Blind AWS Bidding Appears All But Inevitable

Industry is unlikely to see the open bidding typical in FCC spectrum auctions, said Rebecca Arbogast, an analyst with Stifel Nicolaus & Co., admitting she still is sieving details of auction rules published in an April 12 FCC notice. “People are struggling to make sure they understand precisely how the ratio is calculated,” Arbogast said: “My impression is it will be a tough standard to satisfy. It’s very likely the Commission will end up concluding they need to do the auction on the so-called blind bid basis.”

“It’s pretty much expected that the number of bidders in this auction will be limited in light of the fact that some of the bigger players aren’t likely to participate, namely Cingular and possibly Sprint Nextel,” Jessica Zufolo, an analyst with Medley Global Advisors, said: “They are at this point spectrally up to speed and less likely to bid in this auction, especially in anticipation of the 700 MHz auction.” Entry of Google, Yahoo and other such firms into the spectrum market has the makings of “an urban legend,” and those firms so far haven’t announced they will make bids, Zufolo said.

Scott Cleland of Precursor is not sure if the trigger will be met, but the FCC isn’t trying to keep firms happy, he said: “The government is running this auction to maximize revenue. They spend a lot of time gaming out all the different scenarios… This game is driven by maximizing the outcome and maximizing the competitiveness and that doesn’t make companies smile.”

Under the notice, the FCC will use total upfront payments to calculate overall auction competitiveness. To do so, the FCC will divide the total of bidding units bought by the total bidding units for the licenses in the auction. If the result is 3 or higher, meaning an average of 3 bidders per license, the auction will be deemed competitive, with bidder identity made public after each round. Since the calculation is based on bidding units, not total licenses, the extent to which carriers bid on the biggest licenses worth the most credits will figure inordinately in deciding if bidder are to be identified. The FCC will say whether the test was met after June 1, when upfront payments are due; word may come in the qualified bidder notice.

T-Mobile, the most spectrum-constrained national carrier with the most at stake in the auction, has headed quietly into it, declining to comment for this story. T-Mobile is nervous about the seeming inevitability of blind bidding, which it opposes, sources said. “The nervousness may be justified,” a regulatory attorney who follows auction issues said: “Now that we're getting closer and dates have been set parties that were looking at it and have to make a go, no go decision, many of them are making a no go decision… [Carriers] are having to fish or cut bait and more than I might have expected are cutting bait.”

The source observed that in comments during CTIA, as reported in Communications Daily, Verizon Wireless, Cingular and Sprint Nextel also seem lukewarm on the auction. “If all you did was read the stories from CTIA you'd say, oh my God, nobody is going to participate except T-Mobile, and maybe Leap,” the source said. For the first time in many years, FCC spectrum auctions are a buyer’s market, a 2nd regulatory source said: “A lot depends on how people feel about 700 MHz since that does present another imminent opportunity to pursue spectrum.”

Rural carrier sources, meanwhile, said they are mildly encouraged that bidding results might be made public, since the FCC will allow for smaller upfront payments than expected for the smallest licenses. The FCC originally proposed a 5 cents per MHz POP upfront payment for bids on such licenses, but in the notice that shrank to 3 cents. “I'm optimistic [the trigger] could be met,” an attorney who represents rural carriers said: “The lower cost of entry could actually attract more small entrants… We're seeing a lot of interest.”