Spectrum auction falls short of expectations

The FCC's Auction 58 ended Tuesday with more of a whimper than a bang as the 242 wireless spectrum licenses up for grabs ended up drawing $2.25 billion in total bids, well shy of the $3 billion to $3.5 billion range anticipated by analysts.

Auction 58 came to a close following three weeks and 91 rounds of bidding, again making available licenses that were returned to the FCC by previous auction winners. MetroPCS partner Royal Street Communications made the most noise, bidding $387.4 million for six licenses in the 1.9 GHZ spectrum band including a $374.5 million bid for a 10-MHz license covering Los Angeles, the single-highest bid for a particular market.

Between bidding partners CellCo Partnership and Vista PCS, Verizon Wireless spent in excess of $697 million for 63 licenses, including $142 million for spectrum in St. Louis, the second-highest amount for a single license.

In a research report summarizing the events of Auction 58, Merrill Lynch analyst David Janazzo writes, "We think that the lack of aggressive bidding overall supports our view of an improving U.S. wireless market structure, due in part to the consolidation that is underway, along with solid underlying growth. Another factor is potential spectrum supply coming to market from late 2005 through 2007."

Prior to the auction, Merrill Lynch projected a bid tally well in excess of $3 billion, attributing the final $2.25 billion total in part to the maneuvers of T-Mobile USA, which spent $235 million. "The biggest surprise remained T-Mobile USA's conservative approach toward the bidding," Janazzo writes. "We think that the auction results may be another indication in a series of events that increasingly brings into question the end game for T-Mobile USA. With the RBOCs in control of the top 2 wireless operators, the wireless alternatives for Vodafone and the cablecos are the new Sprint Nextel and T-Mobile USA."