There were no last-minute bombshells when the advanced wireless services spectrum auction wrapped up last week after a few final, tedious rounds with a mere handful of bids.
T-Mobile USA Inc. was the undisputed and unsurprising highest bidder, walking away with a hefty new spectrum portfolio for which it bid about $4.2 billion. Verizon Wireless and Cingular Wireless L.L.C. added to their significant spectrum holdings, while smaller flat-rate, unlimited calling carriers may be signaling their intent to compete more fiercely in large markets dominated by national players.
Leap Wireless International Inc. greatly enlarged its footprint and bought spectrum in markets that seem likely to fit into the carrier’s market clustering strategy, spending $710 million on 99 licenses and then backing designated-entity Denali Spectrum Holdings L.L.C., which captured a regional Great Lakes license for $365 million.
Leap acquired spectrum in major markets including Washington, D.C.; Philadelphia; and many upper Midwestern markets, including Chicago, through the Great Lakes license.
MetroPCS Communications Inc., meanwhile, topped Leap in terms of dollar spent and ended up as the fourth-highest bidder in the auction. MetroPCS acquired eight licenses, including two regional licenses in the Northeast and Western U.S., for $1.4 billion. The flat-rate carrier currently offers service in parts of California, Michigan, Texas, Florida and Georgia; it picked up spectrum licenses in the New York metro area, Las Vegas and Louisiana in addition to spectrum in markets where the company already operates. The regional licenses give the carrier a much larger potential footprint on both coasts.
Andrew Lipman, partner at Bingham McCutchen, said the big spend by MetroPCS means the company is “trying to break out of the ranks of a midsize player and become more national. … They are clearly to position themselves as a major player.”
Companies still are incommunicado on their plans for the spectrum due to Federal Communications Commission rules. The next steps are for participants to put down initial payments that will total 20 percent of their winning bids within 10 business days of the auction’s end, and then pay the total within 20 business days. The FCC will then review and award licenses. Companies have 15 years to use the acquired spectrum.
Overall, the spectrum auction turned out largely as expected, analysts concluded-with a few blips. Rumors that Internet portal companies such as Google Inc. and Yahoo Inc. might participate turned out to be false. Satellite companies that made a big splash with upfront payments dropped out early as prices rose. However, the joint venture between several cable companies and Sprint Nextel Corp. came out of the auction with a spectrum footprint covering about 90 percent of the nation.
Merrill Lynch analyst Jessica Reif Cohen pointed out in a research report that the JV spent the largest amount of money on spectrum in the territories of Comcast Corp. (which owns 52 percent of the JV) and Time Warner Cable (which owns a 29-percent stake). Sprint Nextel, comparatively, has only a 5-percent stake in the SpectrumCo JV.
“Comcast did make it clear at our annual media conference last week that the company has no intention of `being the fifth cellular operator,”‘ Cohen wrote. “Management also indicated it did not anticipate embarking on any substantive buildout of the spectrum in the near term and that it was willing to let the asset lie fallow for some years to come.”
Beyond the 104 winning bidders, there was another invisible player in the AWS auction: the upcoming 700 MHz auction, which is expected to take place in January 2008. That spectrum, which is expected to be cleared sooner than the AWS spectrum and is considered more desirable because of its propagation characteristics, could make the AWS prices seem like a deal.
“A number of bidders had one eye turned to the future in terms of what they would have to pay and what their competition would be paying in that upcoming auction,” Lipman said.
The auction raised about $13.9 billion in total gross bids; after discounts, the net total raised was about $13.7 billion. Spectrum went to 104 companies, ranging from traditional wireless operators to cable companies to small, rural telcos. Regional wireless carriers did well for themselves; Dobson Communications Corp. spent nearly $66 million on 85 licenses, while U.S. Cellular Corp. spent $180 million on 17 licenses. Cellular South padded its position in states such as Tennessee, Florida and Alabama with a dozen licenses costing $33 million.
Some of the smaller companies that won spectrum blocks included CenturyTel Inc., Cincinnati Bell, Iowa Telecommunications Services Inc., Vermont Telephone Co. Inc. and Union Telephone Co., which provides GSM wireless service in Wyoming.
