Qwest ended the quarter with 12.2 million access lines, down 8.2% from the year-ago quarter, following similar land-line losses from AT&T Inc. and Verizon Communications Inc. Qwest is feeling the strains of the weak economy, particularly in states like Arizona and Iowa, where the real-estate market has been hard-hit.
 
 
 
MetroPCS’s Net Slips Amid Rising Costs, Lower Per-User Revenue
By DAVID BENOIT  WSJ- August 7, 2008
 
MetroPCS Communications Inc. posted a 13% decrease in second-quarter net income as falling revenue per user and rising costs offset continued subscriber gains. The wireless provider recorded net income of $50.5 million, or 14 cents a share, compared with $58.1 million, or 17 cents a share, a year earlier. The latest results included a three-cent charge on the firm’s investment in auction-rate securities.  Revenue rose 23% to $678.8 million from $551.2 million. The mean estimates of analysts according to Thomson Reuters were for earnings of 17 cents a share on revenue of $679.1 million.
Average revenue per subscriber was down 3.3% and the cost per user rose slightly. But total operating costs surged 30%.
 
 
 
Vonage Narrows Loss, But Turnover Remains High
 
By ANDREW LAVALLEE  WSJ  August 8, 2008
 
Vonage Holdings Corp. narrowed its second-quarter loss but added far fewer customers, in part because it cut back on advertising. The Internet-phone company, based in Holmdel, N.J., reported a loss of $6.9 million, or four cents a share, compared with a year-ago loss of $23.2 million, or 15 cents a share. Revenue climbed 11% to $227.5 million.
The rate of customer defections, or churn, fell to 3% from 3.3% in the previous quarter. Vonage — which provides phone service to households through Internet access lines — has struggled to reduce turnover in a saturated and competitive telecommunications industry. Total wireless churn at competitors such as AT&T Inc. and Verizon Wireless, Verizon Communications Inc. and Vodafone Group PLC’s joint venture, was 1.6% and 1.1%, respectively.
 
 

IEEE ComSoc-SCV Workshop: Location Based Technologies and Services

Summary of Location Based Technologies and Services Workshop

[June 19, 2008, Crown Plaza Hotel, San Francisco International Airport] 

Alan J. Weissberger
IEEE ComSoc- SCV Secretary and Program Chair
Backgrounder:  
Yankee Group tele-briefing report on Location Based Services and Technologies:

Speaker Remarks
1. Dave Reid, Director of Business Development, SiRF Technology Inc. http://sirf.com/
 
The world is on the go (which implies that mobile telecom services and devices will grow rapidly). SiRF believes that location awareness brings convenience to our lives. SiRF is predominantly a (fabless) semiconductor company- with the largest market share of discrete GPS chips and related intellectual property. SiRF powered mobile devices include personal navigation devices (PNDs), handheld GPS receivers, smart phones, feature phones, personal media players (PMPs), and in-dash car navigation systems. 
 
There are many types of Location Based Services (LBS’s) being deployed and being considered by network operators: navigation, social networking, location based advertising, mobile commerce, transportation, child locator, pet tracker, etc. New mobile broadband networks, like WiMAX, will be location enabled; so will new devices, including Mobile Internet Devices (MIDs) and even location aware watches. Applications and content are intersecting and this will lead to innovative new mobile services with location awareness. Enterprise customers have led applications in location for a long time, but the consumer market for LBS could now be poised for faster growth.
 
Verizon Navigator (offered by VZ Wireless) is the most popular LBS and most successful navigation service in the world (5M subs). VZ Navigator offers audible turn-by-turn directions for $10 per month.
 
 
LBS’s (mostly navigation) will continue to command a pricing premium over other wireless add-on services, e.g. music, ring tone, games.   In the future, LBS will be a key revenue generator for network operators. Nokia announced they would have location awareness in all their devices (Nokia uses TI processors). 
 
Location Based Technologies: While GPS is only one of several location-based technologies (others include cell site location, broadcast TV signals, WiFi AP locations, RF signatures- see graphic below), its accuracy is better than the others. Assisted GPS may be used to enhance performance when signal propagation conditions are poor (e.g. when surrounded by tall buildings or when the satellite signals are weakened by being indoors or under trees). In pure GPS location tracking, it typically takes 30 or 40 seconds for a GPS device to compute a location if it does not have recent ephemeris data for the GPS satellite network. Otherwise, locations are computed once a second or faster. 
 
