WASHINGTON-After staying the course for almost 30 rounds, John DeFeo and his U.S. AirWaves Holdings Inc. group may be on the verge of bidding the C-block broadband personal communications services auction goodbye.
In the last two weeks, the group has been dormant during several rounds, and it used up its waivers. According to the rules, the Federal Communications Commission then was forced to reduce AirWaves’ eligibility from a top contender’s 83 million pops to fewer than 10 million. Its only presence going into Round 28 last Thursday was in the Philadelphia, Pa.-Wilmington, Del., basic trading area, which it subsequently lost to Omnipoint Corp.
“U.S. AirWaves went from being a major to a minor player in an ugly way,” said Taylor T. Simmons of Washington, D.C.-based PCS consulting firm Simmons Associates. “It quit placing bids in Round 22, and it finally got topped by GWI PCS Inc. for the San Francisco-Oakland-San Jose market.”
Company officials would not confirm or deny that U.S. AirWaves is out of the running for any C-block PCS license.
“Our position has been not to comment on our strategy while the auction is in progress,” said Pamela Portin, director of external affairs. “We have been talking with counsel on regulatory and antitrust issues. Depending on counsel’s advice, we could release a statement sometime early this week.”
GWI PCS Inc. had committed $246.3 million for the California market; as of Round 27, it also held the high bids for San Diego and Oklahoma City. Other bidders rounding out the Top 5 (by bid size) were North Coast Mobile Communications, NextWave Personal Communications, DCR PCS Inc. and U.S. AirWaves. Net revenue totaled $6.1 billion.
At the end of Round 27, DCR also held four of the top five markets judged by net dollars per pop: Phoenix ($46.51), Chicago ($45.82), Dallas ($44.99) and Washington, D.C. ($44.88). GO Telecommunications Corp. holds the top spot, with plans to pay $46.79 per pop for Miami, if possible.
According to figures released by BIA Consulting Inc. in Chantilly, Va., there continues to be several major trading areas in which the sum of the net high bids for an MTA’s component BTAs exceeds the average of the MTA’s A- and B-block bids. Examples include Guam/Northern Mariana Island (997.7 percent), Omaha (606.4 percent), El Paso/Albuquerque (457.3 percent), Philadelphia (298.7 percent) and Dallas/Fort Worth (291.3 percent).
BIA’s Jonathan Foxman said a number of factors have played a part in why C-block bidders appear to be going overboard on markets for which their MTA predecessors spent considerably less.
“The way the FCC has set up its financing has something to do with it, starting with the 25 percent discount and the five years of low-interest-only payments,” Foxman said. “Also, the value is relative to those who own the license. The bigger the company, the more economies of scale and scope.” Foxman predicted that there will be “a good chance” of many cases of bidder’s remorse.
Simmons agreed in part, and added more. “I think there are several reasons to explain the high prices in this auction vs. the A/B [block] auction last year,” he said. “First, of course, is the discount and the government financing. Whereas the MTA winners had to pay in full within a few months, the C-block winners have 10 years-six of which they pay interest only. In net present-value terms, I calculate that bids are worth about one-third of their gross face value or about one-half of their net face value after deducting the 25-percent discount.”
Simmons also explained that because only 10 percent of the net winning bid is required up front, bidders appear prepared to commit up to 10 times the money they have, rather than just up to their estimated market valuations (most of which have long since been surpassed).
“There is another factor,” he added. “Many of the larger entities have devoted the past two years preparing for this auction and for entry into the PCS business. This is not one of 10 different avenues their companies can choose to pursue. It is the only avenue. So it is especially hard for them to let go.”
The FCC’s 900 MHz specialized mobile radio auction continues to experience a bidding spurt after it looked like things were almost over two weeks ago.