T-Mobile, Cable MSOs May Spend on Spectrum

An upcoming spectrum auction is likely to garner multibillion-dollar bids from T-Mobile US Inc. as well as from several non-traditional service providers, and could very well change the power balance in the wireless industry, according to a new report from Lehman Brothers .

The Federal Communications Commission (FCC) plans to start auctioning 90 MHz of "advanced wireless spectrum" in the 1.7GHz and 2.1GHz bands on June 29, in an auction known as Auction 66, covering the majority of the United States. Initial applications are due by May 10, and auction participants will not be able to discuss bids with each other, per a new anti-collusion rule. (See The Sotheby's Method.)

According to the Lehman report, authored by three research analysts, "non-traditional bidders acting alone, or in partnerships with current wireless service providers, will be active in part to change the negotiating dynamics with the national telecom service providers regarding net neutrality." The report predicts technology companies and cable operators will be bidders in the auction.

The report declines to name any specific non-traditional bidders, and the report's lead author declined to talk to the press, citing company policy. But industry observers are watching for participation from technology giants such as Google (Nasdaq: GOOG) or Microsoft Corp. (Nasdaq: MSFT), although neither has voiced public plans. As for cable companies, "the head of Time Warner Cable Inc. (NYSE: TWC) has said that they'd like to be a wireless operator," notes Tole Hart, a research director at Gartner Inc.

Among traditional wireless carriers, T-Mobile US Inc. is likely to be a top bidder, according to the Lehman Brothers report.

"T-Mobile is in the weakest spectrum position of the four national players," the report says, referring to T-Mobile, Cingular Wireless , Verizon Wireless , and Sprint Corp. (NYSE: S). "Consequently, despite management's consistent talking point that 'it will be rational,' we expect T-Mobile to be an aggressive player in Auction 66." The report estimates that T-Mobile will spend as much as $6 billion

T-Mobile declined to comment. A spokesman said that the company is in a quiet period, at least with regard to spectrum plans. But industry observers say that bidding would behoove T-Mobile.

"Clearly T-Mobile is expected to be a large bidder," says Gartner's Hart. "They'll need additional spectrum to roll out UMTS [universal mobile telecommunications system, one of the 3G successors to GSM]. How they do here in this auction will matter. If they can't roll out UMTS, then they might be an acquisition candidate at some point." "I’m sure T-Mo will bid big," says Steven Shaw, director of marketing at Kineto Wireless Inc. , which makes cellular/WiFi convergence hardware for carriers. "They are really spectrum constrained at this point even for basic voice services. With multimedia looming on the horizon, they need to increase capacity to keep up with the inevitable shift to data/multimedia services."

Verizon Wireless is in a better spectrum position, having recently spent $3 billion to acquire PCS spectrum in 23 markets from the bankrupt NextWave Wireless. (See Verizon Buys NextWave Spectrum.) Still, the Lehman Brothers report predicts that Verizon may bid as much as $3 billion in order to stay competitive with other carriers.

Verizon Wireless declined to comment.

Cingular does not have an obvious need to bid in the auction. "We now have the best spectrum situation in the industry," said Kent Mathy, president of Cingular's business markets group, in an interview with Light Reading last month.

Still, Lehman Brothers expects Cingular at least to file for participation in the auction. Sprint Nextel, on the other hand, is not expected to be much of a participant, the report says. Sprint officials have said that the current traffic on the company's network uses only a small percentage of its swath of PCS spectrum in the 1900 range, which it bought in 1995. Furthermore, the company still needs to decide what to do with its spectrum in the 2.5GHz range, which it must use by 2009, per the FCC. (See Sprint Nextel Hunts for 2.5GHz Service.)

The Lehman Brothers report also predicts bids from Leap Wireless International Inc. (Nasdaq: LEAP) and Metro PCS, as well as several rural regional carriers.

— Carmen Nobel, Senior Editor, Light Reading

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