DEs No Factor in AWS Auction
Designated entities (DEs) are playing a minuscule role in the advanced wireless services (AWS) auction as it enters its later stages. By value, only about 6% of winning bids were by DEs, with a large bid by DE Denali for one license accounting for almost half that. Through round 35 late Tues., total bids stood at $12.5 billion. Bids have been rising slowly -- just 0.69% for the round. To speed action, the FCC required Mon. that participants bid 95%, not 80%, of their bidding credits in opening stages -- forcing DEs to bid or shed eligibility.
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A source who follows auctions and opposed the revised DE rules said DEs had a “meaningful presence” in past auctions, but they're a “rounding error” this time. “DEs [bidding] by and large are very small, mostly the smallest rural telephone companies,” the source said: “What you're not seeing in any significant new DE interest that’s going to compete with the established companies. That’s what you're not seeing is meaningful competition.”
Though 166 DEs filed as bidders, the FCC “qualified” only about 100. About 70% of those have been active in the auction, but only in the smallest markets. The largest provisionally winning bid by a DE is $365.4 million by Denali Spectrum for a 10 MHz license covering the Great Lakes region.
“I'm disappointed,” David Honig, exec. dir. of the Minority Media & Telecommunications Council, told us Tues.: “We certainly wish that the news wasn’t as it is, but I can’t tell you I'm surprised.” Honig said his group still was watching the auction to see whether some licenses go to women, minority and small business DEs, instead of small rural phone companies.
“Rural phone companies certainly have some barriers to entry but not to the same extent, in terms of getting access to capital,” Honig said. Revisions of “unjust enrichment” rules forcing DEs to pay a penalty if they sell licenses within 10 years have hurt minority participation, he said: “A prudent investor wants to be sure if things don’t go well, then within a foreseeable length of time they'll be able to get out… How many people would buy a house if they knew they couldn’t move within 10 years of when they bought it?”
“That program pretty much is dead,” a regulatory lawyer who works on wireless issues said: “Having to hold the license for 10 years before you can do anything makes it very difficult to attract capital.”
A former auction participant said lack of DE participation probably means lower overall bids in the auction than if the FCC hadn’t changed the DE rules. “You would have seen DEs much more active were it not for the rule changes,” the source said: “You would have seen DEs attract capital that’s not otherwise in the auction. That’s what you're really not seeing is both venture capital and strategic capital that would have come to the auction.”
T-Mobile is top bidder overall, with high bids of $4.1 billion total on 122 licenses. The carrier has shed 218 million bidding units, to 548 million, limiting its ability to bid on new licenses. Verizon Wireless’s Cellco has stayed No. 2 for many rounds, with 4 major licenses worth $2.8 billion. SpectrumCo continues to add to its portfolio, with 116 provisionally winning licenses on $2 billion in bids. The bidder, a joint venture of cable operators and Sprint Nextel, also has shed eligibility, to 278 million units from 638 million at the auction’s start.
Bidders continue to up the ante for local licenses in major markets. In round 35, MetroPCS entered a new high bid for a D.C. market license; T-Mobile had a high bid for a license covering Philadelphia. The auction seems essentially over for the 18 regional licenses.