Sky Hook Wireless (http://www.skyhookwireless.com/) creates a database of WiFi Access Points (APs) as the basis of its WiFi Positioning System. It uses the native IEEE 802.11 radio (already on mobile devices) to deliver accurate positioning worldwide.
 
Dave Reid was kind enough to provide this chart of Location Tracking Technologies:
 Location Tracking Technologies
Notes:
RSSI = Received Signal Strength Indicator
 
TDOA = Time Difference of Arrival
 
Cell ID will assume location is in the midpoint of the cell (this could be inaccurate if person is at the cell edge or on the border of adjacent cell?)
 
SiRF has proposed a LBS Systems Architecture. They have an ecosystem in place to develop, test and market location based applications. SiRF provides end- to- end solutions and has engaged in partnerships with various companies.
 

 
2. Jon Metzler, Director of Strategic Initiatives, Rosum Corp. http://www.rosum.com/
 
Location determination capability is becoming a "table stakes" requirement for device makers and semiconductor companies. LBS’s should be considered as a utility – like electricity that can be turned on and off. 
Rosum is the first and only company to harness over the air, broadcast TV signals for position location. The key advantage of this approach is that TV frequencies were designed to penetrate walls, ceilings and trees, in order to deliver a good video signal indoors. The company was founded by original GPS architects to deliver always-on location awareness where GPS fails – indoors and in urban canyons. Rosum is a provider of location, timing and frequency calibration solutions for Mobile TV Device and Home Telecommunications markets. In particular:
 
  • Mobile TV Devices: cell phones, notebook PCs, and PND/PMPs equipped with TV tuners
  • Home Telecommunications: femto cells for the home, and E911 (E112) for Wireless and VoIP subscribers
  • Among recent milestones for the company:
    • Rosum Announces Successful DVB-H Positioning Trial with UK’s National Grid Wireless (6/25/08)
    • 2Wire Selects Rosum TV+GPS Location and Timing Solution for E911/ Home Telecom products using femtocells (3/31/08)
  • Rosum Signs Collaboration Agreement with Intel – Will Enable TV-Location on Mobile Devices (10/07)
But why use Broadcast TV signals for position location? 
 
The TV signals offer high power (1 MW ERP typical), low frequency (50-750 MHz), frequency diversity (wide 6 to 8 MHz channels, multiple channels per tower), and horizontal signals (less attenuation from roofs and walls). Moreover, the terrestrial TV infrastructure is highly correlated with population density and broadband penetration in the U.S.   In a one on one test of TV Positioning vs. GPS based location tracking, GPS failed at three of six indoor locations in the SF Bay Area.
Editors Note: GPS vendors, such as SiRF and others, would likely question those test results.  However, Rosum uses third party testing in order to address concerns of competing technology vendors.
 
The best of both worlds might be a hybrid approach – where GPS and TV based positioning are combined in one device. In that case, GPS would be used outdoors, while TV positioning would be used indoors and in canyons (where GPS often fails).
 
The location technology and device market is consolidating, with many mergers and acquisition of key players, e.g. Nokia acquiring mapmaker Navteq. Other market themes of note:
  • Online mapping arms race between Google, Microsoft, Yahoo
  • Combination Personal Navigation Device / Portable Media Players (PND / PMPs)
  • Convergence of PNDs and Communications devices (i.e., cell phones) 
Two popular hand held devices with LBS and positioning technology:
  • Blackberry with Google Maps and GPS positioning
  • Apple iPOD Touch with Google Maps and 802.11x (WiFi) based positioning
What Comes Next for LBS’s?
  • Connected (not silo’d) use of location information with two categories foreseen:
    • Groups: self-chosen affiliations, such as Social Networks
    • Swarms: (anonymous) use of location for ITS enhancements
  • Resolution of privacy issues (TBD)
  • Growth in new LBS’s such as: Social Networks, Intelligent Transportation Systems (ITS), Connected Navigation, and Local Search/ Advertising (Google and Yahoo)
 Panel Session
 
The author chaired a panel session with the two speakers. It consisted of a few pre-planned questions for discussion, audience Q and A, and a wrap up question about the nature of future devices for LBS’s (cell phones, iPODs, other gadgets, or Mobile Internet Devices=MIDs). The panelists agreed that the big software companies (including Microsoft, Yahoo, Google, Oracle) all had LBS initiatives underway. They also believed that the smart phone (cell phone + Internet + LB technology) would dominate the LBS market, especially over non-voice capable MIDs.
 
