The reauction of C-block personal communications services spectrum is expected to be a dismal
affair in March, and most small entrepreneurial businesses-which the auction was designed for-are likely to forgo
bidding altogether.
The Federal Communications Commission plans to reauction 134 15-megahertz and 208 30-
megahertz C-block licenses along with three D-, six E- and five F-block licenses March 23. Applications are due Feb.
12.
Gray clouds hover over the new auction. The original C-block auction that ended in 1996 raked in about $10
billion for the federal government, but frenzied bidders offered monstrous prices to win markets, and the auction’s top
three bidders soon ran to bankruptcy court. As the FCC was sorting out the mess, the uncertain futures of the
prospective carriers dried up access to capital smaller players desperately needed, and when the FCC allowed licensees
to either give back licenses, disaggregate them or resume payments, spectrum flooded back to the FCC. A successful
C-block operator today is rare.
Today, financing is tight even for the most established players, and the vast number
of competitors already in the market will make it almost impossible for any new operator to compete at this late stage,
analysts say.
Mike Clough, chief executive officer of Quantum Communications Group Inc., a C-block licensee in
Minnesota, was one operator that gave back some licenses and kept others. There is little hope for the entrepreneur
operator, he said.
“The rates that PCS is offering and the cost of buildout of infrastructure is relatively high.
Margins are squeezed,” he said. “If you go and launch service, you are going to be the fifth or sixth player
to the market. The only way you can compensate for being last to market is to become an affiliate … We’re trying to
become an affiliate. I need to find someone that owns spectrum next to mine that wants to become an affiliate. Or
someone can just buy me out.”
“It’s very difficult to get financing,” said George Benson, CEO of
Airadigm Communications Inc., a successful C-block operator in Wisconsin. “We are fortunate to get the funding
we did … A new start-up company would have difficulty getting funding. Unless you have one heck of a unique idea in
the marketplace, it will be difficult to be the sixth guy.”
Leap Wireless International Inc. may be the only new
company bidding in the auction if it receives designated-entity status from the FCC. The Qualcomm Inc. spinoff carrier
is purchasing F- and C-block spectrum from other companies wanting out of the business. It believes it has a unique
offering that will allow it to be one of the later entrants into the market. The operator plans to offer a combined wireless
local loop limited mobility service targeted at that mass-consumer market using cdmaOne infrastructure from
Qualcomm. The demand for more landline phone lines will give wireless service an opportunity, the company said, but
analysts point out that several large players are working on similar offerings that may be available before Leap
launches.
Leap has some strong financial backing to pursue spectrum as Qualcomm plans to give the company
several hundred million dollars in vendor financing. Leap also can draw from a $265 million credit facility. However,
five entities have protested with the FCC Leap’s request to become a DE company and the FCC may not make a ruling
on Leap’s status before reauction applications are due.
Most experts believe the auction will be limited to existing
operators aiming to fill in their footprint holes. Notably, Global System for Mobile communications operators will be
looking to grab markets that don’t have an existing GSM operator like Chicago, Dallas, St. Louis and New Orleans.
Airadigm’s Benson said his GSM company plans to bid for spectrum that will augment its existing footprint in
Wisconsin. Smaller markets may sell at bargain prices because of the limited number of players expected.
Still,
financing could prove difficult. The FCC for the first time is requiring minimum bids based on winning prices in 1996’s
C-block auction, and licensees must now make upfront payments to the FCC. This means the Chicago market will
begin bidding at about $23 million as the minimum bid for 30-megahertz licenses will be 5 percent of a license’s
winning C-block bid.
“The first question is: Are they (the FCC) going to get their minimum bid?” said
analyst Taylor Simmons of Simmons Associates in Washington, D.C. “I expect people are going to be held to
whatever amount of money they are able to raise … A lot of the mystery and the tricks up the sleeve and hopefully the
irrational behavior will be in the past.”
Analysts believe most operators will form consortia in order to scrape
up the amount of money they need to bid on larger markets. Benson said Airadigm may team up with other GSM
operators to purchase larger markets, and Western Wireless Corp./Cook Inlet Region are expected to make a
showing.
Christopher Larsen, senior analyst with Prudential Securities, believes the financing picture for operators
could change as consolidation fever hits the industry. That may be good news for future reauctions. More C-block
spectrum may become available depending on the outcome of bankruptcy proceedings.
“Now that AirTouch
is getting bought, people are getting very hot on wireless,” he said. “People are playing on the whole
consolidation phase … The financing is not necessarily here right now, but it could be.”
