FCC Spectrum Auction Opens Market, Bitcoin Friendly ISPs Growing

Internet service is starting to be considered a basic utility, every bit as important as energy and water utilities in most households throughout the developed world. Using bitcoins to pay our ISP bills should be a popular option with the internet-oriented bitcoin crowd, but to date, the options have been few and far between.

Before the US Federal Communication Commission’s (FCC) spectrum auction, which ended in January, it was very rare to find an Internet Service Provider (ISP) that directly accepted bitcoin for services.

“Since 1994, the Federal Communications Commission (FCC) has conducted auctions of licenses for electromagnetic spectrum. These auctions are open to any eligible company or individual that submits an application and upfront payment, and is found to be a qualified bidder by the Commission.”
— – FCC

The first US company to sell their service for bitcoins is still the largest, a $14 billion publicly traded company on NASDAQ called Dish Network. The Colorado-based Cable TV an Internet provider became the world’s largest merchant to accept bitcoin in August 2014. With revenues about 73 times larger than the previous record holder, Overstock.com. Dish started allowing its 14 million subscribers to pay with bitcoin for all services, using Coinbase to process their payments.

Using Dish for internet service, however, hasn’t gained much traction, nor attention. The problem with using Dish as your ISP is that it employs a satellite dish-based internet connection, which can be spotty during poor weather.

Outside of the US, a few smaller ISPs that accept bitcoin have popped up. New Zealand-based Slingshot started accepting bitcoin for service in July 2014, and Slovakia’s ISPER soon followed in the city of Bratislava, one of the first cities in Europe to install a bitcoin ATM. Unfortunately, few other ISPs have followed suit, and none the size of their American counterpart.

Soon after Dish started accepting bitcoin, the FCC started selling newly-available airwave spectrum, reclaimed from the old analog TV stations during the digital TV upgrade in the US.

The FCC’s Advanced Wireless Services auction, which began in November 2014 and ended in January 2015, had many telecommunications companies shelling out big bucks to get some of the badly-needed spectrum allocation. Among the few US networks that bid, AT&T won the most for $18.2 billion, followed by Verizon who spent $10.4 billion, and T-Mobile who only spent about $1.8 billion.

The third highest bidder was Dish network, attempting to move into the wireless market, who made a bid for just under $13 billion. It had hoped to borrow part of that cash and only pay about $10 billion at the time of bidding. According to Dish Chairman Charlie Ergen, “the FCC later decided to deny Dish the $3.3 billion credit, a move that could also cost Dish its plans to pursue a merger with wireless provider T-Mobile.”

Despite fears that a few large companies buying up most of the available spectrum would lead to a less competitive market, the opposite seems to be happening. Verizon announced in February that it will be leasing out approximately 11,300 towers, a large percentage of the towers it owns, to American Tower, and will also sell approximately 165 towers outright. The lease terms range from 19 to 32 years and American Tower agreed to prepay 100%.

Chairman and CEO of Verizon Communications Inc. Lowell McAdam said that Verizon will use the capital raised to “invest in upgrading its network, deliver shareholder returns and repay debt.” Some of the debts were accrued during a $130 billion wireless deal with Vodafone, for cash and stock.

AT&T also has bills to pay, having increased its debt to take advantage of low interest rates over the past few years. The company spent even more than Verizon to obtain airwave licenses, a move that immediately saw the company’s credit rating downgraded by the S&P to a BBB+. In addition to owing the FCC $18.2 billion, it also has to pay $48.5 billion in a combination of cash and equity to buy Dish’s competitor, DirecTV.

Alongside the debt repayments, during 2014 wireless companies saw intense competition and aggressive price wars, reducing profit margins across the whole industry. As gross margins declined, so did wireless companies’ operating cash flow. While rolling in debt, AT&T’s cash flow from operations fell 10% in 2014 and Verizon’s fell 21%, according to the Motley Fool.

Within a month of the auction ending new wireless phone and internet providers started popping up, all purchasing spectrum from the big three with long-term contracts. There was an immediate explosion of new wireless services. Even Google had to get in on the action.

Madstar Mobile became the first cellphone service from this new breed to accept bitcoin in February. Although they offer a data plan for smartphones that you bring to their network, they do not offer internet service.

FreedomPop came along next and brought with it the first WiFi hotspots, finally delivering the full promise of internet service for bitcoin. Perhaps of the most interest to bitcoin users, who are known to value their privacy, is their “privacy phone” that encrypts all voice and data by default.

“The phone, nicknamed the ‘Snowden Phone,’ is a response to the growing frustrations and concerns around privacy infringement, call monitoring and Internet tracking.”
— – Freedompop

They even go so far as to suggest on their website that you should “Purchase with Bitcoin for anonymity.” Of course, it has yet to be demonstrated how they can make the process fully anonymous while delivering the phone to you.

Most recently, Karma Portable Wifi Hotspot service tweeted on Monday to a customer that they now accept bitcoin. Karma is a popular new service that doesn’t bother selling cellphones nor contract services.

Their strategy is to simply sell pay-as-you-go internet access on their compact WiFi hotspot devices. With rates as low as $14 for a gigabyte of bandwidth, some people might find that it is all the ISP they need.

The door is now open, and new ISPs that accept bitcoin could be popping up any day. If enough ISP startups embrace bitcoin, it is conceivable that they could start to make bitcoin an expected option in the industry, eventually forcing the largest carriers to follow suit as well.