Jon later amended his panel session remarks regarding MIDs: "If you define MIDs as including devices with integrated WiFi, such as the mylo or iPod Touch, then yes, I believe that market will develop. With that said the overall cell phone market will still remain much larger."
 
The author thanked the panelists and the audience (35 attendees) for their participation in this very enlightening and informative workshop. We also thanked IEEE SECON for sponsoring the workshop in conjunction with their annual conference.

Addendum: Critical issues for mobile network operators
 
At a VoiceCon- Spring 2008 panel on LBS’s, the critical issues for mobile network operators were identified:
  • Security and privacy-authentication, authorization, encryption, etc.
  • Application integrity – to prevent apps from harming network or users
  • Power dissipation and utilization
  • Flexibility and customizability
  • Integration of new value added services (e.g. location)
  • Billing: What to charge for a new service? Flat rate vs. Usage based (metered)
Postscript: Location Based Social Networking from Verizon Wireless
 
On June 26, 2008, Verizon Wireless announced that its location based social networking service- known as loopt – is now available to its subscribers. The original announcement this past March anticipated an April launch for the service, but according to Verizon Wireless spokesman Jeffrey Nelson, “technical issues, pricing issues and running the application through some traps before launch,” caused the delay. Regarding security and privacy, Nelson said: "We’ve strengthened the privacy capabilities even further. We will be pinging customers on a regular basis to let them know their loopt account is active and that they can be tracked."
 
Loopt’s CEO Sam Altman had previously stated that privacy had been one of the biggest issues facing the uptake of location-based mobile social networking and that solving them is a key step toward achieving inter-carrier LBS services.   Evidently privacy is no longer a problem- at least not for Verizon Wireless.

Obscenity on ABC, Advertising on PBS, H.R. 6320 – Regulation of Broadband TV on the Horizon?

The inspiration for this article was a decision a few months ago by the FCC to slap a huge fine on ABC Affiliates for violating obscenity rules in airing an episode of “NYPD”.   The FCC Order, although extremely descriptive about the nudity, sparked my curiosity. 

"………The camera shot includes a full view of her buttocks and her upper legs as she leans across the sink to hang up her robe……….."

In years past, I would have been in the dark. Thanks to the power of Internet video, however, I was able to find a copy of the video within 30 seconds and view for myself what the FCC considered obscene.  The image below is a screen capture of one of the tamer shots.   Click here to see the video - assuming it hasn't been removed.  In my opinion, it crosses the line 

You can see the video by clicking on this link (assuming that ABC doesn’t make YouTube remove it).      

The point is, what was obscene on broadcast television does not violate FCC rules on broadband television; at least yet. This skirting of broadcast television rules could be the biggest impact that broadband TV has on the future of television, as this provides a new medium for the broadcast networks to create derivative products (e.g. an even coarser version of the “Family Guy”). Things like limits on advertising to children, hard liquor advertisements, the fairness doctrine, nudity and swearing are beyond the FCC’s current scope for regulating video over the Internet. 

Another piece of evidence that the television business model and rules are changing is Hulu’s deal with PBS to put advertisements in front of its programming [thanks Viodi View reader, Peggy for pointing this out).   This would have been a huge deal 20 years ago, when PBS was available only in a broadcast medium.

Where it will get interesting is when politicians start hearing complaints from constituents about “FCC rule violations.” Of course, the FCC won’t have rules (although they will probably try to figure out how to expand their powers) and Congress will get involved and it will get real political. Knowing how long it generally takes the Federal Government to act, this sort of political uproar may still be a long ways out (it took 5 years for the FCC to rule on the aforementioned NYPD obscenity case). 

