WASHINGTON-The dust has settled only slightly since the bidding for C-block personal communications services licenses ended May 6 after 184 rounds strung out over 4 1/2 months. The entrepreneurial block saw 15 women-owned companies win 95 of the licenses; rural telcos won 22.
The release of a Federal Communications Commission public notice May 8 triggered when the 89 tentative 30-megahertz licensees must submit down-payments to Pittsburgh’s Mellon Bank (within five business days) and when the detailed Form 600s will be due (within 10 business days).
Providing no petitions to deny are received, licenses could be issued within 90 days; licenses that are withheld for any reason will be re-auctioned “quickly and fairly,” said Wireless Telecommunications Bureau Chief Michele Farquhar.
According to one analyst, the fun is just beginning. Jonathan Foxman of Chantilly, Va.-based BIA Consulting Inc., who helped several clients to success, said, “The burden now is on raising capital and building out the network. If bidders thought getting auction money was competitive, wait until they start going to financial institutions.”
Foxman added that some bidders will end up being sorry they were successful because their initial business plans or due-diligence work will not match up with post-auction realities. If they paid significantly more than anticipated for a market or if their proposed short- and long-term penetration rates don’t pan out, they will have to figure out how investors’ return thresholds can be met.
John DeFeo, head of C-block dropout U.S. AirWaves Holdings Inc., was one of the most experienced bidders to enter the arena, but skyrocketing prices convinced this builder of seven cellular systems not to subject his investors to mountainous debt.
“There was too much demand for too little supply,” DeFeo said. He pointed to the “soft” money that was created by the FCC’s financing structure as one reason prices “went into the ionosphere.” If bidders had been required to deal with real dollars and cents (hard money), things might have been different.
“It was a question of value,” he added. “I have a pretty good idea of the variability of spectrum values and what it costs to build. We had wonderful partners [Hyundai, MCI, Harris, Sony], but when the numbers don’t work, the numbers don’t work. The ratio of spectrum costs to market value must be considered.”
He continued, “Credit in an auction is a narcotic. You’re numb to what you’re really spending.” Because of its lenient payment plans, DeFeo said the commission may end up failing to get what it really wanted from PCS: to establish a competitor to cellular; to create new, high-quality jobs; and to take the speculation premium away from license values.
“Somewhere between budget imbalances, deficits and government shutdowns, raising money became the FCC’s top item,” he told RCR. “The impact of significant credit gave us more applicants and bigger deposits, which told you that this [auction] was going to go way over $5 billion. The economists were in charge. Letting the market decide is a good thing when hard dollars are involved, but not with soft money.”
Partnerships with foreign entities or larger U.S. companies don’t bother DeFeo, nor do any peaks and valleys in foreign ownership during any given auction day. “No complex business can be built without partners,” he said. “Craig McCaw had British Telecom and Ericsson. Until you actually fill in and submit a Form 600, you can be up and down in ownership. You just have to be compliant by the time that form is turned in.”
