DBS, Cable Poised to Buy Big Chunks of Spectrum in AWS Auction
DBS and cable came in with the largest upfront payments for the advanced wireless (AWS) services auction, which starts Aug. 9, based on documents released Fri. by the FCC, potentially setting them up to be dominant players in the biggest spectrum auction in years. T-Mobile, which needs spectrum to remain competitive, was top among wireless carriers. In a surprise to some, the auction will be open with bidder identities revealed after each round, after the FCC determined that auction passed its competitiveness test.
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Wireless DBS, a DirecTV and EchoStar joint venture, was tops on the list of the companies buying bidding units to participate in the auction, buying 648 million bidding units - which means in effect it will be in a position to bid for many of the licenses offered when the auction starts Aug. 9 and possibly establish a nationwide spectrum footprint. Wireless DBS had to make a deposit of $972.5 million to buy that many units.
“You never know what they're going to do with the bidding units,” one industry analyst said. “For the DBS companies putting up this kind of money isn’t a hardship. They could be doing this to play a game or they could be serious.”
SpectrumCo, the partnership between cable and Sprint Nextel, in which Comcast is the dominant player, bought 637.7 million bidding units with a deposit of $637.7 million dollars. T-Mobile, the most spectrum-constrained of the major wireless carriers, has viewed the AWS auction as critical to its future, and it’s ranked 3rd, putting down a deposit of $583.5 million for the same number of bidding units. Dolan Family Holdings, which controls Cable Vision Systems in N.Y., put down $150 million.
Other major bidders include Verizon Wireless’s Cellco (255 million bidding units), Cingular (333 million), Leap Wireless’s Cricket (255 million) and MetroPCS (200 million). Financier Mario Gabelli’s Lynch AWS Corp. is in the auction, much to the chagrin of some at the FCC, including Comrs. Adelstein and Copps, who have cited DoJ charges that Gabelli gamed the designated entity (DE) rules in an earlier auction (CD July 11 p1). Lynch made a deposit on 1.5 million bidding units.
“It wasn’t a surprise that T-Mobile and Cingular and Leap and MetroPCS and Verizon Wireless were going to make big upfront payments, but clearly there are other interested parties,” said a regulatory attorney who follows auctions. “It looks like it will be as the FCC hopes a pretty competitive auction.”
Sources disagreed on whether the FCC’s DE rules effectively drove most DEs out of the auction. Several large DEs remain, one source noted. By one count 66 of the 166 DEs that filed to bid in the auction dropped out -- a 39% attrition rate. “The DEs that remain, by and large, are very small companies,” the source said. “DEs are going to have very little impact.” One source said only 8% of bidding units are held by DEs.
The FCC had established a competitiveness test for the auction to determine whether the identities of bidders would be kept secret until the auction’s conclusion. The FCC decided in April it would divide the total of bidding units bought by the total bidding units for the licenses in the auction. If the result was 3 or higher, meaning an average of 3 bidders per license, the auction would be deemed competitive, with bidder identity made public after each round. The FCC calculated that the level was 3.04.
In April, most observers agreed that the FCC had set a very high bar and blind bidding was likely (CD April 21 p1). Numerous bidders, led by T-Mobile and rural carriers, had pushed the FCC to change course and continue the practice of revealing bidder identity as the auction progresses. “The cable and the DBS guys stepped up in an unexpectedly big way, which saved this thing,” one industry source observed Fri.
“For the major players, this auction is about quality of service. For the mid-major players, it’s about becoming major,” said Stephen Coran, an attorney who represents wireless companies. “It will be fascinating to see how much actual competitive bidding there will be in the smaller markets given some of the low bidding units bidders have posted.” But, he added: “We continue to believe that, at the end of the day, auction proceeds will come in at the low end of the estimates.”
Donald Herman, an attorney who represents rural carriers, said the number of participants shows that the FCC’s strategy of breaking part of the spectrum to be sold into small chunks - for sale as RSAa and MSAa -- worked. “It appears from the list that the FCC’s action in allocating so much spectrum to RSAs and MSAs is hopefully going to open the door for smaller companies to participate in the auction,” he said. “It was a long struggle to get the additional 10 GHz of MSA and RSA spectrum.”