WASHINGTON-While no notice of proposed rulemaking is pending regarding the start and parameters for the next round of paging and narrowband personal communications services auctions, the wireless industry does need to gear up for the continued transition from free to paid licenses. Some changes have been made in the auction process, with new rules that give the Federal Communications Commission a generic laundry list of procedures from which to pick and choose. But there is a chance that those changes may hinder rather than promote competition.
Potential bidders need to bone up on strategies for three different types of auctions: simultaneous multiple-round bidding that uses remote and/or on-site bidding; sequential multiple-round auctions that use either oral ascending, remote or on-site bidding; and simultaneous multiround auctions that incorporate remote and/or on-site electronic and sealed bids. There will be no entrepreneur’s block in the coming auction, and the commission has proposed to limit eligibility for bidding credits and installment payments to small businesses.
Bidders also will have to submit both upfront and down payments by wire transfer only; no cashier’s checks will be accepted, as they have been in the past. Winning bidders now have 10 days to make down payments, instead of the former five, triggered by the release of a public notice declaring winners. In addition, any winner of paging licenses will have to “execute a promissory note and security agreement” to the FCC, just like he or she would have to at a bank or other lending institution.
With the recent close of the Wireless Communications Services auction, it appears that the heyday of high prices paid for gaining market presence is over. That auction, concluded April 25, only brought in a little more than 1 percent of its projected final net revenues. Revenues gained in the D-, E- and F-block PCS auctions also were lower than expected overall, although some F-block properties went for high stakes mainly because of installment payments. Those looking to either augment paging and narrowband PCS concerns or who are looking to enter the industry for the first time are coming in more savvy and with more information than did those during the first attempts at bidding. While the commission continues to state that auctions are not about making money but rather were authorized to get licenses into the hands of those who value them the most, Congress and the Clinton administration have depended on auction revenues to offset budget deficits.
It’s almost a sure bet that prices for the remaining paging and narrowband licenses will be greatly reduced due to competition in the marketplace, a better knowledge of true market values and the realization that outside funding probably won’t be available to build out additional sites. These three factors also may discourage many smaller players from entering the fray, even though the commission believes “narrowband PCS to be less capital-intensive than broadband PCS, making it more likely that small businesses, for example, can acquire the financing to win these licenses, particularly for major trading areas … We also point out that our partitioning proposal could provide for designated entities to acquire narrowband PCS licenses post-auction.”
The glut of spectrum that will be offered for sale may not bode well for the public interest, something that the FCC is sworn to preserve. “Wall Street is taking money out of the industry, maybe because there is too much competition out there,” said Gerry McGowan, a partner in Lukas, McGowan, Nace and Gutierrez. “The FCC paid no attention to the D-, E- and F-block auction. And here we have the second-largest paging carrier-MobileMedia-bankrupt even before the C-block PCS players have gotten started. Carriers can’t even get a chance to enter the market before new spectrum is auctioned, and manufacturers have just now begun to deliver equipment.”
McGowan doesn’t know who will apply for paging and narrowband PCS auctions; many of the big players have reached or are close to the spectrum cap, and smaller players just don’t have the money. He also noted the FCC’s perceived habit of changing the rules mid-stream.
“People make business plans to raise money, they get some money and then the commission changes the rules,” he said. “What Wall Street wants is certainty. It is willing to take a risk, but not this much.” Congress and the White House also have been giving mixed signals to the commission, causing it to waver between trying to promote new services at the best price and raising money for the Treasury.
The prospect of large companies-including MobileMedia, Pocket Communications Inc. and NextWave Telecom Inc.-that had been successful in raising real money and still could fail, may contribute to a lack of auction participation in the future. McGowan views this as being diametric to what auctions were supposed to do-spur competition and allow new players a chance to enter a lucrative arena.
“The paging industry was founded by thousands of small carriers, but now there is no role for them,” McGowan added. “All entry-level positions have been taken. Is that in the public interest?”
