Bidding in the government’s auction of advanced wireless services spectrum is set to start Wednesday, but the jockeying and speculation has already begun as satellite and cable consortiums set themselves up to do battle with traditional wireless carriers for airwaves.
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The largest upfront payment of nearly $1 billion came from Wireless DBS L.L.C., which is backed by EchoStar (provider of DISH Network satellite television), DirecTV and Rupert Murdoch’s Newscorp. Sprint Nextel Corp.’s joint venture with four cable companies ponied up the second-largest amount at about $640 million. T-Mobile USA Inc. forked over the third-largest upfront payment, followed by Cingular Wireless L.L.C., Verizon Wireless, Leap Wireless International Inc. and MetroPCS Communications Inc.
The auction is expected to last several months and includes 168 qualified bidders, with about 100 of those being designated entities, which receive bidding discounts. The upfront payments determine how many licenses each company will have the right to bid on. Estimates for how much the auction could raise for the federal government has ranged from around $13 billion or so to almost $30 billion. The auction must raise a minimum of about $2 billion to meet a pre-determined reserve price plus the cost of relocating federal entities that today use the soon-to-be auctioned spectrum.
Several analysts noted with surprise how interested the satellite and cable companies appear to be about bidding on a wide swath of spectrum.
As it stands, satellite companies offer service that is often part of a bundle of voice, Internet access and video-but they have to share revenue with the telecom companies such as AT&T Inc. and Qwest Communications International Inc., noted Jimmy Schaeffler, senior analyst for the Carmel Group. The satellite companies essentially are piggy-backing on telecom service when they’d rather be controlling the bundle, Schaeffler added.
“Their fates and fortunes right now are controlled by their telephone partners,” Schaeffler said. “They have to get into that marketplace. The thought is, the way they do that best right now is by adding to their infrastructure-and the first step toward doing that is getting spectrum.”
Schaeffler went on to say that “ultimately, what they want to be able to offer people is telephone service that they control, a two-way Internet broadband service that they control and a video service that they control.”
Adam Zawel, moderator of INMobile, an online discussion forum for wireless executives, theorized that the additional spectrum could be used to provide a backlink that would make satellite TV more interactive. Satellite service has limited two-way capabilities, and a wireless backlink would provide future services such as allowing customers to click on an advertisement and order the associated product or service.
Meanwhile, Zawel said, cable companies are more likely to be focused on expanding their data services into wireless so that a customer could access the Internet around town as well as in the home.
Sprint Nextel also announced last week that it was expanding its wireline telephone agreement with cable provider Time Warner and accelerating its implementation of CDMA2000 1x EV-DO Revision A technology in its wireless network. The carrier said it expects to start rolling out the higher-speed Rev. A upgrades beginning in the fourth quarter and plan to cover an estimated 40 million people by the end of the year.
T-Mobile USA, which has a relatively thin spectrum portfolio compared to its rival nationwide carriers, put up the largest upfront payment among traditional wireless operators at $584 million and is expected to be an active player. T-Mobile USA has run some small trials of 3G services and has said that it is aiming for a commercial rollout of advanced services in the latter part of this year and early 2007.
Zawel also noted that wireless companies that offer higher-minute plans or unlimited voice plans, such as T-Mobile USA and smaller carriers MetroPCS and Leap, will need additional network capacity to support the healthy calling habits of their subscribers.
Leap executives were circumspect about auction plans during a conference call with analysts last week. However, Doug Hutcheson, Leap’s president and chief executive officer, did note in a company statement that the company believes “that the spectrum available in the auction presents interesting prospects for expansion into markets that offer the potential for good returns for the business and our stockholders.”
Bear Stearns telecommunications analyst Phil Cusick backs those claims noting that MetroPCS and Leap are likely to use the auction to support “major expansions of their footprints.”
In addition to its own bids, Leap is backing DE bidder Denali Spectrum License L.L.C.
Cingular is also expected to be a bidder to watch, with an upfront payment of $500 million. Verizon Wireless is hanging on with the fifth-largest upfront payment, Cusick noted in a research report that “Verizon’s role appears to be an opportunistic player, not to let spectrum go cheaply.”
Zawel pointed out that with mobile virtual network operators increasingly being seen as posing little menace to traditional wireless carriers, cable and satellite providers are one of the few potential competitive threats to those companies.
Among those in the wireless industry, “there is some fear of the unknown, and depending on your position, some hope that it can help” in encouraging wireless companies to look with more interest at convergence, Zawel said. “The wireless guys are telling their parent [companies], `Leave me alone, leave me alone,”‘ Zawel added. “But that might not be the same tune forever-and not just because they get tired of saying it, but because at some point, convergence might make sense.”