Just as I was about to publish this article I saw today’s issue of the OPASTCO 411, which summarized the Markey Bill ( H.R. 6320).  This Bill is an indication that the future may be closer than I thought.  H.R. 6320 calls for captioning and providing emergency alert info for video over the net, as well as adding requirements for other IP devices. Clearly, this is a grab to regulate the Internet and it probably will not be successful in this election year, but it is start of what could be a very long and interesting fight.    

To avoid future legislation, the Broadband TV industry should adhere to current broadcast rules as much as possible and, as needed, set new guidelines.   This may require the various industry players to reach across ecosystems and proactively work together. 

The DTV Transition – At What Cost?

[Author’s Note:  Thank you very much to David Irwin, Director of the Communications Law Institute at The Catholic University of America, for his review and suggestions for this article]

Click here to learn the detail of the DTV Transition from the official government web siteMuch has been made about the recent 700 MHz spectrum auction and the potentially billions of dollars raised for the U.S. Treasury, but this is just one part of a complex equation related to spectrum management and economics that may be implicitly costing U.S. citizens much more than they are receiving.

For example, there is the opportunity cost of the new, digital broadcast spectrum, given away to existing broadcasters by the government that is worth untold billions of dollars. Unfortunately, this article is probably about 10 years too late to affect a change, but maybe it will serve as a warning for future generations.

Prior to auctions, back in the early days of the FCC, spectrum was regarded almost like land during the homestead days of the eighteen hundreds.  That is, entities were given spectrum in exchange for building out the infrastructure, providing certain public goods and accepting regulations and restrictions.  Where more than one entity sought spectrum in a given locale, each spectrum application being mutually exclusive to the other, evidentiary-type hearings were held to determine which applicant would best serve the “public interest;” but, at the end of the hearing process a spectrum license was simply awarded by the government to the winner.

Much like homesteading, this policy lessened the risk for entrepreneurs and was a catalyst that expedited the build-out of the radio, television and original cellular infrastructures. These build-outs evidenced the inherent value of the spectrum and, as result, Congress turned to spectrum auctions as the prevalent way to ensure that the public received a return on its spectrum assets; that is, except for the give-away of digital television broadcast spectrum.

Giving away spectrum may have made sense in the 1990s when Congress and the FCC began laying the foundation for what what has become known as the 2009 digital television transition. In February 2009, all legacy television stations (with the exception of low-power stations) will turn off their analog transmitters and thereafter only broadcast digital signals; this may include high-definition TV.

The intent of Congress, heavily lobbied by the broadcast industry, was to free up the analog spectrum for other uses, as well as ensure that the U.S. remained competitive with other nations by having a digital broadcast infrastructure that supported HDTV. Like in the 1940s, the Federal Government essentially gave away spectrum to broadcasters in return for a digital build-out and exchange of bandwidth that had been used for analog signals. There have been significant and unanticipated changes since the DTV legislation was passed in the 90s, including:

  • The continued growth of cable, telco video distribution via fiber optics and copper DSL and DBS operators, such that the number of households receiving off-air broadcasts is estimated by Jeff Zucker, CEO of NBC-Universal at 10%.  He suggested at NATPE 2008 that the number of households receiving off-air only will drop to approximately 5% after the transition.
  • The transition of the Internet into a video distribution medium is a true unknown — a “sleeper” in this equation.  Broadcasters and television networks are “re-inventing” themselves, embracing the internet, proving by their own actions and plans that broadband is a viable distribution outlet for video.
  • The success of unlicensed WiFi spectrum also indicates that spectrum does not have to be licensed in order to have value.  On the horizon is WiMax, which may be thought of as WiFi on steriods; WiMax is a potential threat to cable, satellite and telcos.  In all events, it appears that the concept of device-regulated spectrum (the devices are network-aware and transmit data accordingly, minimizing interference), instead of the traditional agency-licensed and regulated spectrum.
  • Improvements in video compression, which frees up bandwidth for uses that were probably never anticipated by Congress.
  • The success of auctions in allocating spectrum.

The transition to digital television broadcast required a huge investment by the broadcast industry and probably never would have been justified by better picture quality alone (although, the broadcast industry did make feature upgrades to include color and stereo in earlier days, but these didn’t involve such an extensive infrastructure upgrade).

