Big Guns Dominate Spectrum Auction

Six weeks after the Federal Communications Commission (FCC) began auctioning off a huge new batch of wireless spectrum, T-Mobile US Inc. , Verizon Wireless , and a consortium of Sprint Corp. (NYSE: S) and leading cable operators have emerged as the biggest winners.

Cingular Wireless and MetroPCS Inc. (NYSE: PCS) also scored highly in the FCC's 66th wireless spectrum auction, which sold off a total of 1,087 radio spectrum licenses to 104 bidders. The auction, which closed after 161 rounds of bidding Monday, raised nearly $13.9 billion for the U.S. Treasury. The Commission will hold onto another 35 licenses that attracted no bidders and put them up for sale at another time.

In a statement issued late yesterday, FCC Chairman Kevin Martin referred to the spectrum sale as "the biggest, most successful wireless auction in the Commission's history." He said he was "particularly pleased" that small businesses won more than half of the licenses.

Despite Martin's emphasis on the smaller winners, it was the big guys who spent the most and took home the most sought-after spectrum in the auction.

T-Mobile USA -- which desperately needed fresh spectrum to upgrade its network to 3G services and compete against larger wireless rivals Verizon Wireless, Cingular, and Sprint -- captured 120 geographic licenses in the continental U.S., Hawaii, Alaska, Puerto Rico, and the Virgin Islands, mainly scoring in the cellular market area. The company ended up shelling out nearly $4.2 billion for the licenses, more than $1.4 billion higher than the second biggest spender, Verizon Wireless. While that seems like a massive outlay, some analysts thought T-Mobile would bid as high as $6 billion to get the new spectrum it needs. (See T-Mobile Bids $4.2B and T-Mobile, Cable MSOs May Spend on Spectrum.)

T-Mobile said its new U.S. licenses cover such major markets as New York City, Los Angeles, and Chicago. The carrier, owned by Deutsche Telekom AG (NYSE: DT), also picked up licenses for Miami, Detroit, Houston, Boston, Phoenix, San Antonio, Seattle, San Francisco, San Diego, Atlanta, and Cleveland, among other large metro areas.

Verizon Wireless, jointly owned by Verizon Communications Inc. (NYSE: VZ) and Vodafone Group plc (NYSE: VOD), spent slightly more than $2.8 billion for just 13 wireless licenses. But several of the "regional economic area" licenses cover large swaths of the nation, including the Northeast, Southeast, Great Lakes, and Mississippi Valley areas, as well as Honolulu.

Verizon spokesman Jeffery Nelson says the bidders are in a 10-day post-auction quiet period, and so declined comment.

The Sprint/MSO consortium -- a group that includes cable companies Comcast Corp. (Nasdaq: CMCSA, CMCSK), Cox Communications Inc. , Time Warner Cable Inc. (NYSE: TWC), and Bright House Networks -- pledged nearly $2.4 billion for 137 licenses, the second highest amount won by one bidder.

The consortium, which bid under the name SpectrumCo, focused on gaining licenses in the major markets of its four MSO partners, including New York, Los Angeles, and Dallas for Time Warner; Atlanta, Chicago, Denver, Philadelphia, Detroit, Washington/Baltimore, and Miami for Comcast; Phoenix, Las Vegas, and northern Virginia for Cox; and Tampa and Orlando for Bright House.

The consortium has been working on the potential of combined cable and wireless services since late 2005, and, using Sprint's nationwide cellular network, the four MSOs are currently preparing to launch some limited mobile multimedia services later this year. (See Cable Firms, Sprint In FMC Deal.)

Now market analysts say the Sprint/MSO alliance has tentatively assembled more than enough 15-year licenses to compete nationally in the wireless space with Verizon, Cingular, and T-Mobile. They also note that SpectrumCo could always pick up more markets by striking deals with other winning bidders now that the auction has finally closed.

"I think [Sprint and the MSOs] have to be thrilled with what they're coming away with," says Sharon Armbrust, a senior analyst with Kagan Research LLC . "They've got probably two-thirds of the country with the major markets."

Other cable-backed players also grabbed significant slices of the new wireless spectrum.

For example, CableOne , a large MSO owned by the Washington Post Co., placed the top bids for 30 metro or regional market licenses, the eighth biggest haul in terms of license numbers. But CableOne, which mainly serves smaller markets, only needed to bid $22.1 million to snap up that spectrum.

Dallas-based MetroPCS paid almost $1.4 billion for 13 licenses, including wireless coverage of New York, Detroit, Dallas, and Las Vegas. The operator, which provides wireless service to roughly 2 million people today, also won the licensing rights to such large regional areas as the Northeast and the West.

Cingular Wireless, co-owned by AT&T Inc. (NYSE: T) and BellSouth Corp. (NYSE: BLS), bid $1.3 billion for 48 new licenses. Cingular, the biggest U.S. wireless provider by subscribers, gained licenses for such large markets as Los Angeles, Boston, Washington/Baltimore, Orlando, Miami, Atlanta, Chicago, Tampa/St. Petersburg, Minneapolis, and Kansas City, among others.

The company that secured the greatest number of licenses, with 154, is AWS Wireless . But It spent just $116 million, as it mainly snapped up spectrum in much smaller metro areas than the large wireless and cable companies.

— Mark Sullivan, Reporter, Light Reading, and Alan Breznick, Site Editor, Cable Digital News

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