All Eyes on the Auction, AT&T Makes Preemptive Strike

Carl Weinschenk

While the telecommunications industry has its collective eyes set on the FCC's 700 MHz band spectrum auction in January, AT&T may have outsmarted the pack by agreeing to pay Aloha Partners LP $2.5 billion for spectrum licenses in the same neighborhood, according to this Associated Press story posted at Forbes.

 

The purchase provides AT&T with 12 MHz in 281 markets covering 196 million people in the United States. Of course, nothing will prevent AT&T from buying more licenses in the auction. This was an astute move by AT&T, at least according to Zachary Investment Research analyst Patrick Comack, who was quoted in the story.

It's an absolutely incredible purchase. They really leapfrogged everyone else.

The conventional wisdom is that the auction -- which has been moved back a week to January 24, 2008 -- will be part of the coming out party that is expected to be held for WiMax and other advanced services.

 

This article, which hypes an Unstrung Insider report, says that the the success of WiMax in the spectrum is no slam dunk due to possible interference between adjacent channels. More broadly, the article suggests that the best opportunities may come in the 800-plus regional A and B Block licenses and that the C-block will require a huge investment simply to secure the rights and build a bare bones network.

 

For those who haven't been following the action -- and that's entirely understandable when dealing with drawn-out FCC procedures -- this Wired FAQ serves as a good primer. The introduction outlines the many things that could flow out of the release of this spectrum, including lower wireless costs, a changed competitive landscape and use as a third wire (after digital subscriber line DSL and cable modems). The heart piece asks and answers questions dealing with the nature of the spectrum; what types of services it is good for; how much money is expected to be raised (answer: a lot); how the bidding process works; what companies are expected to bid; and who the current occupants of the spectrum are.

 


Ars Techica also offers a good deal of insight into the spectrum. The writer says that, all told, there are five pieces of spectrum up for grabs, although the C-block has gotten the most publicity. It currently is inhabited by ultra-high frequency (UHF) television broadcasters, who are politely being ushered out of the 700 club. This block has specialized open access requirements. Winners of D-block spectrum are obligated to participate in an FCC public/private public safety partnership. Three other bits of spectrum will be available on a regional basis in more than 1,000 areas.

 

The story describes how all these blocks fit together. The writer concludes that no company is likely to monopolize the auction because the build-out requirements are very different. The C-block, according to the piece, is likely to be the most in demand.

 

The value of the spectrum is further illustrated by behind-the-scenes struggles between Verizon, Google and the FCC. Last month, Verizon sued the FCC over open access rules that were originally inserted at the urging of Google. Verizon, fearful that such rules would weaken its control over subscribers, pushed hard for changes. This RCR Wireless News story says that FCC Chairman Kevin Martin had failed to get the changes due to resistance from other commissioners. The new tack, according to this piece, was a declaratory ruling to get the desired changes.

 

Electronista reported this week that the FCC decided that the C-block will be restricted to higher-tier bidders. If a reserve price -- amounts that must be bid to make the auction official -- of $4.63 billion is not reached, another auction will be held.

 

The spectrum still is big news. During the next few weeks, however, the industry will size up just how AT&T's acquisition changes the overall dynamic. The AP story said that AT&T will be able to use some of the spectrum when the deal closes in six to nine months and the remainder in 2009.



Add Comment      Leave a comment on this blog post
Oct 10, 2007 1:32 AM Tony Cesnik Tony Cesnik  says:
ATT is evil. Unless Sprint/Clearwire follow through on their plans the Telco/Cable Duopoly will continue to smother competition. WIMAX is our last hope for a delivery system. Greedy, Evil AT&T buys up companies, but never has an original idea. Apple invented the IPHONE, ATT monopolized and crippledit. Reply
Oct 10, 2007 9:23 AM Bob Miller Bob Miller  says:
What is incredible is that none of these current players wanted to play in the original auctions of this spectrum, 44 and 49 where Aloha bought these 281 licenses for all of $35 million or so. Now that was incredible. AT&T buying them for $2.5 billion a few years later not so much. The best use of these licenses is for broadcasting not Wimax or any two way wireless offering. AT&T may be planning on doing just that if they are smart. If not then the entity that buys this spectrum from them after they fail will do broadcasting. Reply

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