FCC swaps spectrum for billions

Wireless auction bidding is over, but finalizing results could take time

As a result of the recently concluded C and F Block PCS reauction, the federal government is about $17 billion ahead, and some wireless carriers are spectrum rich. However, the FCC must now wade through any ownership issues and consider the complaints from displeased participants before certifying which company owns what.

The wireless reauction of 422 licenses that ended Jan. 26 amassed $16.86 billion, a record amount, up from about $9.2 billion raised during the auction in 1996.

Though some analysts originally did not expect the reauction to reap big revenues, they were right when they predicted there would be aggressive activity in markets such as New York and Chicago. Verizon Wireless spent $8.78 billion for 113 licenses, two of which were in New York and worth $4.1 billion.

Second to Verizon Wireless in the bidding was AT&T Wireless-backed entrepreneur Alaska Native Wireless, which spent $2.89 billion to pick up 44 licenses in 43 markets.

During a conference call last week, AT&T Wireless Chairman and CEO John Zeglis claimed that the carrier's spectrum portfolio already could allow it to migrate to enhanced data rates for GSM evolution (EDGE) in almost all of the top 100 markets. In addition, Zeglis said AT&T Wireless' existing spectrum enables it to build all the way to universal mobile telecommunication systems (UMTS) in the top 72 markets. Despite this, the carrier remained an active participant in the reauction.

"To create a truly national UMTS footprint, we needed more spectrum," Zeglis said. "Alaska Native Wireless acquired licenses that will allow our partnership to build UMTS in 16 additional top 100 markets, including New York and Los Angeles."

Although smaller carriers such as Allegheny Communications have criticized auction rules, analysts do not expect this to affect the outcome of the auction.

"If Allegheny makes progress with its complaint, then everyone will jump on the bandwagon. But it is an expensive proposition to push forward with that," said Carr Krueger, a partner at Arthur Andersen. "The FCC achieved what it had intended - to get entrepreneurs involved in the market."

Leap Wireless acknowledged that the definition of "designated entity" was a bit unclear. However, the carrier was pleased with what it gained during the auction.

"We are happy with the outcome, and the FCC ran a real tight auction. While we really hadn't anticipated the big guys playing on our side of the fence that much, we got a lot of licenses at reasonable prices," said Dan Pegg, senior vice president of Leap Wireless. "If we had not been able to achieve the success we had, we'd probably be talking to the FCC about the spirit of the compromise."

The amount the auction raised beat some analysts' expectations, but it was comparable with UMTS auctions held in Germany and the U.K., said Eugene Signorini, an analyst with The Yankee Group. "In some ways the auction went as expected, with most of the value driven by key markets," Signorini said. "The amount some New York markets got was pretty significant and drove up the total [auction value]."

"This is exactly what the FCC wanted to happen," Krueger said. "They wanted the maximum revenue to go to the government."

Though carriers spent what may seem like an incredible amount of money for the available spectrum, it may have been in their best interests. "Right now the only auction on the immediate horizon is the 700 MHz, which is riddled with timing and encumbered spectrum issues," Signorini said.

As if to affirm Signorini's suggestion, the FCC last week postponed the 700 MHz auction originally scheduled for March 6 until Sept. 12, citing the fact that bidders need more time to plan because of the length of the C and F Block PCS auction.