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Auction 58 Ends, Bringing in Just More than $2 Billion

Auction 58, which has officially ended after almost 3 weeks, raised $2.043 billion, substantially less than the $3 billion to $4 billion estimated by analysts, and only a fraction of the $16.8 billion bid in auction 35, the original attempt to sell NextWave’s former licenses in late 2000-early 2001. Gross bids before subtraction of bidding credits stood at $2.254 billion. The auction ended after 91 rounds of bidding.

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In the final results, Verizon’s Cellco Partnership was top bidder, with 26 high bids worth $364.9 million. Vista PCS, 80% owned by Verizon, was 2nd, with bids of $332.4 million for 37 licenses. Royal St. Communications, 75% owned by Metro PCS, was number one in gross bids but number 3 in net bids at $293.6 million for 6 licenses. T- Mobile, which is in the market for fill-in spectrum as the smallest of the national carriers, bid $235.2 million for 36 licenses. Sprint bought 16 licenses for $194 million through partnerships and Cingular 21 licenses for $184 million.

The top license in the auction was 10 MHz in L.A., which was won by Royal St. at $374.5 million. That price translates to $1.71 per MHz POP, or 62.1% of the auction 35 price. Overall, 24 bidders won 217 licenses.

“This is basically a replay of the last auction and prices have come down precipitously,” said Rudy Baca, an analyst with Precursor: “There is a movement away from what had been spectrum scarcity to spectrum consistency… You look at the bids and say where did they need what spectrum. Verizon needed spectrum in St. Louis. Carriers are filling in their needs.”

“The parties who were very clear and upfront about their need for this spectrum are the ones that are buying it - Verizon, T-Mobile,” said a regulatory attorney. “Cingular is buying more than I would have expected given the merger. I was not surprised by Leap and MetroPCS being very eager purchasers of spectrum… Clearly, there’s a Midwest hole for a number of carriers.”

The bidding shortfall compared to auction 35 only tells part of the story. A more granular analysis of the 2 auctions finds that carriers today appear to have a more definitive idea of where they need additional fill-in spectrum, and while some licenses will bring in much less than 4 years ago, a few are now worth more.

Verizon’s bid for a 10 MHz license in St. Louis is a case in point. Verizon, through Cellco, bid $142 million for what it obviously views as critical fill-in spectrum. That bid translates to $4.94 per MHz POP, or 10 times more than some licenses, and 136.8% of the Auction 35 bid.

The two 10 MHz licenses in Houston were also viewed as especially valuable. Verizon’s Vista bid $103.1 million net ($2.04 per MHz POP) and Cricket, controlled by Leap Wireless, $94.7 million net ($1.88). That equals 90% and 82.7% of the bids for the same licenses in auction 35, respectively. In contrast, 3 licenses in Minneapolis proved much less valuable this time around. Bidders won the licenses at a cost of 50 cents, 48 cents and 47 cents per MHz POP, or 11.6-10.9% of Auction 35 bids.

Verizon, through its subsidiaries, showed it was willing to pay a premium for spectrum, bidding $2.42 per MHz POP for a license in Charlotte, $2.18 per MHz POP in San Diego and $1.60 per MHz POP in Cleveland. Bargains were also to be had. For example, subsidiaries for Leap, T-Mobile and Cingular bought licenses in Kansas City for 56 cents to 66 cents per MHz POP. All MHz POPs clearly weren’t considered equal. Cellco on the whole will pay $364.9 million for 14.4 million POPs, while Cook Inlet will pay $235.2 million for 37.2 million POPs.

Bear Sterns said in a research note T-Mobile was less aggressive than expected in bidding, while it expected Verizon and the regional carriers to come on as strong as they did. “Of the 160 licenses which were also available in Auction 35 (2001) the average sold for 33% of its selling price 4 years ago, with top bids ranging from 7% to 174% of 2001 prices,” Bear Sterns said. “On average, the smallest markets that actually sold on average traded closest to auction 35 prices, while larger markets often sold for 75%+ discounts to auction 35.”

Wireless Bureau Chief John Muleta told us the auction raised the minimum $2 billion he expected, so he wasn’t disappointed by the results. “It’s a function of the marketplace at that time, whether it’s economic factors, the amount of licenses available, the number of bidders,” Muleta said. “My expectation was it would be north of $2 billion but I couldn’t have predicted for you whether it would have been $3 billion or $2 billion.”