No winner-take-all for AWS

Although much of the attention from the recent Advanced Wireless Services spectrum auction was focused on T-Mobile's $4.2 billion payout for 3G licenses, dozens of other operators gained valuable chunks of spectrum. In fact, while the large carriers went after the high-value spectrum such as metro areas and regional licenses, the majority of the megahertz up for bid went to smaller operators, many of them gaining the spectral holdings to fuel substantial expansions.

Two such smaller carriers in particular appear poised to bring their unique business models to bear: Leap Wireless and MetroPCS both added acreage to their regional footprints, giving them room to expand their unlimited calling voice services. MetroPCS acquired licenses not only to bulk up its existing footprint around Dallas/Fort Worth and Detroit, but also challenge major operators in the greater New York City area — where it paid $364 million for just 10 MHz of spectrum — and expand regionally in the western and northeastern U.S.

With its partner Denali Spectrum, Leap gained access to 100 licenses, expanding the spectrum holdings of its Cricket subsidiary from 107 million pops to 180 million. Leap gained several large markets — among them Chicago, Philadelphia and Washington — and also won two regional licenses for the Great Lakes and central regions. Those new holdings could mark Leap's transition from a market-centered wireless operator to a regional provider for the central U.S.

Al Moschner, Leap's executive vice president and chief marketing officer, said Leap already has begun that transition, linking markets in regional clusters where customers can call freely without long-distance charges. It has already linked Dayton and Cincinnati, Ohio, and Lexington and Louisville, Ky., in such a manner, expanding cell coverage along the highways so the cities and their surrounding satellite towns form one super-cluster. As Leap expands Cricket throughout the Midwest, Moschner said, those clusters will grow and interconnect, eventually forming a giant regional network.

“There's a natural maturation process we're undergoing,” Moschner said. “We offer unlimited local calling now. We hope to offer the ability for folks to apply those services in other markets. That's clearly the direction we're going.”

It would take some time for Leap to reach the scale of the larger regional carriers such as Alltel or U.S. Cellular. Though it has at least 20 MHz of spectrum covering more than half of the U.S., its deployed footprint covers only 45 million people, and its subscriber base just reached 1.9 million. But Moschner said it plans to launch service in its hometown, San Diego, in the near future, adding another 5 million pops to its coverage. The operator is fully funded to expand its network by 24 million pops by 2009, even after shelling out almost $1 billion in the AWS auction.

One issue AWS holders face is the cost of infrastructure. T-Mobile plans to use its massive spectrum holdings for its UMTS rollout, which puts the onus on the remaining operators to create a market for CDMA and GSM infrastructure at the spectrum's unique 1.7 GHz and 2.1 GHz bands. Since Cingular, Sprint and Verizon Wireless all acquired AWS spectrum, demand for cellular infrastructure and dual-mode handsets shouldn't be an issue. There's growing speculation, however, that AWS holders may give Mobile WiMAX a try. While only T-Mobile has the spectrum to deploy a nationwide network, a smaller carrier could easily do a regional deployment, said Tom Flak, senior vice president of marketing and product strategy for Soma Networks.

“As a small company, we only need to find a $10 million revenue stream to commercialize a technology,” Flak said. “If there is a market with tens of thousands of potential subscribers, that's enough for us to recoup our engineering costs.”

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