Feast or famine?

Analysts don't expect big auction revenues for the FCC The third day of bidding in the U.S. reauction of 422 C and F Block PCS licenses drew $941.6 million, with AT&T Wireless-affiliated companies making aggressive moves for big markets such as New York and Chicago. But industry watchers wonder just how much the FCC will garner when the dust settles.

The auction bids for spectrum once held by bankrupt NextWave Telecom could reach up to $20 billion, according to some industry estimates. But many are beginning to doubt the high estimated price tag.

"I think people are really evaluating alternative ways to get into the market," said Carr Krueger, partner with Arthur Andersen. "I would be surprised if it got to $15 billion. The big players are playing it fairly cool."

Already, Nextel Communications and ConnectBid - a bidder backed by Craig McCaw-owned Eagle River Ventures, which also has a stake in Nextel - have seen their eligibility reduced. Bidders gain eligibility to participate in the auction based on the upfront payments and the number of licenses they registered to bid on. If companies don't bid in each round or place too small of bids, they reduce their eligibility to continue bidding.

Nextel's move is ironic, considering the carrier fought to gain control of bankrupt NextWave's licenses before the FCC cancelled the licenses in September and put them up for auction this week. Analysts, however, speculate Nextel may be waiting to bid on 700 MHz spectrum that the FCC plans to auction in March. That spectrum is more conducive to the iDEN system the company operates and is aligned more closely with the 800 MHz licenses it owns.

"The past strategy of carriers has been to get as much frequency as they can," said Phillip Redman, research director for Gartner Group. "Companies are now more strategic about where they are spending their dollars, and they're more concerned about filling in areas, looking at potential growth markets and guessing where they need more frequency in the coming years as more wireless data services become popular."

Many operators also suffered through sagging stock prices as the auction date approached. Investors fear U.S. auction prices might reach the level of some of the high-priced third generation auctions in Europe.

Some carriers are mitigating their risk by distributing it among different bidding companies. AT&T Wireless is bidding through AT&T Wireless PCS, as well as three entrepreneurial companies. VoiceStream Wireless not only is bidding under its own name but through small businesses Cook Inlet/VS GSM VP, 3 DL Wireless and NPI-Omnipoint Wireless.

These entrepreneurial companies or small businesses are allowed to bid on all PCS licenses that are for sale. Of the 422 licenses for sale, 174 are reserved for small businesses. FCC rules allow large carriers to hold ownership if they don't have controlling interests. Only the assets of the controlling partner count toward this entrepreneur status, and other partners can contribute an unregulated amount of money.

Several companies last month also brokered deals to lower their reliance on buying licenses at auction. Sprint PCS and AT&T Wireless struck a deal to exchange certain undisclosed 10 MHz blocks of spectrum, which potentially cover 18.5 million customers for each carrier. Likewise, Cingular and VoiceStream swapped spectrum covering 35 million people apiece. The move gave Cingular a much-needed presence in New York, and VoiceStream gained additional spectrum in Los Angeles and San Francisco.

And NextWave still isn't out of the game. The bankrupt company, which has battled with the FCC in various courts to keep its licenses, said it filed its opening brief with the U.S. Court of Appeals seeking to reverse the FCC's ruling that canceled NextWave's licenses in September. Oral arguments are set for March 15. If NextWave prevails, the FCC will take licenses from the auction bidders.

"It is unfortunate that the FCC has decided to auction NextWave's licenses at this time," said a NextWave spokesman. "The cloud of legal uncertainty will depress the level of auction bidding when many industry experts already are predicting lower auction yields."