Verizon Wireless and AT&T Mobility ran the table at the 700 MHz auction, accounting for most of the record $19.6 billion in bidding that broke historic ground on open access, lost ground on public safety and gave dozens of mostly white-male-owned small businesses a chance to bring a wireless third-pipe into broadband markets dominated by telephone and cable TV giants.
As such, the 700 MHz auction – whose 261 bidding rounds stretched over 38 days – was either largely successful or significantly more of the same, depending on where one sits in the wireless industry, at the Federal Communications Commission or in Congress.
For FCC Chairman Kevin Martin, the 700 MHz auction advanced a number of policy objectives as far as generating revenue, triggering open access on one-third of auctioned spectrum, opening opportunities for small business and unveiling a major entrant, EchoStar Corp. The satellite TV stalwart paid $711 million for 168 E-Block licenses, which due to the unpaired nature of the spectrum, will not likely create new competition for the four national mobile-phone carriers but may well amount to a direct affront on Qualcomm Inc.’s mobile TV business.
Download high-resolution maps of the winners
No one company dominated the 12-megahertz, A-Block licenses, with Verizon Wireless and U.S. Cellular Corp. picking up 25 each. Verizon Wireless’ haul centered around densely populated urban areas, while U.S. Cellular bolstered its spectrum holdings around its current markets in the Midwest, Northeast and Northwest. Other notable winners include CenturyTel Inc., which sold off its wireless business a few years back but now appears to be making plans for a new push into wireless; and Cellular South, which reinforced its service areas in the Southeast.
AT&T Mobility made a statement in the 12-megahertz B Block, snapping up one-third of the available licenses and spending $6.6 billion. Runner-up U.S. Cellular scooped up 127 licenses in the B Block that — similar to its A-Block approach — are near its current market clusters in the Midwest, Northeast and Northwest. Not to be left out, Verizon Wireless scored 77 B-Block licenses, which, unlike the C-Block licenses it acquired, will not be beholden to the government’s open-access provisions.
Verizon Wireless scored what could be the crown jewel of the 700 MHz spectrum auction by walking away with seven of the regional, 22-megahertz C-Block licenses, spectrum bound to the FCC’s open-access provision. The provision requires C-Block winners to provide access to any device compatible with the network’s technology. The industry’s No. 2 carrier paid more than $4.6 billion for licenses covering the contiguous 48 states as well as Hawaii. Triad 700 L.L.C. picked up C-Block licenses covering Alaska, Puerto Rico and the U.S. Virgin Islands, while Small Ventures USA L.P. was the top bidder for the C Block covering the Gulf of Mexico.
Perhaps the auction’s biggest surprise came in the E Block, where satellite television provider EchoStar Corp. — which bid under the Frontier Wireless L.L.C. moniker — picked up 168 of the total 176 E-Block licenses for more than $711 million. The E Block’s six megahertz of unpaired spectrum is thought to be ideal for a streaming television service. Qualcomm Inc., which was expected to bid on the E Block in an attempt to bolster the capacity of its MediaFLO USA Inc. mobile TV subsidiary, picked up only five E-Block licenses covering markets in California, Arizona and the Northeast.
|Maps courtesy of www.kbeauctions.com.|
“This auction will end up having a transformative effect on the wireless industry in terms of a more open wireless platform,” Martin predicted.
Google Inc. had a little something to do with that, bidding the $4.6 billion minimum to trigger the open-access condition on the C Block only to have Verizon Wireless follow up with winning bids on regional licenses covering the continental United States and Hawaii. It went exactly to script, just as telecom analysts had predicted. The C-Block outcome surprised few in a blind auction credited for keeping anti-competitive activity down and jolting auction proceeds skyward.
Analysts at Stifel, Nicolaus & Co. Inc. dubbed Google “the happy loser.”
Indeed, the Internet search goliath had a hard time suppressing its glee.
“While the commission’s anticollusion rules prevent us from saying much at this point, one thing is clear: Although Google didn’t pick up any spectrum licenses, the auction produced a major victory for American consumers,” said Richard Whitt, Washington telecom and media counsel, and Joseph Faber, corporate counsel, on a Google blog post. “We congratulate the winners and look forward to a more open wireless world. As a result of the auction, consumers whose devices use the C Block of spectrum soon will be able to use any wireless device they wish, and download to their devices any applications and content they wish. Consumers soon should begin enjoying new, Internet-like freedom to get the most out of their mobile phones and other wireless devices.”
