Let me quickly give a non-technical interlude on why one would want to bid on a range of frequencies. The electromagnetic spectrum is very wide in comparison to what is being auctioned by the FCC. It includes all waves from Infrared to visible light to Ultraviolet. Depending on the frequency of the wave, the wave exhibits different characteristics. The higher frequency waves travel considerably shorter than lower frequency waves among other differences. The FCC has taken the radio wave portion of the spectrum and allocated different bands to different purposes. Check out this PDF from the FCC to take a closer look:
While some of the spectrum is left open to the public to use devices like ham radios, cordless phones, and WIFI, most of it is privately used. Among these private uses are Cell Phone infrastructures. This lets the owners decided to either use the frequencies to build a cell network or lease the frequencies to other companies. As you can imagine, buying spectrum is quite expensive. When cell phones were first introduced not many companies had the available resources and know how to make buying this spectrum correct. The few that did were able to gain control of large quantities of frequencies and have not let go of them since.
This leads us to present times, where a few monopolies own the entire available cell phone spectrum in the USA. There is virtually no way for competitors to create their own (profitable) networks. Think about it, the available spectrum is gone, and while you can become a MVNO (Mobile Virtual Network Operator – where you lease infrastructure of other companies), what do you think would happen if you started to steal profits from the company you were leasing from? (Granted it is more complicated can this, and I am not an MVNO expert, but the profit margins seem to plateau much lower than if you operated your own network, you’ll probably end up like Amp’d mobile).
So companies like AT&T, Verizon, TMobile, and Cingular (oh wait, AT&T eliminated that problem) have no fear of young upstarts stealing their profits. Further, though these companies are definitely competing with themselves over market share, they are able to implicitly collude with each other to keep profit margins high. Telecommunication companies have a golden ticket right now, why would they kill their profit margins by lowering prices like HDTV producers were forced to do? Because of lack of competition these monopolies have no need to either significantly lower prices or significantly increase features that would cost a lot to implement. It is good for these companies to prevent competition.
FCC auctions have happened before and not scared the big guns however. Why would they? Actually, it’s been just the opposite. Who else is going to bid billions of dollars on radio spectrum and actually make it profitable? There were no other companies that could afford to bid on spectrum as it came open, and thus the monopolies could remain that way.
This self-surviving prophecy could come to an end in the upcoming election. With the increase of wireless data network technology and usage, other companies are becoming interested. And there is once such company that aims to act on its Motto “Do no Evil” and bring the power back to the people. In the next article we will take a look at Google's plans and motives.