WIRELESS SPECTRUM AUCTION DRAWS LACKLUSTER RESPONSE

Despite cries from carriers for more spectrum, the FCC's 700 MHz license auction is drawing little interest from major wireless players. With bid totals just under $1 billion after 20 rounds, the auction is a mere shadow of last year's F and C block PCS auctions, in which Verizon Wireless forked out $2 billion for a single New York license.

The 700 MHz auction, by contrast, has attracted virtually no interest from the largest carriers. The top 10 bidders include a collection of smaller telcos, cable ventures and investment groups bidding on what are currently UHF TV channels 52 to 59. The catch: Broadcasters don't have to vacate the channels until 2007, when they are required to make the transition to digital bands. And if digital TV penetration hasn't reached 85% by 2007, broadcasters can occupy the spectrum even longer. Regardless, the auction winners will hold what are essentially useless licenses for at least the next five years.

The auction has thus far proceeded exactly as industry experts expected, said Roger Entner, program manager for The Yankee Group. If anything, the auction has gone on far longer and raised far more money than expected.

“The way the auction is structured, of course the bidding will be really crappy,” Entner said. “What did the government expect? If they had done a good job clearing the spectrum before the auction, they would have gotten a multitude more than what's being bid.”

Of the active bidders, smaller telcos appear to be scooping up licenses in their own service territories where there is little competition. With prices for swaths of spectrum in the tens of thousands of dollars, smaller operators are taking the opportunity to secure a wireless foothold in their regions even with the uncertainties involved. Still, the lack of activity has surprised some of the current top bidders.

“Our expectations were to see more activity in the markets we're interested in,” said Gerald Gallimore, general manager for Citizen's Telephone Cooperative, an independent based in Floyd, Va. “None of the larger carriers or incumbents have taken any interest in our markets, which I suppose I shouldn't complain about.”

Investment groups such as bid leader Aloha Partners appear to be speculating on cheap spectrum in major markets. Last Thursday, Aloha held the highest bid at $8.3 million for a license in Los Angeles. Its total bids for 60 licenses, including major markets such as Atlanta, Dallas and Detroit, exceeded $35.5 million, more than a third of all bids at the time. Major markets such as New York, San Francisco, Seattle and Washington also drew a lot of attention with bids ranging from $2.1 million to $6.9 million.

If all goes as the FCC plans, Aloha and other investment ventures will be sitting on very valuable spectrum come 2007, which they could probably sell at a tremendous markup. But the risks are too great for cash-strapped carriers, Entner said.

“It's clearly excellent spectrum,” he said. “There just happen to be people squatting in it.”