SpectrumCo Desires 700 MHz Spectrum

“I was not surprised that there were toes in the water on the AWS auction but I really think that because of the propagation and penetration characteristics and lower costs of equipment that we're going to see very active bidding by nontraditional bidders” in the 700 MHz auction, Rudy Baca of Rini Coran said: “We're going to see the satellite community, the cable companies, and we're also going to see some of the smaller telecos come in, much more than in the AWS auction.”

Baca called the filing a clear signal of SpectrumCo’s yen for 700 MHz spectrum. “Clearly they've announced their intent and they also have the ability to translate that into a financial plan to bid on the spectrum and to put together a viable system,” he said: “The financial community has really encouraged nontraditional bidders to go in at 700. The financial community gets this. They understand the cost benefits of 700 MHz.”

SpectrumCo will be a major player in the 700 MHz auction, said Michael Nelson, analyst with Stanford Group. “That would be expected, especially considering SpectrumCo’s actions during Auction 66,” he said: “The 700 MHz spectrum is clearly more valuable and I would expect most of the major players in Auction 66 to file to participate in the 700 MHz auction as well.”

Nelson hasn’t done a full analysis, but expects spectrum in the 700 MHz auction to sell at a “significant premium” over prices paid per MHz/POP in the AWS auction, he said.

“A major factor in the success of the AWS auction was the mix of license sizes offered, encompassing large, mid-sized, and small geographic license areas,” the white paper said: “The AWS auction band plan was designed to maximize bidder-specific demand, to facilitate bidder aggregation strategies, and to achieve related efficiencies by incorporating smaller license areas.”

In the 2006 AWS auction, bidders relied on licenses of various sizes to fill gaps in their spectrum portfolios, the paper said. It cited Dolan Family Holdings’ purchases of varying licenses, all in markets it wanted to reach. Smaller license sizes, as a result, provide flexibility, SpectrumCo said.

“If the regulator chooses the larger license, the smaller one is no longer available to a bidder,” the paper said. But the reverse is not true, it explained. If a regulator offers smaller license configurations, a bidder with larger demands can aggregate smaller licenses, it said, noting that a bidder pursuing a smaller area could buy a larger license including that area and sell or lease unwanted spectrum in the secondary market -- but that would add unnecessary risk to the bidder’s strategy, SpectrumCo said: “Only by starting with reasonably small building blocks can bidders have the flexibility to configure the set of licenses that best meets their needs.”

Offering licenses of varying size is an antidote to “aggregation risk,” in which a bidder enters the market then gets cold feet, winding up stuck with licenses for which it ultimately has no need, SpectrumCo said: “The key features of the AWS auction that allowed aggregation risk to be managed -- larger licenses settling before smaller licenses and a sense of relative license prices -- will almost certainly be true in the 700 MHz Band auction.” SpectrumCo noted that in the AWS auction it began by bidding for massive regional area grouping (REAG) licenses, changing focus to smaller license sizes and then to medium-sized economic area (EA) licenses.

SpectrumCo ultimately was able to get a 20 MHz nationwide footprint in the AWS auction, winning 137 licenses covering 260.5 million people for some $2.4 billion. “SpectrumCo’s experience in the AWS auction demonstrates that EA licenses strike a proper balance between granularity of licenses and ability to aggregate those licenses over a large geographic area,” the company said.