Unless there is court action, a government shutdown or some cataclysmic event, the auction of C-block broadband personal communications services licenses is scheduled to begin today.
Thirteen bidders have made double-digit, multimillion dollar upfront payments, indicating the seriousness with which some are approaching the opportunity. The Federal Communications Commission said 254 applicants have qualified to bid; the entities deposited $767 million with the FCC in upfront payments.
“This auction has the potential to raise the most funds to date for the U.S. taxpayer,” said Michele Farquhar, chief of the FCC Wireless Telecommunications Bureau. Last year’s auction of broadband A- and B-block licenses brought in nearly $8 billion in total license payments.
The FCC is offering 493 licenses for basic trading areas throughout the United States and its territories. The process will be simultaneous multiple round bidding, which allows bidders to bid on all individual licenses at the same time. The PCS spectrum is in the 1895-1910 MHz and 1975-1990 MHz bands.
The auction originally was scheduled to be held in the spring of this year, but has been held up by numerous legal actions. A motion by Radiofone Inc. to find the FCC in contempt of court is currently pending in the U.S. Court of Appeals for the Sixth Circuit and the auction could be interrupted by action on that front.
Also pending is a complaint filed against the FCC in U.S. District Court for the Eastern District of Louisiana by United Wireless L.L.C. of New Orleans. United Wireless is asking for damages, claiming it had raised the capital needed to bid in the C-block auction, but investors pulled out their money following the Nov. 14 government shutdown, which delayed the auction for at least the third time.
Analysts expect the pockets of many bidders to be deep, considering the government is providing 10-year financing for the winners. “With the government involvement, you don’t need a lot of money to have a lot of purchasing power,” said Charlie Diao, managing director and head of telecommunications and media for Prudential Securities investment banking group.
Entities that aren’t tied to existing licensees-such as U.S. AirWaves Inc., GO Communications Inc. or NextWave Personal Communications Inc.-may find more bargains than entities tied to existing operators because their money can seek opportunities where they lie, the value of licenses being relative and fluid, Diao said.
Bellevue, Wash.-based U.S. AirWaves made the largest upfront deposit of the prominent players, more than $81 million, making the company eligible to acquire the maximum of 180 million pops. U.S. AirWaves has formed a PCS alliance with Motorola Inc. to use Code Division Multiple Access technology, and has nonbinding letters of intent to work with other C-block participants such as West Coast PCS of Roseville, Calif., and Iowa L.P. of Sioux Center, Iowa.
Craig McCaw, the wireless mogul who was a wild card in the previous broadband auction, isn’t far removed from the current auction. McCaw’s Eagle River investment group is reportedly in negotiations with C-block player PersonalConnect Communications Inc. to take up to a 25 percent minority position. PersonalConnect filed a $30 million upfront payment with the FCC. The Seattle-based entity is led by Tom Alberg, formerly of Lin Broadcasting Corp.; McCaw sold his 52 percent investment in Lin to AT&T last year.
Auction players are an interesting mix of buyers, many with reasonable and rational investment approaches, said Holt Thrasher, of Broadview Associates L.P. of Fort Lee, N.J., an investment bank focusing on mergers and acquisitions in the information technology industry.
“There is a lot of uncertainty, for instance, about who is participating and backing whom, and that can change. The attractiveness of markets in the communications industry is an evolving thing because prices change, incumbents change and agreements change. Pricing strategy is probably updated daily, if not hourly now,” Thrasher said.
Some bidders seek specific markets, thus a portion of their money will be tied up and targeted for that use, Diao said. Entities bidding with the backing of current PCS and cellular license holders may be trying to snap up licenses that will fill holes in current cellular or future PCS operations, analysts said.
“But they don’t have to fill in holes by owning everything. They could establish roaming relationships,” Diao said.
Uncertainty about future alliances is a prominent feature of this auction, said Prudential research analyst Michael Elling. “The investor groups backing these DEs know who they intend to ally with eventually, so they are buying into the whole group. But it’s not known who some of the smaller players will partner with down the road. There are a lot of moving pieces here,” Elling said.
Texas-based General Wireless is bolstered by the expertise of Roger Linquist and Malcolm Lorang. Linquist, a physicist, who once served with Pacific Telesis Mobile, co-founded PageMart Inc. and remains a PageMart shareholder and a member of the PageMart board of directors; Lorang was PageMart’s vice president of engineering when the network was launched in 1989 and has a background in the aerospace industry. Analysts expect General Wireless to select the Global System for Mobile communications protocol.
Loose coalitions have formed behind certain technologies. For instance, licensees that select GSM are expected to pool their efforts in marketing and possibly branding.
Another type of alliance also is prominent-entities bolstered by arrangements with colossal U.S. wireless entities. According to C-block auction rules, about 50 percent of the bidding company must qualify as a small business and is deemed to be the “control group.” That means that 49 percent partners or passive investors can be established telecom players with money and motive.
A prime example of this is C-block bidder Cook Inlet Region, an Anchorage, Alaska-based firm owned by 6,700 American Indians, of which 53 percent are female. Cook Inlet is bidding as the leader of two important alliances-Cook Inlet BellSouth PCS L.P. and Cook Inlet Western Wireless PV/SS PCS L.P.
The entity names tell the story. BellSouth Personal Communications Inc., the PCS arm of BellSouth Corp., owns 49.9 percent of Cook Inlet BellSouth; Western Wireless Corp. owns 49.9 percent of Cook Inlet Western Wireless, which filed a $14 million upfront auction payment. BellSouth and Western Wireless both own cellular and PCS properties throughout the United States.
AT&T Wireless Services-far from a small business-owns less than 20 percent of C-block bidder PriCellular Wireless Corp. But AT&T said it is not involved in the C-block auction and it won’t be helping PriCellular with the auction, according to AT&T Wireless spokesman Todd Wolfenbarger. AT&T Wireless acquired Craig McCaw’s investment in PriCellular when it purchased McCaw’s wireless network a year ago; AT&T has a seat on the PriCellular board of directors. New York-based PriCellular has been steadily buying cellular rural service areas and small metropolitan statistical area properties for the last 18 months.
Bidder AirLink L.L.C., which filed a $20 million upfront payment, may represent an attempt by Canadian groups to get into the U.S. PCS market, analysts say. AirLink is funded by venture capitalists, supported by Canadian wireless groups BCE Mobile and Bell Canada Enterprises, and is expected to use GSM technology, according to the Yankee Group.
Other venture capital-funded groups that have expressed serious intent include Telecorp Inc. of Arlington, Va., which is expected to use CDMA technology and possibly ally with large CDMA operators such as the Sprint Telecommunications Venture, the Yankee Group said.
On a relative basis, the C-block auction could bring in as much money or more than the A- or B-block auction a year ago, analyst Elling predicted. The bid
s will be high if nationwide license holders and small partners see certain BTAs as components crucial to building a ubiquitous network. “But if it’s just entrepreneurs with local or regional plans, I see it bringing in only about $3 billion,” Elling said.