That is, there is probably no new revenue for the broadcaster who only replaces a standard definition digital signal, albeit better than analog, with HDTV programming.   It is thus understandable why broadcasters are looking for ways to monetize their investments in digital technology including the use of the bandwidth not utilized for their primary digital and/or HDTV signal by:

  • Creating mini-cable systems by developing new content to go along with their primary channel
  • Potentially creating “pay versions” of popular programming (several years ago, one industry pundit suggested networks could create two versions of the same show; a tamer version for general broadcast and a wilder version that people would be willing to pay for as a premium service).
  • Leasing out bandwidth to third-parties that would essentially act as aggregators
  • Offering a mobile video solution that would extend their service offerings onto personal video devices.

Policy makers and broadcasters believe that these new applications of the broadcast bandwidth will have value to some consumers.  But, there are, as noted above, real costs, as well as opportunity costs that need to be considered.  Some of the real costs to the DTV transition include:

  • The $1.8 B in coupons provided by the Federal Government to consumers to pay for digital set-top coversion boxes that will let analog televisions play digital broadcast signals.
  • The costs that my telco friends and others had to spend as a result of an FCC mandate to publicize the digital TV transition.
  • The costs associated with cable systems and telcos having to support standard definition, long after the broadcasters make the switch to digital.
  • The big cost is probably the opportunity cost, as the digital spectrum given away would have value that could be realized explicitly through an auction process or as an unlicensed public good.  Based on the recent $19.6 B expected from the auction of the 700 MHz spectrum, the remaining 200+ MHz of spectrum could be well worth many multiples of the 700 MHz spectrum bids.

As much as I would like to be able to present a silver bullet that would change the situation, I doubt there is anything that could be done politically or practically to improve the value of the DTV transition for the U.S. taxpayer (it is our spectrum).  After making such a huge investment and with rules in place for so long, it simply isn’t fair to the broadcast industry to change the rules of the game at this late date.  Economists will suggest that there is nothing like political uncertainty to impede business investment and it would be bad precedent to make significant changes to DTV.  The time to make changes was 10 years ago.

It will be interesting to see how economic historians view the digital TV transition. Hopefully, they will learn from it and be able to influence politicians and regulators the next time we have the opportunity to make such a historic shift in our communications’ infrastructure.

The Enemy of Advertising

Notably absent from the 2008 VON conference were the over the top and new video alternatives that were prevalent at the 2007 version. Kulabyte, with their real-time HD encoding over the web, was a highlight on the showfloor. Unfortunately, I only attended a portion of one panel, but there were some very insightful quotes from Fred Seibert of Next New Networks (and Executive Producer of The Fairly Odd Parents, former President of Hanna-Barbera Cartoons, Inc. and first employee of MTV).  The 15 minutes I spent at this one panel was as valuable as a day at other conferences. 

Seibert suggested it would take awhile before Internet video advertising catches up with other media. He likened the challenge that Internet video faces to that of the cable television in the early 1990s as it went against the established broadcast television industry. 

Seibert pointed out that the new money will come from selling different ads to different people; in other words, targeted advertising. He also suggested that the networks would have to create new content tailored specifically for the Internet medium. 

“Chaos is the enemy of advertising,” stated Seibert. This statement was made in the context of the Internet video and the perception that advertisers want to associate themselves with consistent and appropriate content. This has been a problem for some of the User Generated Content sites, as they try to monetize their billions of views. 

There is a converse to Seibert’s point. That is, many of UGC video producers do not want certain advertisers for their content. Just like the advertisers, these UGC video producers want control of their content and the associated advertisements. 

Has the 700 MHz Auction Been a Failure?

Abstract

Promoted as the most important FCC auction in decades, it appears that the 700 MHz auction has been a failure on several fronts.  We were promised private operator-public safety partnerships (for the D Block) along with a new nationwide wireless broadband network (Frontline Wireless’ initiative), open access for any device and any application (Google’s petition), and new entrants (e.g. start-up carriers and WISPs) that would take advantage of the excellent propagation properties of the 700 MHz spectrum.  There was also talk about regional carriers and WISPs bidding on the spectrum for mobile WiMAX deployment.  But few if any of these visions will be realized, in our opinion.  

