Auction heats up as bidders target smaller licenses

As the advanced wireless spectrum auction moved into its second full week, competition for regional licenses was slowing considerably and a number of potential new wireless players had dropped out. T-Mobile USA Inc. appears likely to succeed in its quest of expanding its spectrum portfolio, and Verizon Wireless has held four of the largest 20-megahertz regional spectrum blocks for half a dozen rounds without being challenged.

Friday’s last round brought the total funds raised to $11.6 billion, with 283 bids in the round. Of the original 168 eligible bidders, only 137 remained. The bidding slowed down slightly in the last three round of the week, but not by much; the last three rounds of the week each had more than 280 bids, but the three rounds prior to that all had more than 300.

Notable bidders who bowed out as prices spiraled upward last week included satellite providers EchoStar Communications Corp. and DirecTV Group Inc., which had placed the largest upfront payment of the auction; and a bidding entity backed by Charles Dolan, chairman of Cablevision System Corp.

Two cable players still remain in the game: the joint venture between Sprint Nextel Corp. and four cable companies, and regional cable provider Cable One Inc., whose bidding entity’s major investors include The Washington Post Co. and Warren Buffet’s Berkshire Hathaway Inc. The Sprint Nextel-cable JV placed 100 high bids worth $1.7 billion in the 27th round of bidding, mostly for 10- and 20-megahertz blocks of spectrum in the C- and B-blocks that are divided into 176 economic areas.

Cable One, meanwhile, had high bids on 23 spectrum licenses worth nearly $5.7 million covering portions of Idaho, Texas, Arizona, Kansas and Oklahoma-all of which are states within the company’s cable footprint.

Meanwhile, wireless companies were busy fighting it out. Verizon Wireless had unchallenged high bids on 20 megahertz licenses in the Northeast, Southeast, Great Lakes and Mississippi Valley regions; Verizon Wireless only bid on the coveted F-block licenses and now appears likely to end up with the majority of them. Some analysts had speculated the carrier would primarily seek to make sure that T-Mobile USA didn’t come by spectrum cheaply and were surprised by Verizon Wireless’ aggressive performance; the carrier committed nearly $2.8 billion to pay for the four spectrum licenses.

T-Mobile USA followed expectations of active participation in the auction and is hanging on to F-block licenses covering the Western and Central U.S., among the 125 licenses on which it has placed high bids. T-Mobile USA bid a total of $3.8 billion for spectrum so far, including the two 20 megahertz regional licenses and 10 megahertz regional licenses covering the other four regions of the continental U.S. as well as a long list of metropolitan markets around the country.

Cingular Wireless L.L.C. has been the least aggressive player among the national wireless carriers, with high bids totaling just $711 million as of round 28. Cingular had provisionally winning bids on 42 licenses that covered cities in Michigan, California, Arizona, Minnesota and Wisconsin. Cingular also had high bids on two 10 megahertz regional licenses, covering the Western and Central U.S.

Smaller players were still doing a respectable job of acquiring spectrum, although they were getting somewhat squeezed by the big players as the winners of the largest licenses became more clear.

“We believe the smaller rural carriers may lose bids to the larger rural/regional carriers as the larger carriers look to fill holes after losing out on the [regional economic area] and [basic economic area] licenses,” noted Bear Stearns analyst Phil Cusick in a research report.

Leap Wireless International Inc. had dibs on 32 licenses at the end of last week totaling $380 million. Leap was hanging on to one regional license covering the central U.S.; the rest were market-specific slices of spectrum. Leap-backed bidder Denali Spectrum License L.L.C. had dibs on one 10 megahertz license for the Great Lakes region for $365 million.

MetroPCS Communications Inc. was holding onto a half dozen licenses worth $1.1 billion by the end of the week, including10 megahertz regional licenses for the West and Northeast and additional spectrum in Las Vegas; the New York metro area; Sarasota, Fl.; and Detroit.

U.S. Cellular Corp. was the top bidder for five licenses totaling $287 million, including one 10 megahertz license for the Mississippi Valley region, as well as smaller licenses in the Chicago area,; Minneapolis-St. Paul, Minn.; Oklahoma City; and Kansas City, Mo.

Of the roughly 1,100 licenses up for grabs, 880 had received bids by the end of the 28th round.