Global Insight Perspective | |
Significance | Aloha Partners has ended its attempts to enter the mobile TV and broadband market with the sale of substantially all spectrum licenses to AT&T for US$2.5 billion. |
Implications | Qualcomm has won the mobile TV market with its MediaFlo Solution while DVB-H, likely to become the European standard, is likely to disappear in the United States. |
Outlook | AT&T has gained significant 700-MHz assets, marking a move into this band. Although alternative services such as broadcast TV cannot be discounted, it is most likely to use these frequencies to build up reliable wide area coverage and may make further acquisitions in the forthcoming auction. |
AT&T has started the fight for 700-MHz spectrum early with the acquisition of licences covering 12 MHz of spectrum in the 700 MHz band from Aloha Partners, previously the largest owner of 700-MHz spectrum in the United States. The licences cover a population of 196 million in 281 markets, including the top 10 markets, and in 72 of the top 100 markets.
Aloha Networks was one of several potential competitors to build a mobile TV network in the 700-MHz band under the "Hiwire" brand. Aloha bought up spectrum in previous 700-MHz auctions in 2001 and 2003. It has since made several acquisitions to hold 12 MHz of spectrum covering 60% of the United States and has since conducted trials to deliver both mobile broadband and mobile TV over the spectrum. Hiwire boasted that it was able to carry twice the number of channels of competitors using a DVB-H network on its 12 MHz of spectrum. While it is not confirmed that all of Aloha's spectrum holdings will pass to AT&T on the closure of this deal, it would appear to end the aim to develop a TV service by selling substantially all of Aloha's spectrum assets. Coupled with the closure of Crown Castle's mobile TV venture "Modeo", this leaves Qualcomm with its "MediaFlo" solution as the winner remaining in the U.S. mobile TV market, essentially ending the chance for DVB-H, likely to become the European standard, to build a presence in the United States (see United States: 25 July 2007: Crown Castle Drops Modeo DVB-H Mobile TV, United States: 13 February 2007: AT&T Goes with Qualcomm's MediaFLO for Mobile TV, and United States: 2 March 2007: Verizon Launches VCast TV Using MediaFlo).
It has been widely expected that the carriers would take an interest in the upcoming 700-MHz auction, with Verizon Wireless making a significant attempt to ensure that the rules governing the auction are to its liking (see United States: 14 September 2007: Verizon Wireless Appeals Against Spectrum Rules). This move by AT&T pre-empts the auction and ensures that AT&T has gained significant spectrum holdings at a set price outside of the auction process. Aloha's spectrum holdings gained from the 2001 and 2003 auctions include Alaska, Puerto Rico, Hawaii, and significant portions of the eastern, southern, and western states. If wide-area coverage is a key reason for the spectrum acquisition, AT&T is likely to attempt to acquire further spectrum to fill in the gaps. Whether AT&T has paid a reasonable price is yet to be seen but the rules specified a US$4.6-billion price tag on the 22-MHz block of national spectrum that will have open access requirements attached (see United States: 1 August 2007: FCC Releases Final Rules for 700 MHz Spectrum Auction).
Outlook and Implications
Mobile Carrier Moves into 700 MHz: Although 700 MHz provides good coverage for rural areas and in buildings, it has a lower "spectral efficiency", carrying fewer bits per Hz than higher spectrum bands. This is the first major move by a mobile phone company to acquire significant spectrum in the 700-MHz frequency band—the CDMA and GSM networks in the United States currently operate in the 800/850 MHz and 1900 MHz frequencies. The 700-MHz spectrum is therefore eminently suitable for enhancing network quality as either a backup network for in-building service in urban areas, or as a primary network for wide area rural coverage. Building a network in this frequency would be highly suited to providing service to governmental agencies requiring high reliability and wide area coverage, as well as rural workers and regular outdoor pursuit leisure users. Although it is more likely that it will be used to enhance marketing through pushing network quality, this could open up a potentially controversial opportunity to segment the market by selling wide-area coverage handsets and services that utilise this frequency at a small premium. Expanding rural coverage has been a key reason for several recent acquisitions (see United States: 17 September 2007: Under the Spotlight—Wireless Consolidation in the U.S., United States: 31 July 2007: Verizon Keeps on Climbing in Q2, Bids for Rural Cellular, and United States: 2 July 2007: AT&T Acquires Dobson Communications for US$2.8 bil.). AT&T could use the frequency to provide alternative services such as its own broadcast TV service, but has already adopted Qualcomm's MediaFlo solution, making this less likely.
Implications for Handset Manufacturers: Handsets are not currently designed to support service in the 700-MHz frequency, with both CDMA and GSM handsets generally supporting the 800/850 and 1900-MHz bands in the United States. GSM handsets aimed at travellers also support the European GSM frequencies of 900 MHz and 1900 MHz, but new handsets or devices that are able to support 700 MHz will be required to take advantage of services in this spectrum band.