U.S. FCC Begins Sale of Wireless Licenses

A dash for fresh new airwaves for mobile wireless devices began on Tuesday with companies offering a net $404.8 million in the first round of bidding, the U.S. Federal Communications Commission said.

Eighty-seven bidders are competing for 422 licenses that will enable them to launch new products, fill gaps in coverage and improve service in a sale of spectrum that analysts expect will be the most lucrative in U.S. history.

Theta Communications, backed by money manager Mario Gabelli and linked to Lynch Interactive Corp., bid the most in the first round, a net $79.5 million, including $31.8 million for one of the licenses in New York City.

VoiceStream Wireless Corp. bid a net $68.2 million for licenses covering Los Angeles and Washington, D.C., while Sprint Corp. bid a net $48.2 million for licenses in Los Angeles, Dallas and Boston.

Licenses in the New York and Los Angeles markets received the highest bids in the first round, $31.8 million and $21.2 million respectively, according to the FCC.

A second session of bidding will run Tuesday afternoon.

Winners will be able to use the licenses to offer mobile telephone and fax services as well as advanced tools capable of two-way data transmission via mobile phones, pagers and other wireless devices.

Many industry analysts have expected the auction to raise at least $16 billion and possibly much more, given the consumer demand for wireless services.

"We may see higher numbers than the bidders would normally want to pay simply because they need this spectrum," said Rudy Baca, an analyst at independent research firm The Precursor Group.

Salomon Smith Barney on Tuesday put its estimate at between $15 billion and $20 billion. But Lehman Brothers, citing evidence from recent spectrum auctions in Europe, in a research note on Monday set its sights a bit lower at $11 billion, still above the net $9.2 billion raised in a 1996 FCC sale.

Legal Challenges

Allegheny Communications Inc. late on Monday unsuccessfully sought to delay the auction, charging the FCC's rules for entrepreneurs that offer licenses to smaller companies were a sham for bigger players.

The company cited as an example of its concern the relationship between Salmon PCS and Cingular Wireless, a joint venture between local phone giants BellSouth Corp. and SBC Communications Inc.

Salmon qualified as a designated entity to bid on 170 licenses allotted only for small, developing companies, proving they had gross revenues of less than $125 million in each of last two years and total assets of less than $500 million.

The FCC opposed Allegheny's move and a U.S. appeals court refused to halt the auction, according to the agency. However, Allegheny could challenge any licenses ultimately awarded.

Also late on Monday, NextWave Telecom Inc. filed the first brief in its effort to reclaim licenses that were repossessed by the FCC because of nonpayment and are now a part of the agency's auction.

"Fundamental fairness should have precluded holding an auction before the merits of NextWave's appeal have been decided in court, particularly in light of the FCC's 'guarantee' to restore the licenses," NextWave spokesman Michael Wack said in a statement.

The FCC has said if NextWave were ultimately successful in its bid to win back the 95 licenses it won in 1996, the companies that had won the licenses in the latest auction would have to relinquish them but would be reimbursed.

Encourage New Development

One hope at the FCC is that fresh spectrum will encourage companies to develop and launch so-called 3G devices that allow for faster and more advanced services such as video display and wireless Internet access.

In Japan, for example, so-called i-mode mobile phones have garnered 14 million users who can log on to the Internet on a screen the size of a business card -- much more advanced than offerings in the United States.

What may also make bidders throw down large chunks of money in the latest U.S. auction are licenses in major markets where there is already massive congestion that can lead to dropped calls or poor connections.

The bidding will run each business day until no more new bids are submitted, which theoretically means the auction could go on for months although agency officials expect it will probably be concluded in a matter of weeks.

To provide a break around the Christmas and New Year holidays, the FCC will stop the auction after bidding finishes on Dec. 21 and will resume on Jan. 5.

More information about the auction can be found on the FCC's Internet site: http://www.fcc.gov/wtb/auctions/.