Morale hazard

So it was on a sunny, wickedly windy day last Thursday that identities of winning 700 MHz bidders roared out of the Federal Communications Commission, ending with anticlimactic suspense an auction that began strong only to limp along for weeks.
The FCC rightly deemed the auction a success on several fronts: a record $19.6 billion in revenue, an open-access condition on one-third of the spectrum and the infusion of some new blood in the wireless space. The downside was the shunned national commercial/public-safety D Block and the absence of a new national mobile-phone or wireless broadband player. The 700 MHz saga will now enter a new phase: probes and congressional oversight on the D Block and lots of armchair quarterbacking.
And then there’s this sobering reality: paying for licenses and capital spending for building new networks and expanding existing ones.
One has to hope 700 MHz bidders have been keeping abreast of current events. It’s rough out there. Where’s credit going to come from? How hard will it be to get it? Sure, the Federal Reserve boldly stepped in to stave off a catastrophic credit crisis, but is the worst over, or might the Fed have simply delay the inevitable? The signs do not look promising.
“Recent information indicates that the outlook for economic activity has weakened further,” said the Federal Reserve after it cut a key interest rate by three-quarters of point last week. “Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.”
While the wireless industry, like other U.S. business sectors, is not immune from macro economic forces, the public’s love of cellphones should soften the blow if the economy continues to go south.
But capital expenditure is another matter, one even more acutely tied to financial markets. Markets – here and abroad – are apt to be volatile in coming weeks and months. It’s a reality that confronts new 700 MHz players as well wireless companies that either didn’t bid, or may have been lucky enough to lose.
There are only so many government bailouts to go around. Too bad for Sprint Nextel, Motorola and others on the ropes.