After 101 rounds and $16.85 billion, the Federal Communications Commission’s auction of 422 personal communications services licenses ended last Friday. The auction, which began Dec. 12, broke the previous record of $9.2 billion for PCS spectrum set in 1996.
“This most recent auction demonstrated the value of spectrum in a spectrum-starved market,” noted Tom Wheeler, president and chief executive officer of the Cellular Telecommunications & Internet Association.
The final week of bidding saw little change, with only Touch America Inc. and designated-entity MilkyWay Broadband L.L.C. dropping out. For the 35 of the original 87 companies that remained, bidding was limited to secondary markets with total pops of less than 400,000 people. The larger markets were settled weeks before.
Verizon Communications, bidding through Cellco Partnership, dominated the auction with total net bids of $8.78 billion on 113 licenses covering more than 150 million pops. Included in Verizon’s total were two 10-megahertz New York City licenses with combined bids of more than $4 billion. The licenses leave Verizon with 45 megahertz in the New York market, the maximum limit allowed by the FCC.
Unlike some of its competitors, Verizon bid on all its licenses without DE status, meaning it would not benefit from a 25-percent discount on licenses set aside for smaller companies.
“If someone told me before the auction that Verizon was going to bid half of the total bids placed in the auction, I would have found that hard to believe,” noted Peter Friedland, wireless analysts at W.R. Hambrecht & Co.
While a distant second to Verizon, Salmon PCS L.L.C. came away with 79 licenses covering 71.9 million pops for $2.3 billion. Salmon, which bid through an agreement for Cingular Wireless, was very active for a DE-only license in New York City in the early going, but eventually dropped out of the bidding for the Big Apple after round 57.
This was a surprise to some who expected Cingular to add to the 10 megahertz of spectrum it acquired in the New York market before the auction from VoiceStream Wireless Corp. While 10 megahertz is enough to launch service, capacity concerns will limit Cingular’s ability to grow in New York.
“I was surprised Cingular dropped out of New York, but I still think they can launch the market with only 10 megahertz,” Friedman said. “Maybe they can construct a network in New York City with some roaming agreements.”
Salmon got licenses in Los Angeles, Dallas and the only license up for bid in Atlanta.
Alaska Native Wireless was third in total markets won, ending up with 44 licenses covering 64.7 million pops for $2.89 billion. Alaska Native’s total includes the DE-only New York license for $1.4 billion.
The other big spender in the auction was AT&T Corp. Even though the company dropped out of the bidding directly a few weeks ago, AT&T continued with connections through Alaska Native Wireless, DCC PCS Inc., Lafayette Communications Inc. and Northcoast Communications L.L.C. Those connections left AT&T with access to 83 licenses covering more than 94.8 million pops for more than $3.7 billion.
Two additional carriers active in the bidding included VoiceStream Wireless and Leap Wireless International Inc.
VoiceStream won 19 licenses covering 11.3 million pops for $482.6 million, and 22 licenses covering 17.6 million pops for $506.3 million through its partnership with DE Cook Inlet.
Leap walked away with 22 licenses covering 20 million pops for $350 million.
“We’re delighted with the outcome of the auction,” said Dan Pegg, senior vice president of public affairs for Leap. “The FCC ran a very efficient auction, and we are pleased with what we walked away with.”
While there was some concern about companies being able to pay for their licenses, Pegg noted that most of the big winners in the auction were backed by deep pockets. In fact, Leap announced last week that Qualcomm Inc. was pledging $150 million in loans to the San Diego-based wireless operator to help pay for its licenses.
While Leap said it was comfortable with the outcome, others were disappointed to see the big players dominate the auction so thoroughly.
“This was another situation where the big companies garnered a lot of the spectrum through their partners as an end around the FCC’s original intent for the auction,” said Larry Swasey, senior vice president of communications research for Allied Business Intelligence Inc. “It would have been good to see the small guys win some licenses in smaller markets. But in the end the smaller guys might have ended up reselling the spectrum to the larger carriers, who could afford to overpay and still make a profit.”
Swasey noted the auction showed that larger operators understand the value of a true national footprint and the value of additional services that can be used with the new spectrum, including wireless data and Internet services.
From the money raised for the U.S. treasury to the additional services the spectrum will allow-if carriers pay for the licenses on time-many involved in the auction think the FCC can will look back on it as a success.
