The Federal Communications Commission’s attempt to auction 242 spectrum licenses in the 1.9 GHz spectrum band as part of Auction 58 got off to a modest start last week with just more than $1.4 billion in bids placed for 201 of the licenses after 11 rounds. Five of the original 35 bidding entities had already dropped out of the bidding by the end of the week, while 41 licenses had not received any bids.
Despite a questionable financial position, regional wireless operator MetroPCS Inc.’s bidding partner Royal Street Communications L.L.C. was the leading financial bidder with $384.8 million in total high bids for licenses covering five markets.
MetroPCS was forced to withdraw plans for an initial public offering last summer due to questions about previous financial statements, and in its previous incarnation as General Wireless Inc. was one of the first companies to file for bankruptcy protection following the FCC’s initial attempt to auction PCS spectrum in the mid-1990s.
Royal Street’s standing high bids included a $374.5 million bid for a license covering Los Angeles, which was also the highest single bid for any license. Analysts had expected the 10-megahertz Los Angeles license to garner strong interest and the highest bid as it covers the nation’s second-largest market.
Verizon Wireless, which many analysts expect to be active in the auction, posted the greatest number of high bids with 49 licenses split between its Vista PCS L.L.C. and Cellco Partnership bidding partners for a total of $318.6 million. The high bids included $90.9 million for a license covering Houston; a $30.2 million bid for a license covering Seattle-Tacoma, Wash.; and a $25.9 million bid for a license covering Cleveland-Akron, Ohio.
Verizon Wireless also bolstered its spectrum holdings last week through a pair of acquisitions. The carrier signed a definitive agreement to purchase St. Cloud, Minn.-based Cellular 2000 of St. Cloud along with its cellular license covering 250,000 potential customers and serving 42,000 subscribers for an undisclosed amount.
Verizon Wireless also signed an agreement to purchase 10 spectrum licenses in the 1.9 GHz band from Urban Comm-North Carolina for $68.5 million. The deal includes 10-, 20- and 30-megahertz spectrum licenses covering 3.9 million pops in parts of North Carolina, including several markets where Verizon Wireless does not offer service.
T-Mobile USA Inc. posed one of the early auction surprises by not going after licenses in the Carolinas, where it currently lacks any spectrum holdings. The lack of initiative fueled speculation that T-Mobile USA was interested in acquiring Triton PCS Holdings Inc., which controls an average of 30 megahertz of spectrum across the Carolinas and recently gained its independence from AT&T Wireless Services Inc. following its acquisition by Cingular late last year.
Five bidders, two of which were Leap bidding partner Alaska Native Broadband 2 License L.L.C. and Midwest Wireless’ bidding partner Switch 2000 L.L.C., had dropped out of the auction by the end of last week.
“Based on auction filings and initial bidding patterns, we are increasingly viewing this particular auction as a manner in which several carriers may try to fill select license needs-without necessarily being hyper competitive,” Merrill Lynch wrote in an early auction research note.
Merrill Lynch also noted that the bidding could be less aggressive than previous auctions as several additional spectrum supplies are expected to come to market during the next several years. The firm cited possible auctions including 20 megahertz of spectrum in the 1.9 GHz to 2.1 GHz bands later this year and 90 megahertz of spectrum in the 1.7 GHz and 2.1 GHz bands in either late 2006 or early 2007.
Analysts predict the auction could end as early as next week and generate total bids between $3 billion and $3.5 billion.
