AT&T unsure about bidding in 700MHz auction

Company CEO indicates that FCC's open-access rules for the valuable spectrum could hinder the development of a profitable business model

AT&T hasn't decided whether it will bid for the highly desirable 700MHz band because it doesn't know if it can build a profitable business, given the open-access rules set for the wireless spectrum by the U.S. Federal Communications Commission in July.

Calling the rules "interesting," AT&T's CEO Randall Stephenson said the company is hard at work crunching numbers and analyzing business scenarios, but hasn't reached a conclusion yet.

"Is there a business model there? I'm not sure if there is or not," he said Friday at the Web 2.0 Summit, where he answered questions from conference chair John Battelle and from audience members.

The FCC conditions, which include open-access rules on a third of the spectrum, have been a major source of controversy.

The winner of 22MHz of spectrum must allow any wireless devices to connect to the network, permitting wireless telephone customers to use handset devices from other carriers. The winning bidder also can't block or slow down wireless and Web content from competitors.

Some telecom carriers wanted no conditions, while some consumer advocacy groups and Google wanted the FCC to require that winning bidders also resell the spectrum at wholesale rates to competitors, something the FCC didn't adopt.

The FCC is scheduled to auction 62MHz of spectrum in the 700MHz band beginning in January. The spectrum is ideal for long-range wireless telephone and broadband services, with signals that travel up to four times farther than in higher spectrum bands.

"It's a huge opportunity. It's beachfront property. When it comes to buying spectrum, it's the best you're going to find for a long time," Stephenson said.

Data consumption on wireless networks is growing fourfold year over year, so a company such as AT&T needs to bulk up on spectrum to keep up with the demand, he said.

"It's very obvious we're going to have to add to our spectrum holdings," he said.

That's why AT&T earlier this month reached an agreement to buy 12MHz of high-speed wireless spectrum in the 700MHz band from Aloha Partners for $2.5 billion.

"It's the first time, I think, that we've ever paid $2.5 billion for a company that had no revenue," Stephenson said.

The Aloha spectrum covers 196 million U.S. residents, including 72 of the 100 largest markets in the United States.

In other matters, Stephenson said he was very satisfied with the iPhone deal between his company and Apple.

"I'm not sure I could have asked for much more out of it than what we got," he said.

Asked to comment on the decision to use the slower EDGE network for the iPhone, Stephenson said it was a request from Apple CEO Steve Jobs.

"He wanted a broad ubiquitous data network. The EDGE network is the only data network that covers the entire United States," he said. The situation will improve as AT&T upgrades markets to 3G, he said.

Stephenson acknowledged that AT&T's directory assistance business is being challenged by ad-supported options from Internet companies such as Google.

"We better get our advertising-supported [directory assistance] model up fast," he said, adding that AT&T is building such a service internally.

On a lighter note, he said he's "envious" of Google and the success it has had with its business model. "It's a great gig if you can get it," he said.

(Grant Gross in Washington, D.C. contributed with this story.)