Capital Currents - The life ... and death ... of MediaFlo
What will AT&T do with this spectrum?
You probably saw that AT&T will acquire radio spectrum from Qualcomm for $1.9 billion, and the deal will close sometime in 2011. This deal covers spectrum in the lower 700 MHz range, both spectrum that Qualcomm won in a 2003 auction and other 700 MHz spectrum that came in later auctions. Qualcomm was using this 700 MHz spectrum for a video distribution service called MediaFlo. MediaFlo will be shut down in March 2011. AT&T probably wants to use this spectrum to ease network congestion caused by iPhone users, but it’s hard to see how they can use this spectrum for that goal.
I first wrote about MediaFlo in January 2005, which described how Qualcomm won a nationwide license for TV channel 55 (716-722 MHz). According to the FCC report of the auction results, Qualcomm paid $38 million for the nationwide spectrum. At that time, analog TV stations were still broadcasting on channel 55, and it was uncertain how long those stations would stay on the air. I was skeptical that “mobile multimedia” would be a success in the marketplace because of low battery life in handheld receivers, poor audio quality, tiny washed-out displays and the traditional cell phone service plans that charge for minutes of use.
Of course, some things have changed since then. The analog TV stations went off the air, clearing the 700 MHz band. Apple came out with the iPhone, with a larger display than previous cell phones, and so did other manufacturers. YouTube became a popular way to upload and download free video programming, both homemade and commercially produced.
As I wrote in April 2007, competitors Modeo and Hiwire soon appeared … and then they disappeared. MediaFlo, Modeo and Hiwire all planned to operate as wholesalers, dependent on cellular phone companies for the retail distribution. But then Hiwire’s 700 MHz spectrum, on TV channels 54 and 59 in more than 60 percent of the U.S. and covering 84 percent of the U.S. population, was purchased by AT&T in 2007 for $2.5 billion.
What went wrong with MediaFlo? According to Qualcomm, problems included the limited number of devices that could receive the programming (the technology differs from the DVB-H standard used in Europe) and uncertainty about what content is and isn’t appealing, and at what price. But MediaFlo had agreements with both Verizon and AT&T and was delivering programming from ABC, CBS, NBC and Fox, as well as ESPN, Disney, Nickelodeon and other well-known programming services. If potential customers weren’t willing to pay for these services, then there just is not enough demand for mobile video.
This bodes ill for the deployment of mobile digital TV services directly by TV stations. While the Advanced Television Systems Committee (ATSC) has adopted standards that allow TV stations to broadcast a highly robust signal to mobile handheld receivers, the MediaFlo failure suggests that the marketplace will not provide the needed revenues to support the additional costs that broadcasters would have to incur.
Qualcomm bought additional 700 MHz spectrum in later FCC auctions. In 2008, Qualcomm acquired TV channel 56 spectrum (722-728 MHz) in a few major cities (Boston, New York, Philadelphia, Los Angeles and San Francisco) for about $555 million, plus paired spectrum (704-710 MHz and 734-740 MHz) in three tiny markets – Yuba City and Imperial, Calif., and Hunterdon, N.J. – for an additional $4 million.
According to news reports, Qualcomm paid a total of $683 million for its 700 MHz spectrum, but I can’t see how that number was reached. I calculate $597 million. In either case, Qualcomm makes a huge profit when the $1.9 billion deal closes.
So what will AT&T do with this spectrum? A good question. Except for those three tiny markets, the spectrum consists of unpaired 6 MHz blocks. Cellular phone service and virtually all mobile communication is based on paired spectrum blocks – one block for base-to-mobile and one block for mobile-to-base. In contrast, the Hiwire 700 MHz spectrum that AT&T bought in 2007 is more useful because it is paired spectrum, on TV channels 54 and 59. Similarly, in FCC Auction 73, AT&T spent $6.6 billion for near-nationwide coverage on TV channels 53 and 58 (704-710 MHz and 734-740 MHz) – again, paired spectrum.
Admittedly, the next generation of cellular phone service that AT&T plans to use, called LTE, defines a mode called “time division duplex” (TDD) that allows a channel to be used for base-to-mobile during some time period and mobile-tobase during the subsequent time period. But nobody has built an LTE system using this approach – at least not yet.
Everyone has read that the AT&T wireless network is heavily congested, evidently by traffic generated by iPhone users. But if subscribers have shown that they are not willing to pay to watch TV programs, what could be causing the congestion? YouTube? Facebook? Are there mobile over-the-top services that are giving away free TV programs? I don’t know. Maybe AT&T does know. We will have to wait and see whether AT&T can use this unpaired spectrum to fix its congestion problems.