These days, the country’s hottest auction is not at Sotheby’s or Christie's. It's the Federal Communications Commission's auction of the 700MHz frequency currently used by TV broadcasters.
It’s likely to be the last wireless spectrum auction of its kind for some time and has drawn
considerable interest—despite the questionable economy—with bids climbing to nearly double the FCC’s original $10 billion reserve price.
Commission Chairman Kevin J. Martin calls that a tremendous success," but is quick to add the auction is not really about filling government coffers.
“First and foremost,” says Martin, “we are trying to ensure the spectrum is used efficiently and the public interest is served."
The auction is a result of the government's previous decision to eliminate analog TV as we know it. On February 17, 2009, analog TV, the television signal received over the airwaves by antennae and rabbit ears, will cease to exist and the 700MHz frequency used to transmit it will become available to telecom providers.
The fight for a piece of this spectrum has been such a super-secret, tactical affair that many companies have hired consultants who specialize in these types of auctions, says Nadine Manjaro, senior analyst for wireless infrastructure at ABI Research.
A total of 214 bidders qualified for the auction, which has been going on since January 24th and is finally nearing an end. The list includes telecom giants such as Verizon and AT&Tas well as less obvious players, such as Chevron, a subsidiary of Cox Communications and Vulcan Spectrum, a company owned by Microsoft co-founder Paul Allen.
What's At Stake
Here's what they're fighting over.
The 700MHz spectrum is being sold in five blocks, all offering a different spectrum and with different reserve bid requirements.
A Block—Speculation is that a single bidder has scooped up both the A and B blocks. Bidding on the A block has dwindled to nothing, while bidding on the B block has slowed to a trickle.
B Block—The bidding is winding down and it appears smaller players are dropping out for both the A and B blocks.
C Block—This commercial block is the one Googleis believed to have wanted and where Verizon and AT&T are believed to be filling out their spectrum. Companies can bid on the licenses contained in this grouping individually or as a package that covers the entire U.S. Bidding on individual licenses allows carriers to enhance coverage in certain regions.
D Block—This block covers the entire country and is currently reserved exclusively for public safety use. The winner is expected to build out a nationwide network for first responders. Alas the cost for such a network could reach an estimated $10 billion. That makes even a 50-50 public-private partnership an extremely expensive proposition. It’s also why current bidding is only around $472 million.
So what happens if the bids don’t meet the reserve price? Analysts believe the FCC could change the rules to eliminate the public safety requirement, have Congress authorize funding for the network or just allow multiple companies to bid and build it out.
E Block—The bad news for bidders is that this block is unpaired, which means the buyer can transmit but not receive. The good news: It’s an ideal spot for a bidder that wants to provide, say, mobile TV services.
The list of winners will be released ten to 15 days after the close of bidding. Look for the winners to offer mobile TV and other service enhancements up front. Just the same, it’s too early to speculate whether this auction is actually going to bring about a sea change in the wireless world, says Manjaro.
Winners And Strategies
If Cox or Vulcan are among the winners, there is a huge opportunity to change the market in the same way Apple’s iPhone changed mobile devices. If Cox wins, for example, the company has an opportunity to offer wireless services that transit video now only available via a cable box.
If Microsoft co-founder Paul Allen wins, there’s speculation he could do a deal with his old friends in Redmond.
There was speculation early in the bidding that Google would try to grab the entire C Block, which would give it nationwide coverage for a network. It’s widely believed the company bid $4.7 billion for the entire block, but that was less than the combined value of the bids on an individual basis, thanks partly to Verizon and/or AT&T.
Qualcomm,which already supplies video services to Verizon through its MediaFlo service, is thought by analysts to be bidding on the E block, so it can enhance its existing service.
If Verizon wins, it may want to create its own video network, rather than pay Qualcomm a fee for each video download. It could also leverage its telephone network, wireless network and its new FiOS digital television network to reduce redundancies.
For AT&T, video is currently not generating much in the way of revenue, but when you consider how much the company paid for Aloha Networks ($2.5 billion), it’s clear the company believes money will be there.
The Aloha acquisition gave AT&T coverage in 72 of the top 100 U.S. markets, including the top 10, so it’s likely AT&T bid on individual licenses to fill in the gaps.