FCC Spectrum Auction: Big Spending, Small Change

Last month after six weeks and 161 rounds of bidding, the Federal Communications Commission (FCC) wrapped up its 66th wireless spectrum auction. The auction, which FCC Chairman Kevin Martin called the, “the biggest, most successful wireless auction in the Commission’s history,” sold 1,087 radio spectrum licenses to 104 bidders; it also netted the U.S. Treasury just under $14 billion. Though dominated by large players, it has been noted that the real change in the near future will not be large and it may be the small players which introduce it. “These new airwaves will do little to change the competitive landscape among the largest wireless operators during the next several years.”

Big spenders in the auction were T-Mobile, Verizon Wireless, and a Sprint/MSO consortium made up of Cox Communications, Time Warner Cable, and Bright House Networks. The Sprint/MSO consortium spent $2.4 billion for 137 licenses and it is largely expected that these will be held onto for future use or as a hedge, the same is being said for the Verizon acquisitions. Verizon spent $2.8 billion for 13 licenses; a relatively small number, but as Light Reading notes, “several of the ‘regional economic area’ licenses cover large swaths of the nation, including the Northeast, Southeast, Great Lakes, and Mississippi Valley areas, as well as Honolulu.”

T-Mobile, perhaps because of its position as the number four wireless provider, behind Cingular Wireless, Sprint Nextel, and Verizon Wireless, or perhaps because of how much it spent, almost twice the second highest sender, is receiving much of the post-auction press. T-Mobile spent $4.2 billion for120 licenses, licenses primarily in major metro markets such as New York City, Los Angeles, Chicago, Miami, and San Francisco. Some analysts expected T-Mobile to spend even more, an expectation based on the fact that the company needs to make some strong moves to keep up with its rivals. According to Forrester Research, “T-Mobile, the smallest of the four national providers, is currently the most spectrum-constrained wireless provider with an average of 25 MHz in most markets versus an average of 40 to 60 MHz held by Cingular, Sprint, and Verizon Wireless.” T-Mobile might also be getting the spotlight because it is the only one of the top spenders expected to act immediately on its acquisitions; in fact work has already begun. In New York City half the upgrading has already been done and most of the national work is expected to be complete by the end of 2008. At a rare meeting with journalists in New York the company said some customers will be offered new services as early as mid 2007. Though specifics were not given as to which areas the rollout would begin in, the Associated Press suggests that, “New York obviously seemed a good bet.”

T-Mobile appears confident in its plan, confident enough to back it up with more spending and strong growth projections. In addition to the $4.2 billion it spent to buy spectrum, T-Mobile will spend an additional $2.7 billion to upgrade equipment needed to deliver multimedia services and look for a spot in the top three. The company also expects to increase its subscriber base from 23.3 million to between 35 million and 40 million; this is above previous projections which capped growth at 30 million customers.

Fourteen billion dollars is a lot of money, and the majority of it came from major players, but this combination is not necessarily ringing in immediate changes on a large scale. With the exception of T-Mobile, the auction’s big winners are expected to sit on their licenses for future projects, which puts change a ways off. In addition, parts of the spectrum that were sold are still in use and need to be cleared prior to the new owners taking control, in some cases this is years away. Furthermore, even with the mover, T-Mobile, spectrum acquisitions are allowing it to catch up, rather than introduce new products. As Forrester Research points out, “Current T-Mobile customers holding out hope for improved service quality will be disappointed for the next several years.”

Some have made light of the fact that Martin mentioned the role of the smaller companies that took place in the auction; the percentage of the billions that they put out was minimal. However, it is from these companies, Leap Wireless and Metro PCS in particular, that some of the larger changes will come. Both Leap Wireless and Metro PCS sell cellular services as a replacement for fixed-line services and collectively have less than 4 million subscribers; the purchases could increase the footprint of both these companies to well over 100 million. Their total purchases in the auction added up to just 18 percent of the total, however, the purchases were for spectrum bands in areas that until now were devoid of wireless services. Change may come not in the type of services offered, but in the reach of basic services to all. Now according to Forrester Research, “Significant commitments by Leap Wireless and Metro PCS will bring flat-rate wireless plans to a majority of U.S. consumers.”

