The rash of consolidation and spectrum deals that have recently swept through the wireless industry could have a substantial impact on the Federal Communications Commission’s Auction 58 set for late January, as the carriers with a history of being the most aggressive bidders have found alternative avenues for stockpiling spectrum.
Verizon Wireless, which bid more than $8 billion during the FCC’s aborted Auction 35 in early 2001, has since signed spectrum-rich deals totaling more than $4 billion with Northcoast Communications L.L.C., Qwest Communications International Inc. and most recently with NextWave Telecom Inc. The other two big spenders during Auction 35 were bidding partners for Cingular Wireless L.L.C. and AT&T Wireless Services Inc., which are in the process of merging their operations and are not expected to be allowed to participate in the upcoming auction.
Analysts noted that with the three largest carriers from the previous spectrum auction having less need this time around, Auction 58 could prove to be a wide-open affair.
“This will definitely be a much different auction than Auction 35,” said Eric Pritchett, manager of A.T. Kearney’s wireless practice. “And unlike the original spectrum auctions, this auction will be feeding a growing industry instead of trying to create a new one.”
Pritchett noted that further complicating this auction are a number of recently announced wireless broadband plans that are set to use spectrum and technology not originally part of the FCC’s plans for public wireless service. Those plans include data-based services using WiMAX, a variety of 802.-based technologies, spectrum-flexible proprietary services being developed by companies such as Flarion Technologies and IPWireless, as well as Qualcomm Inc.’s recently announced streaming wireless video service using 700 MHz spectrum.
“There is tons of spectrum coming into play that was not considered a couple of years ago,” Pritchett explained.
The FCC’s modest expectations for Auction 58 are also evident in the $751.8 million in minimum bids the government agency has mandated for the 242 licenses, which is significantly less than the $16 billion bid during the admittedly much larger Auction 35.
Pritchett noted that while the auction is likely to include a greater number of smaller companies, changes to bidding requirements should help the FCC mitigate the turmoil it experienced when it previously attempted to auction licenses to low-cash-flow entities.
“The requirements are much stricter this time and should help the FCC avert any more NextWave scenarios,” Pritchett said, referring to NextWave Telecom Inc. filing for bankruptcy protection shortly after winning nearly $5 billion in previous spectrum auctions.
With Verizon Wireless, Cingular and AWS less likely to bid aggressively for spectrum as well as the FCC’s enforcement of bidding rules, Pritchett said he expected to see significant activity from regional and rural carriers looking to expand their networks to better compete against their larger competitors.
“I think this auction will be more cosmetic with carriers trying to fill in strategic holes instead of trying to garner a nationwide footprint,” Pritchett added.
The likely regional bidders include Alltel Corp. and U.S. Cellular Corp., which have shown increased interest in expanding their operations to more densely populated markets, as well as rural operators looking to diversify their roaming-dependent operations.
While the scope of licenses and bidding restrictions seem to lend an advantage to smaller carriers, there are a number of significant markets included in the auction that could draw interest from the larger operators.
Raymond James & Associates telecommunications industry analyst Ric Prentiss noted last week that several markets that are vacant from T-Mobile USA Inc.’s native coverage as well as markets where it has less than 20 megahertz of spectrum will be available in the auction. Prentiss cited T-Mobile USA’s lack of spectrum in a handful of markets in North Carolina and Puerto Rico as well as potential spectrum shortages in a number of major markets, including Los Angeles, Seattle and San Diego.
T-Mobile USA is also spectrum deficient in several markets in South Carolina, though most of the operations are covered by Triton PCS Holdings Inc., which has led to rumors about a possible acquisition by T-Mobile USA.
Others noted that Sprint PCS could be an active participant, as the carrier has experienced dramatic customer growth in both its direct and wholesale operations and is in the process of rolling out data services that require clean spectrum. One analyst also claimed Sprint PCS’ recent growth has resulted in up to 5-percent call blocking in large markets during peak calling periods.
Despite its recent spectrum deals that swelled the carrier’s spectrum portfolio in a number of top-tier markets, Verizon Wireless is not expected to sit out the next auction. Analysts have said that Verizon Wireless will want to stock its spectrum war chest as full as possible to support its impending battle with new No. 1 Cingular as well as its high-speed wireless data plans.
Muting Verizon Wireless’ participation could be the 70-megahertz soft-spectrum cap the FCC hinted at during its approval of Cingular’s acquisition of AWS.
A Verizon Wireless spokesman said the company had no comment on future auction plans, though the carrier has filed papers with the FCC in an attempt to open more of the licenses to all bidders. The FCC is setting aside roughly half of the 242 licenses up for bid for “entrepreneurs.”
Cingular is expected to have an even smaller impact on any future auctions, as the FCC has stated it would hold the carrier to its claims that if its acquisition of AWS was approved, Cingular would not apply to bid in Auction 58 or any market in which it controls 70 megahertz or more of spectrum.
Cingular is also expected to begin its own spectrum-divestiture proceedings related to its acquisition of AWS, which could increase the amount of available spectrum on the market. The carrier noted in government filings that such divestitures could take several months to complete.
