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Can Dish Blow Up the Spectrum Market?

Dana Blankenhorn | Contributor
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Charlie Ergen, the chairman of Dish Network, wants to get into the wireless business in the worst way. He's threatening to blow the market apart if he's not allowed in.

Since acquiring permission last year to use 200 MHz of spectrum in the S Band (slightly longer in wavelength than the WiFi bands at 2.4 GHz) to link Dish satellite service with a high-capacity Internet pipe, Ergen has been stymied in his search for partners, TeleGeography reports.

Dish made a run at MetroPCS, but that company was bought by T-Mobile. Dish turned its attention to Clearwire, but that company combined with Sprint and Japanesse businessman Masayoshi Son. Dish offered a premium for Clearwire, but Sprint already owns 51 percent and has rebuffed Ergen's advances.

Now Ergen has told an AllThingsD conference in California, according to Bloomberg News, that if he can't find a partner, he'll sell the spectrum. He claims the spectrum could be worth "billions of dollars."

But is it?

Spectrum is worthless unless it's used. In throwing in his hand, Ergen would be admitting he can't use the spectrum profitably. If DISH can't create something worthwhile with those 200 MHz, even combined with its own satellites, who else can?

There are few potential buyers, AT&T and Verizon being the leaders.

AT&T has the cash to be a buyer, but there are anti-trust worries. Verizon Wireless has been dropping cash lately and may be unable to secure financing. Plus, again, there are anti-trust worries. Sprint, combined with Clearwire, would seem to have more than enough spectrum for its own needs. T-Mobile, the fourth player in the market, seems tapped-out after its acquisition of Metro PCS — it will need to spend heavily to unify the two networks.

There has long been an assumption that spectrum is scarce, that it's a license to print money. The industry is now gearing up to fight Federal Communications Commission plans to "unlicense" new WiFi spectrum, the Baltimore Sun reports, arguing it would be better off selling those rights to incumbents.

But if Ergen can't draw a bid for his 200 MHz, what is that claim of spectrum's value to the government worth? If that claim really is worthless, why shouldn't the FCC just define the use of our spectrum through the licensing of devices, as companies including Google and Microsoft have suggested, rather than by selling it to carriers?

I have written about wireless telephony for many years now, and this claim of spectrum's inherent value and scarcity is a con. It takes billions of dollars of investment to make spectrum valuable, to produce a service with a nationwide footprint. This is over and above the cost of buying the spectrum from the government. It's supposed to be public property, not private.

Meanwhile, a WiFi system just requires radios that transmit on the licensed frequencies. Current standards let you create a 100 Mbps network in the comfort of your own home for about $60. That's 10 times the bandwidth commonly available 10 years ago.

Also, innovation continues inside WiFi. This week Sonos delivered new speakers that integrate with all your music sources through WiFi, notes TheVerge.

There are many things equipment makers have done over these 10 years to make this happen. They have improved encoding technologies. They have gotten more spectrum, in higher frequency bands, and combined the bands for use by their equipment. Lower-power radios mean smaller cells and more re-use. It's much more efficient to make these improvements from the network edge than at its center. That's another way of saying it's a lot cheaper to buy a new WiFi router than upgrade a nationwide network.

This is a truth of the market; it's science and economics. Ergen is threatening to make this plain to everyone unless someone lets him in on the oligopoly, unless he's given a seat at the table. Google, Microsoft and the makers of WiFi routers all plan to point this out as the FCC proposal moves forward.

But you already know.

By Contributor Dana Blankenhorn

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At the time of publication, Dana Blankenhorn had a position in Microsoft and Google shares.