Auction reaches $13B as telcos add to portfolio

If, as the saying goes, pops are tops in an auction, then T-Mobile USA Inc. is certainly outdoing itself in the advanced wireless services spectrum auction thus far. Meanwhile, Sprint Nextel Corp.’s joint venture with several cable companies also is doing well, despite losing out on large regional licenses.

As last week’s bidding ended, T-Mobile USA had racked up enough licenses to cover a population of 466 million-more people than live in the United States actually-because of overlapping licenses. SpectrumCo L.L.C., the Sprint Nextel/cable JV bidding entity, had high bids on licenses covering about 260 million people; for purposes of the auction, the continental United States includes about 280 million pops. Since SpectrumCo has mostly bid on B-block licenses, its licenses don’t overlap. As of round 48 of the bidding, the JV had bid $2.2 billion for 129 licenses. However, since the company isn’t vying for the larger regional licenses, it is competing against a number of smaller competitors instead of one or two large ones. In round 48, for example, the company claimed licenses that had previously been held by Dobson Communications Corp., Leap Wireless International Inc., MetroPCS Communications Inc. and U.S. Cellular Corp., among others.

Comparatively, Verizon Wireless has put up about $2.8 billion for four regional 20-megahertz licenses covering 190 million people.

Small incumbent local exchange carriers are also pursuing spectrum within their wireline footprints. Louisiana-based telco CenturyTel Inc., for instance, bid about $1.7 million for a half-dozen 20-megahertz licenses in states where the company operates, including Arkansas, Missouri, Colorado and Indiana.

AWS Wireless Inc., the bidding entity backed by NextWave Telcom Inc., has done a respectable job of capturing licenses; as of round 48, NextWave had bid $109 million for 156 licenses.

NextWave has a fairly tight budget to stick to, noted Jim Wiesenberg, principal of WW Associates, a spectrum advisory firm. Wiesenberg is not directly involved in the current auction.

According to NextWave Securities & Exchange Commission filings, the company issued notes in mid-July and “received net proceeds of $295.1 million available for the sole purpose of financing spectrum acquisitions and leases, including its pending acquisition of WCS Wireless Inc. for $160.5 million.” Part of the terms for those loans, however, include the caveat that NextWave use “the note proceeds for the acquisition of spectrum, not to exceed $0.25 per-megahertz-per-pop.”

Wiesenberg noted that NextWave was averaging 16 cents per megahertz per pop as of Round 48, and SpectrumCo was looking at about 43 cents per-megahertz-per-pop.

Some of the hot smaller properties that have seen competition among smaller entities include the Texas 15 spectrum license, Wiesenberg said, along with the Utah 2-Morgan license and the Iowa-13 license.

“I think the ILECs and the RLECs are still very much in this auction,” Wiesenberg said. “It’s not just the national players or the wireless-only players.”

Meanwhile, smaller wireless carriers such as Dobson are gathering licenses. Dobson had high bids totaling $1.7 million on 36 licenses in round 47.

Bingham McCutcheon L.L.P. partner Andrew Lipman noted that the spectrum has the potential to expand small carriers’ coverage and ultimately might make them “more attractive on a takeover front.”

Lipman said that he expects most of the bidders still in the game to stay there, after early drop-outs of companies that might have been expecting to pick up bargain-basement spectrum.

“I think a lot of people were testing the water,” Lipman said. “There was a fairly widespread view that some of the big wireless providers, other than T-Mobile, might be pulling their punches” and waiting for 700 MHz spectrum to come to auction. Instead, Lipman added, “the bidding seems to be serious and moving in a serious way.”

Lipman estimated that given the momentum of the bidding, the auction might last for another three or four weeks-potentially wrapping up sooner than the two- to three-month time span predicted by some analysts prior to the start of the bidding.

However, since the bidding is likely to still be going on during the September CTIA I.T. show in Los Angeles, Wiesenberg pointed out that the auction could make for a relatively quiet show-since companies who dropped out can’t say much until it’s over, and neither can the ones still in it, particularly to one another.

The auction ended last week having raised about $13.3 billion, and all but 119 of the spectrum licenses had received bids. Of the original 168 eligible bidders, 124 are still active participants.

“It’s a long time before the fat lady sings-and there are a lot of different tunes yet to be played,” Wiesenberg said.