However, a big positive we see is that the FCC will raise double the minimum reserve amount of $10B.  That means approximately $20B to the US Treasury.  Do you think that will make a dent in the federal budget deficit?  All blocks auctioned (see next section below), with the notable exception of the D block, have raised more then the reserve requirement.

Objectives and Process for FCC 700 MHz Auction 73

700 MHz spectrum has been occupied by TV broadcasters and is being made available for new commercial wireless mobile and public safety services as a result of the Digital Television (DTV) transition in February 2009 [1].

  • License Term is 10 Years, with geographic and service provision obligations
  • Auction 73 includes 1,099 licenses in the 700 MHz Band:
    • 176 EA licenses in the A Block,
    • 734 CMA licenses in the B Block,
    • 176 EA licenses in the E Block,
    • 12 REAG licenses in the C Block, and 1 nationwide license in the D Block, to be used as part of 700 MHz Public/Private Partnership
  • Aggressive Auction Timing
    •   January 24, 2008 bidding for licenses
    •   June 2008 – payment
    •   February 2009 – Spectrum cleared
  • Spectrum Bandwidth – 62 MHz total
    •   Lower 700 Blocks A, B 2 x 6 MHz paired
    •   Lower 700 Block E 6 MHz unpaired
    •   Upper 700 Block C 2 x 11 MHz paired
    •   Upper 700 Block D 2 x 5 MHz paired
  • Channelization permits separation of uplink (device to base station) and downlink (base station to device)
  • Can use separate frequencies (FDD) or separate timeslots (TDD)
  • Anonymous bidding for the first time (no one really knows who is bidding or winning)
  • Auction will not close until bidding on all Blocks cease (no one knows when that will be, but the money being raised now is insignificant compared to what’s been committed.)

For a more extensive backgrounder, please refer to our earlier research on this topic:

Speculation Mounts as FCC’s 700MHz Auction Application Deadline Nears

What’s Happening Now- Especially the important D Block

As the auction winds down after 132 rounds of bidding, the commission has raised $19.6 billion.  During the last round held Friday morning, 25 new bids brought in a meager $644,000.  That negligible amount has been the pattern of late as the bids keep dribbling in at lower and lower values. 

Some of the bids during the last round were for E Block slices in Maryland, Delaware, Louisiana, Virginia, Georgia and A Block slices in Georgia, Kentucky, North Dakota and South Carolina. So far, the FCC has auctioned off 1,089 licenses with winning bids on them.  Denver’s E-Block license received the largest bid, drawing an offer of $640,000 to reach $23.1 million. Bidding for the B Block centered in the Eastern U.S. while E Block activity remained in the Midwest and Southwest.

The D Block bidding stalled in the first round and even the FCC admits the reserve of $1.3B will not be met ($472M has been bid to date).  Frontline Wireless was planning to bid for the D Block, but they shut down after failing to raise $1.3B reserve price.  If the auction ends and the D Block falls short of the reserve price, the FCC has two options:

  • Rewrite the rules of the auction to eliminate the public safety requirement, or
  • Request Congress to give a fully or partially funded mandate to build and operate a dedicated public safety network.

The D Block bidding failure underscores the financing dilemma given the stringent network build out requirements imposed by FCC and limitations of the 20 MHz designated for the shared public/ private network.  Before its demise, Frontline Wireless estimated build out costs to be at least $10B.  This was in addition to costs associated with spectrum acquisition. Licensee is also responsible for cost of relocating narrowband operations, capped at $10M.  Public safety communications today is via a raft of incompatible networks and that does not appear likely to change with the D Block bidding failure.

Our opinion on the D block:  Perhaps the FCC should not even license the D block, but leave it as unlicensed spectrum.  Colleague Ken Pyle writes that FCC Working Report #43 looks at the idea of using market-based mechanisms to designate particular blocks of spectrum as either unlicensed or licensed. Currently, this licensed or unlicensed designation is determined by administrative process that can be influenced by, as the FCC states in their press release, “interested parties.”