A more complete version of this posting, with accompanying informational charts, journal articles, and research reports can be found at the website of Analyst Views Weekly.

More information on this topic can be found at Northern Light’s Wireless Networking Market Intelligence Center

And in the following articles:

T-Mobile Lays Out Plan for New Spectrum
Xinhua News Agency, October 6, 2006
T-Mobile USA laid out the plan Friday for the $4.2 billion in wireless spectrum it won in a recent federal auction, saying it expects to spend nearly $2.7 billion on a network upgrade that can deliver mobile multimedia capabilities it hasn’t been able to offer like its rivals. The rollout of next-generation network equipment began in advance of the auction’s conclusion, with 50 percent of the deployment in New York City already complete, though “most of the work” will be complete by 2008, T-Mobile and corporate parent Deutsche Telekom AG of Germany said in a statement.

Comcast, Time Warner Win Spectrum Auction
FinancialWire, October 5, 2006
Last month’s FCC auction of wireless spectrums had two big winners in Comcast and Time Warner. The two cable companies are hoping to use the licenses to expand their triple play packages for Internet, cable, and telephone service. A joint venture of several cable operators won 137 spectrum licenses at the auction. A total of $2.37 billion was paid for the grouping of licenses.

The AWS Auction: With The Bill Almost Due, a Look at the Future
Access Intelligence, September 25, 2006 A week ago, the Federal Communications Commission (FCC) ended the five- and-one-half-week-long Auction 66 of 90 megahertz worth of spectrum and 1,087 licenses in its most lucrative auctioning activity ever (TelecomWeb news break, Sept. 18). Expecting to net slightly more than $13.7 billion, the FCC during the past week happily issued its traditional follow-ups to the 104 provisional winning bidders on the money owed after 161 rounds of bidding.

FCC’s Wireless Auction Fetches Billions
Network World, September 25, 2006
Five weeks and nearly $14 billion later, the FCC’s Advanced Wireless Services auction is over. Vendors such as Cingular, Sprint, T-Mobile and Verizon Wireless collectively bid $13.9 billion for spectrum licenses previously used by the federal government. The FCC sold 1,087 licenses to 104 bidders in the 1710M to 1755MHz frequencies during 161 rounds of bidding. T-Mobile wound up as the highest overall bidder, at $4.2 billion. Other big winners were regional wireless services providers MetroPCS and Leap Wireless. These providers are expected to use their spectrum winnings to expand services into new markets.

Cable Keeps Options Open with Spectrum Win
Xinhua News Agency, September 19, 2006
Now that a consortium of cable companies has acquired a swath of wireless spectrum at auction, Wall Street is waiting to see what the group is going to do with it. SpectrumCo, majority owned by the nation’s largest cable company, Comcast Corp., along with Time Warner Inc.’s cable unit and telecommunications company Sprint Nextel Corp., spent $2.4 billion on wireless spectrum licenses in a federal auction that closed Monday.

Airwaves Auction Ends with $14B Pledged
Xinhua News Agency, September 18, 2006
The Federal Communications Commission declared the latest and most lucrative auction of the public airwaves closed on Monday, with bids totaling nearly $13.9 billion. The commission auctioned off 1,087 licenses over 28 days. It was the largest amount of radio spectrum usable for wireless services made available since the agency went to an auction format in 1994. The proceeds, still to be collected, will go to the U.S. Treasury. FCC Chairman Kevin Martin said the auction was “the biggest” and “most successful” in the commission’s history.

Wi-Fi In-flight Auction Lands the U.S. Treasury $38.3 Million
EContent, July/August 2006
While Government regulation of communication may seem like a crystal-clear area of the law, the Internet has kicked up a whole lot of static. The demand for anytime, anywhere Internet access has gone sky-high. In June, the FCC auctioned off frequencies for in-flight wireless Internet access on all domestic flights. Bidders filed applications to participate in the auction in March, and the Upfront Payments Deadline was established as Apr 17, 2006. The $38.3 million raised will go into the US Treasury. Though the views of how to maximize megahertz for air travel cover the spectrum, one thing is clear: auction bidders believe there is money to be made in in-flight Internet access.

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