Less than three weeks after it began, the Federal Communications Commission’s Auction 58 of 242 spectrum licenses in the 1.9 GHz band came to a quiet close last Tuesday, having garnered just more than $2 billion in net bids including FCC credits for 217 licenses. The auction, which featured a number of licenses returned to the FCC by NextWave Telecom Inc. as well as other cancelled licenses, was originally expected to generate more than $3 billion in total bids.
Overall, Auction 58 garnered just under $1 per megahertz per pop in total bids, which was less than one-quarter of the nearly $4.50 per megahertz per pop bids in the ill-fated Auction 35 in early 2001 and in line with the FCC’s original 1.9 GHz spectrum auctions in the mid-’90s.
Analysts noted that the modest bidding was a result of recent consolidation among wireless carriers that has lessened the need for additional spectrum combined with the potential for more spectrum to be auctioned during the next several years. Others pointed to less-aggressive bidding than expected from a number of operators that could point toward further consolidation in the near term.
Verizon Wireless, which participated in the auction through bidding partners CellCo Partnership and Vista PCS L.L.C., was the auction’s big spender with total net bids of more than $697 million for 63 spectrum licenses, or $1.30 per megahertz per pop. The haul included a fiercely contested 10-megahertz license covering St. Louis that cost nearly $142 million, as well as licenses covering Cleveland, San Diego, Cincinnati, Houston, Pittsburgh and Seattle.
Most of the spectrum Verizon Wireless acquired was in markets where the carrier currently provides service, though the auction gave the operator its first spectrum holdings in Oklahoma City, where it previously had to rely on roaming agreements to support.
Analysts were not surprised by Verizon Wireless’ strong bidding as the carrier has so far stayed out of the larger consolidation picture and has during the past several years been the fastest-growing wireless operator. Verizon Wireless has also spent more than $4.5 billion during the past year on spectrum deals, including the acquisition of NextWave’s spectrum not returned to the FCC and Qwest Communications International Inc.’s wireless assets.
The auction’s second-biggest spender was regional operator MetroPCS Inc.’s bidding partner Royal Street Communications L.L.C., which totaled net bids of $293.6 million for six licenses, or $1.42 per megahertz per pop. Royal Street’s bids included a $280.9 million bid for a 10-megahertz license covering Los Angeles that was the single-highest bid of the auction and saw surprisingly little competition. Royal Street also picked up licenses in a handful of Florida markets covering more than 4 million potential customers.
Royal Street’s aggressive bidding was somewhat of a surprise as MetroPCS has floundered recently under economic uncertainty brought on by accounting issues that forced the company to scrap a planned initial public offering last year.
In addition to its auction acquisitions, MetroPCS has recently purchased licenses from Cingular Wireless L.L.C. covering Detroit and Dallas for $230 million and picked up a pair of Florida licenses covering Tampa and Sarasota, Fla., from NextWave for $43.5 million. Analysts noted that MetroPCS’ recent spending spree has resulted in a pair of market clusters that includes large population centers in some of the nation’s fastest-growing regions along the West Coast and in the Southeast.
T-Mobile USA Inc.’s bidding partner Cook Inlet/VS GSM VII PCS L.L.C. posted a surprising third-highest net bid in the auction with $235.2 million in bids for 36 licenses, or 63 cents per megahertz per pop. Analysts initially expected T-Mobile USA to match Verizon Wireless as the auction’s most-aggressive bidder, citing the carrier’s modest spectrum position in relation to its growing subscriber base and lack of industry consolidation involvement. T-Mobile USA’s parent company Deutsche Telekom AG also noted earlier this year that its U.S. subsidiary had set aside more than $2 billion for spectrum purchases.
T-Mobile USA managed to double its holdings in Cleveland to 20 megahertz, but failed to gain any additional spectrum in North Carolina and South Carolina where the carrier does not currently offer service and has only modest spectrum holdings. The move raised suspicion that T-Mobile USA could be looking at acquiring Triton PCS Inc., which recently gained its independence from AT&T Wireless Services Inc. and operates a GSM network in both North Carolina and South Carolina as well as Puerto Rico.
Leap Wireless International Inc., which participated in the auction through Alaska Native Broadband and Cricket Licensee, picked up 13 licenses with high bids of $235.1 million, or $1.19 per megahertz per pop. Leap’s licenses included a number of large markets, including Houston, San Diego and Cincinnati, which the carrier said it will use to expand its flat-rate Cricket offering and provides the carrier with several market clusters it expects will attract more customers.
“We are pleased with the outcome of the auction, as the company was able to secure licenses in markets that we believe hold tremendous promise for the years ahead,” said Leap President and Chief Executive Officer Doug Hutcheson. “We believe these markets align with our strategy to more effectively serve our new and existing customers by creating regional market clusters, and we look forward to completing their purchase within our existing financial resources.”
U.S. Cellular Corp., which participated in the auction through bidding partner Carroll Wireless L.P., also reinforced its clustered market approach in the auction. The carrier posted high bids of $129.9 million for 17 licenses, or 90 cents per megahertz per pop, for licenses that were adjacent to its current market clusters in the Midwest, Northwest and Northeast and included markets in which it has recently launched services.
U.S. Cellular was involved in one of the auction’s more robust bidding wars with Verizon Wireless over the St. Louis license that eventually became too rich for U.S. Cellular’s blood. U.S. Cellular is planning to launch services in St. Louis later this year.
“We couldn’t justify it with our business models and cash-flow models to spend any more for St. Louis,” noted Mark Steinkrauss, vice president of corporate relations for U.S. Cellular, who added that the carrier will likely look for other ways to add to the 10 megahertz of spectrum the carrier controls in St. Louis.
The only other participants to crack the nine-figure barrier were bidding partners for Cingular, which recently completed its acquisition of AWS, and Sprint Corp., which is merging with Nextel Communications Inc.
Cingular’s bidding partner Edge Mobile L.L.C. finished with net bids of $184.4 million for 21 spectrum licenses, or 82 cents per megahertz per pop. The carrier, which was forced to divest some of its spectrum holdings following its acquisition of AWS, picked up licenses in markets where it currently offers services, including a pair of 10-megahertz licenses covering Pittsburgh.
Sprint’s bidding partner Wirefree Partners III L.L.C. racked up $150.2 million in bids for 16 licenses, or 83 cents per megahertz per pop. Sprint noted earlier this year in a government filing that after its merger with Nextel it will control an average of 53.5 megahertz of spectrum in its 350 metropolitan statistical areas, as well as a near-nationwide footprint in the 2.5 GHz spectrum band.