Getting the Auction Back on Track (Source: Yankee Group Briefing Feb 27, 2008)

The Yankee Group states:  To revitalize commercial interest, FCC has several options:

  • Re-offer the license on the same terms in a subsequent auction- an unlikely scenario
  • Re-auction under different terms: Throw out the public-private partnership requirement and/or extend the time frame for completing the build out beyond the current 10 years,  reduce the price and remove the wholesaling rights
  • Abolish the requirement that the winner shares its national wireless network with public safety groups. In this scenario, the FCC will need to explore and come up with a new funding model for public safety.
  • Allow multiple companies to bid, and jointly build out a network. Note: this is not allowed under the current rules.

Senator Blasts 700 MHz Auction

Sen. Mark Pryor (D-Ark.), a member of the highly influential Senate Commerce Committee, declared the yet-to-be-completed 700 MHz auction a disaster, saying that the FCC allowed dominant wireless companies such as Verizon Wireless and AT&T to control the auction. He said this to some 500 broadcasters at the National Association of Broadcasters’ State Leadership Conference in Washington, D.C.

He also characterized the FCC of being "secretive," with FCC Chairman Kevin Martin carrying "an agenda into their agenda." I don’t really understand what that means, but obviously there are some partisan politics involved.   Pryor was quoted as saying in Broadcasting & Cable that "history will show that the way the FCC structured the auction basically helped the two big wireless companies [Verizon Communications and AT&T] to the detriment of competition in this country."  But how does he know that, as the auction is supposed to be anonymous?

http://lists.fiercemarkets.com/c.html?rtr=on&s=69l,xy1f,8mf,i5zc,16aw,3ma8,9u1c

Additional Fierce Wireless 700 MHz Auction coverage

Yankee Group’s Opinion on Likely Winning Bidders (Source: Yankee Group Briefing Feb 27, 2008)

AT&T is seen winning the A block, which it is likely to use for mobile Internet and mobile TV.  Regional operators (rural carriers and WISPs) taking the B block for mobile WiMAX and mobile Internet.  Verizon is likely to take the C block and use it for3G LTE and 4G mobile Internet.  Qualcomm could be bidding on the E block for Media Flow or other ways of broadcasting mobile content.

Conclusions and Recommendations (Source: Yankee Group Briefing Feb 27, 2008)

  • Inherent conflict between auction goals of revenue maximization and increased competition
  • Advantage to Mobile Incumbents over Innovative Challengers
  • Where are Google and Media/Internet Bidders?
  • Broadcasters lose in the Future of Mobile TV (assuming they have not submitted winning bids)
  • Advantage to 3G LTE over Mobile WiMAX;  Verizon and AT&T over Sprint/Clearwire (who probably did not bid)
  • Questionable commitment to Open Access
  • Big loser is Private Operator- Public Safety Partnership [2]
  • Watch for the last minute surprise????

Summary and Conclusions (this author)

We agree with the Yankee Group, except we don’t expect any last minute surprises.  Until the license awards are made public, we don’t know who the actual winning bidders are.  However, we expect Sen. Pryor has credible information that AT &T and Verizon will control much of the spectrum.  Hopes for public-private partnership, as well as a nationwide broadband wireless network have been dashed with the failure of the D Block bidding process.  The big wildcard is what Google has done and will do.  If it has submitted a winning bid, will they contract with a network operator to build out a wireless broadband network in any parts of the U.S.  How will they get their “any device connected to the network and any application,”  if they don’t control the network itself?


[1]The Digital Television and Public Safety Act of 2005 established February 17, 2009, as the cutoff date for over-the air analog transmissions. It will force broadcasters to vacate spectrum in the 700 MHz band. 24 MHz has been designated for interoperable communications systems for first responders, with the remainder will be available for commercial wireless services.

[2] Another big loser, in our opinion, is the vision of a new nationwide broadband wireless network.  Since there are no new entrants to fund such a build-out, we think LTE will be a big winner, with mobile WiMAX being a big loser.

Program Tying

[Editor’s Note:  Bob Primosch is a Partner with the communications law firm Wilkinson Barker Knauer, LLP, Washington, D.C. (rprimosch at wbklaw dot com):

The FCC is considering whether to prevent local television stations from requiring cable operators to carry extra programming services as a quid pro quo for giving retransmission consent.  Likewise, the FCC also is considering whether cable networks should be prohibited from ‘tying’ other programming to their channels.  This rulemaking remains open, so interested parties may still make their views known to the FCC.