Hello! And welcome to our Friday column, Worst of the Week. There’s a lot of nutty stuff that goes on in this industry, so this column is a chance for us at RCRWireless.com to rant and rave about whatever rubs us the wrong way. We hope you enjoy it!
And without further ado:
I have gone on record numerous times as saying I am a huge fan of spectrum auctions. Huge. Fan.
All that money being thrown around by companies with lots of money (in most cases … cough, cough … NextWave) on something that can’t even be seen is just awesome.
As such, you would think that the amount of money being thrown around as part of the Federal Communications Commission’s Auction 97 would have me in a lather. Instead, the bidding frenzy has me a bit worried. Sure, the now tens of billions of dollars being offered up does play into my previous statement of seeing tons of money thrown at something that can’t be seen, but this auction is perhaps getting out of hand here pretty quick. I mean, Brick killed a guy with a trident!
It all seemed to start off innocent enough with $1.8 billion in total potential winning bids rolling in during the first round. Nothing too out of the ordinary there as I am guessing some of the players were looking to establish their presence early and there was probably some of that “dropping the flag” euphoria that kicked in as well.
However, that euphoria seemed to have some addictive properties as the bidding just seemed to continue building through the whole first week. It was like no one was getting tired, or at least the magnetic strips on their credit cards were holding tough.
After just four days and 13 rounds, total winning bids on the 65 megahertz available surpassed the auction’s $10.6 billion reserve. A few rounds later and Auction 97 had surpassed the $13.7 billion generated during Auction 66 in 2006, which had 90 megahertz of spectrum in the same bands. That auction took 161 rounds to hit that mark.
And, before the fifth day of bidding was done, Auction 97 had surpassed the previous record high of $19.6 billion recorded in 2008’s Auction 73, which for those who forgot included 52 megahertz of spectrum in the “beach/ocean front” 700 MHz band. That auction also required 261 rounds of bidding spread across 38 days before the money stopped flying.
To further highlight the feeding frenzy, Stephen Wilkus from Spectrum Financial Partners noted that at the end of round 23 the 20-megahertz license covering an economic area centered on New York City was fetching more than $1.7 billion. A similarly sized license in Auction 66 topped out at $468 million. Somehow, the value of airspace over New York City has more than quadrupled in eight years.
Maybe I went into this thing with certain expectations that were out of whack. I mean, seeing the FCC put down a $10.6 billion reserve price for a mere 65 megahertz of spectrum seemed like a reasonable amount of money to be raised. Sure, some had estimated the auction could raise up to $18 billion, or maybe even $20 billion, but those were sky-high estimates that seemed out of hand considering the spectrum up for bid.
The best part of this chaos is that we have no idea who is actually bidding what in the proceedings, thanks to the FCC’s “buzz kill” rule that keeps those identities secret until the auction ends. This has left us to just guess as to who the hell is driving this madness. With this much money being spent there can only be a few players with deep enough pockets to play at this high-stakes game. Right?
And, this auction madness only portends to what may happen should the FCC ever figure out how to put together spectrum for the 600 MHz incentive auction. With expectations of more than 70 megahertz of paired spectrum eventually being put up for what is seen as even more valuable spectrum (over-water front?), what’s to say that bidders don’t put up more than $50 billion in that auction. That sort of potential payday should help loosen the grip of some broadcasters still trying to be convinced to re-adjust their business models.
Of course, that sort of prediction is based on the hopes that Auction 97 does not end up bankrupting some participants, or at least severely curtailing their disposable income. I can see some players coming out of this thing somewhat shell-shocked as to what the hell just happened.
I can only guess that the current $1 billion-plus-per-round pace the auction has generated so far cannot be sustained for too much longer. But, even if it backs down to around $500 million per round for a week or so, we are looking at some serious green being thrown at some serious clear blue.
In the meantime I will try to maintain my auction enthusiasm, but I gotta say that at the moment it’s taking some serious concentration to keep an even keel.
OK, enough of that.
Thanks for checking out this week’s Worst of the Week column. And now for some extras:
–One company that is sure to be seeing dollar signs related to the Auction 97 madness is Sprint. (Wow, that felt strange to type.)
First of all, Sprint is not participating in the auction and is thus able to avoid the mass-hysteria that has obviously infected the current participants. For a company with literally no money to burn, not participating is a good thing.
Second, if spectrum has become this valuable, then all that 2.5 GHz spectrum Sprint is sitting on must be a gold mine. Sure, the 2.5 bands are not as attractive as the 1.7/2.1 GHz bands that are currently in play, but even if it’s worth half as much, that has got to be good news for Sprint and its parent company Softbank.
Sprint has for years toyed with the idea of selling off some of its 2.5 GHz holdings, which in some markets totals more than 150 megahertz. Recent news from Sprint has indicated that the company could be looking at using up to three 20-megahertz channels in that band to support its Spark program, which could provide consumers with network speeds approaching 100 megabits per second.
Even if Sprint wanted to hold onto 100 megahertz in each market, that gives Sprint something like 50 megahertz of excess capacity, which could be worth a pretty penny. And, I would think Sprint is looking after every penny.
–Finally, Ericsson this week unveiled its latest “Mobility Report,” which claims that 90% of the world’s population over the age of six will have a mobile phone by 2020. Perhaps tied into all this auction craziness, Ericsson also claims that mobile video traffic will increase tenfold by 2020, making up 55% of all data traffic.
Last year, Ericsson predicted that worldwide mobile subscribers will hit 9.3 billion by 2019, with 60% of those customers using a smartphone, which will in turn increase smartphone-generated traffic 10-times between 2013 and 2019.
I have always found these reports to be interesting, not so much in the general gist of their findings (which are also obviously good for equipment vendors, like, say, Ericsson), but into the amount of detail that is provided. I mean, actually putting down specific numbers to these predictions in a move to show some serious authority on the matter. Plus putting down the numbers is like feeding raw meat to us hungry media types who, while being afraid of all numbers – thus our preference for letters – can’t seem to get enough of them.
So, well done Ericsson. Putting up a headline that reads “90% of the world’s population have a cell phone by 2020,” reads much better than “People like cell phones … a lot.”
I welcome your comments. Please send me an e-mail at dmeyer@rcrwireless.com.
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