Auction Feast or Famine

Bids for 2G spectrum blew the bank. The first 3G-auction bids in Germany and the United Kingdom mirrored the financial fling. But auctions in Italy and last month's Swiss cancellation raise serious questions about sustaining high bid levels for U.S. auctions, scheduled for September 2001.

"It's more than a global warming in funds," said Andrew Cole, Adventis vice president and global wireless practice head.

Cole expects that U.S. spectrum will be "hotly contested, but not irrational," like earlier auctions. He said providers are governed by their debt ratings. AT&T's recent breakup is just one example of a provider that needed to pay down its debt. Providers have to answer to stockholders more today than in the 2G 1990s.

According to Cole, U.S. service providers believe the Europeans paid too much for 3G licenses and will enter their own auctions with that mindset.

"You are going to see that people will be prepared to back down if necessary rather than pay over the odds," Cole said.

With pressures to show a way to pay down debt, service providers are not without 3G options.

"I don't believe you necessarily need to have 3G to win," Cole said, adding that there's still plenty of potential in 2.5G and current spectrum. "If you do need it eventually, you can buy it."

Cole also pointed to the mobile virtual network operator model as an alternative to owning spectrum. Companies that model themselves after TRW-owned Dolphin as a "carriers' carrier" could provide a viable business plan.

For now, with high-speed wireless data and wireless Internet just beginning to show their potential, service providers are not likely to risk their last dime for a new slice of spectrum. But then again, the U.S. auctions are still 10 months away.