Financial Jitters Lead to Slow Start for the 700 MHz Spectrum Auction

Carl Weinschenk

After much anticipation, the bidding for wireless spectrum in the 700 Megahertz spectrum started last week. According to this Dow Jones story posted at CNN Money, the initial action has been less than overwhelming.

 

The D block of spectrum -- a nationwide 10 megahertz chunk -- received a single bid, the minimum of $473 million set by the Federal Communications Commission. That anonymous bidder won't necessarily walk away with the spectrum, however. The FCC mandates that the final price be $1.3 billion. If that figure isn't reached, the spectrum would be re-auctioned later.

 

Timing is everything, and the economic meltdown during the middle of January is a huge depressing factor. However, the challenges facing the spectrum predate the market meltdown. Frontline Wireless, a company formed to bid on spectrum, went out of business in early January. Speculation is that the company couldn't raise the money necessary to enter the auction.

 

That's significant, especially considering the who's who of Frontline backers and executives. Among those involved were Vanguard Cellular founding CEO and President Haynes Griffin, former National Telecommunications and Information Administration head Janice Obuchowski and former FCC Chairman Reed Hundt. A commentary excoriating the FCC's handling of the auction, written by an adviser to Frontline, was posted last week at News.com.

 

It all isn't gloom and doom, however. The Dow Jones story says $3.7 billion has been raised in four rounds of bidding for the 1,009 different auctions. The 22-megahertz C block has raised $1.8 billion, a good start on the minimum final price of $4.6 billion.


 

The industry has been discussing the auction -- officially called Auction 73 -- for quite some time. Engadet provides a public service with a refresher course in what the auction is all about and how it will work. The overall idea is to dole out a treasure trove of prime spectrum made available by the move of television broadcasters from analog to digital transmission. Among the few tidbits that are known -- the FCC is keeping a tight lid on information -- is that 214 companies are participating and AT&T, Verizon, Cox and Google are among them. The piece reviews how the five blocks of spectrum are carved up, the "reserve price" -- essentially, the entry fee -- required to participate and discusses the open-access rules that generated so much discussion and controversy this autumn.

 

The bottom line is that the auction remains a watershed, but the final tally will fall short of earlier expectations. While the Frontline situation may have been a body blow, the cratering of the economy was the coup de grace.

 

BusinessWeek provides some examples of the nightmare January meant for companies in the auction: Since Jan. 1, the value of AT&T has dipped $29.5 billion, Verizon is $16.5 billion poorer than before and Google is off about 20 percent. According to an analyst with Sifel, Nicolaus, the telecom sector on Jan. 18 might have suffered its biggest single-day loss ever -- and it's had a lot of big-loss days. The story speculates that the auction might raise only $10 billion to $12.5 billion and there might not be a winner in some of the spectrum categories.



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