The FCC’s anti-collusion gag rule lifts April 3 (6 p.m. ET), the same day down payments are due on the 1,090 licenses bidders picked up in the 700 MHz auction. The remainder of payments must be submitted by April 17. The end of the quiet period could trigger merger-and-acquisition talks among wireless and other communications companies.
Was it a success?
Undoubtedly Google as well as other application and device vendors – large and small – see the beginnings of a potentially huge business opportunity, one stemming from the migration of the Internet from desktop computers to handheld wireless gadgets.
Still, the degree to which wireless open access is a success in the C Block and any other frequency bands will depend largely on the FCC’s ability to monitor compliance and enforce its rules.
Commissioner Jonathan Adelstein, one of two Democrats on the GOP-led FCC, said the auction failed to advance wireless diversity goals espoused by Congress more than a decade ago.
“It’s appalling that women and minorities were virtually shut out of this monumental auction,” said Adelstein. “It’s an outrage that we’ve failed to counter the legacy of discrimination that has kept women and minorities from owning their fair share of the spectrum. Here we had an enormous opportunity to open the airwaves to a new generation that reflects the diversity of America, and instead we just made a bad situation even worse. This gives whole new meaning to ‘white spaces’ in the spectrum.”
The FCC remains entangled in litigation over small-business bidding rules crafted before the 2006 advanced wireless services auction.
VZW/AT&T Mobility power play
Verizon Wireless’ winnings covered seven of the 10 regional C-Block licenses, as well as 77 licenses in the B Block and 25 licenses in the A Block. The stock of the carrier’s parent company, Verizon Communications Inc., was up slightly at $36 per share on the news. The news comes as no surprise; Verizon Wireless announced last year its plans to open up its network to all devices and applications that meet what the carrier described as minimum technical requirements. The No. 2 wireless operator sponsored a conference in New York City last week to move that initiative forward.
As for the remaining C-Block licenses, Triad 700 L.L.C. took the Alaska and Puerto Rico/U.S. Virgin Islands licenses and Small Ventures USA L.P. took the Gulf of Mexico license.
For its part, AT&T Mobility spent $6.64 billion for 227 B-Block licenses. Together, AT&T Mobility and Verizon Wireless spent $16.3 billion on 700 MHz licenses, making up the lion’s share of the total $19.6 billon to be deposited in by the U.S. Treasury in late June. The 700 MHz spectrum will become available to winning bidders next February when broadcasters relinquish airwaves as part of their transition to digital technology.
Of the 214 applicants approved to bid in the FCC’s auction, 101 walked away with spectrum. However, many of those winners scored only a handful of licenses.
Qualcomm Inc. won nine licenses for a total of around $500 million: B-Block licenses covering Yuba City and Imperial, Calif., and Hunterdon, N.J.; and five E Block licenses.
“Qualcomm also had bidding agreements with both AT&T Mobility and Verizon Wireless, which suggests that a joint venture may be on the horizon,” wrote Jessica Zufolo, an analyst at Medley Global Advisors L.L.C.
MetroPCS Communications Inc. scored only one license, the A Block for Boston, for $313 million. Chevron – yes, that Chevron – walked away with the A, B and E Blocks covering the Gulf of Mexico, most likely for the company’s oil operations there. Cavalier Wireless spent $61.8 million for licenses across the A and B Blocks. Cable television giant Cox Communications won $304 million in the A and B blocks, while U.S. Cellular Corp. (bidding as King Street Wireless) won 152 licenses for $401 million in the A and B Block. Regional telecom operator CenturyTel Inc. spent close to $150 million for 48 B-Block licenses and 21 A-Block licenses. Vulcan Ventures, owned by Microsoft co-founder Paul Allen, won two licenses, in the Seattle/Tacoma and Portland/Salem markets, for $112 million. Regional wireless provider Cellular South spent $191.5 million on A- and B-Block licenses.
Leap Wireless International Inc. and Alltel Corp. walked away with nothing.
Now, the buildout
Auction winners face stringent buildout requirements, a challenge that could be even greater if the state of credit markets and the economy generally do not improve over the next 12 to 18 months.
“The FCC’s rules require winning bidders for CMA (B Block) and EA (A and E Block) licenses, to build out service and offer signal coverage to 35% of their geographic license area within four years from the end of the DTV transition (four years from Feb. 2009), and 70% of the license area by the end of the license term, which is 10 years in length,” Zufolo stated. “For larger license areas in the C Block . a population-based buildout requirement is applied and must provide signal coverage to 40% of the population of each [economic area]in its license area within four years of the license term; and at least 75% of the population of each EA in its license area by the end of the license term.”