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In January, the FCC will auction spectrum recently returned by NextWave Telecom as part of its emergence from bankruptcy protection. This consists of a 10MHz chunk in most of the country apart from New York, the license for which NextWave sold to Verizon Wireless in a private deal. The fact that this license went for $930 million shows the potential windfall that the whole swathe could bring to the US Treasury.

Many observers believe tier two players will dominate in this auction, the first major sale of spectrum suitable for cellular services since 1997. This is because Cingular Wireless claims to have fulfilled most of its spectrum needs with its acquisition of AT&T Wireless, while Verizon has been adding to its patchwork with a string of deals such as those with NextWave and Northcoast. With geographic coverage in place, these two, then, are likely to wait for larger auctions from late 2005 to augment their holdings in order to launch new services. Sprint PCS still needs additional capacity in some markets, but Nextel and T-Mobile, the smallest of the five national cellcos, are the ones with the greatest hunger for bandwidth, and regional operators are also likely to take part.

This will be small beer compared to other potential auctions as the FCC seeks to end the spectrum famine, open new competition and new services, and, as it puts it, "bring a third broadband pipe into the home alongside DSL and cable". The most immediate are likely to be for the so-called H block and J block of frequencies within the 1.9GHz band. The most likely timetable for the H block is late 2005 or early 2006, with the J block to follow, along with 3G spectrum in 1.7GHz, in 2006.

The political battles and lobbying have begun already, of course. T-Mobile and Nextel, the most hungry for new cellular space, are fighting claims by Sprint and Nokia that the H block could create interference for existing 1.9GHz licensees. Of course, interference claims are a time honoured method of trying to keep rivals out of one's market, of course.

While the 700MHz bands will remain controversial and are unlikely to be made available quickly, the H, J and 3G blocks, plus the NextWave holdings, will, on their own, add 100MHz of spectrum to the available supply, dramatically shifting the balance of power and the economics of US wireless. On the one hand, it faces the danger of a European-style frequency scramble, with the sums paid bearing little relation to the commercial likelihood of recouping that investment in the medium term. This will be exacerbated by the motivation for US cellcos to overpay for spectrum, or buy excess amounts, in order to keep out challengers and retain their dominant positions.

On the other hand, if the FCC manages to stave off auction fever, the value of the incumbents' spectrum assets will certainly fall with greater availability, but there will be greater opportunity for new entrants and even for existing operators to make profit on their new investments in spectrum.

For the first time, by 2007 we could see US consumers offered a similar range of wireless choices to those taken for granted in other regions. But this will only happen if the FCC and Congress can prevent the politics and the shady tactics taking over, delaying the potential wireless explosion, with a severe negative impact on the US economy and one that will drive all the innovation and growth into unlicensed broadband wireless - a move from which, in the end, the incumbent cellcos and even the broadcasters could suffer more than from sharing their spectrum turf rather more freely.

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