Auction Highlights US Spectrum Squeeze
By Carlo Longino, Fri Jan 28 23:30:00 GMT 2005
The high early interest in an FCC spectrum auction that kicked off this week highlights operators' need for spectrum to sustain their growth.
Many US operators are still showing high growth rates, but they're also feeling constrained by the amount of spectrum they own, particularly as they roll out high-speed data services. Both Cingular's buyout of AT&T Wireless and Sprint's purchase of Nextel were partly motivated by a desire to grab more spectrum, and T-Mobile USA said recently it had pushed back its 3G rollout until 2006 because it doesn't have enough. So it's no surprise there's been a lot of interest in the FCC spectrum auction that began earlier this week, with the amount of bids already over $1.5 billion dollars for the 242 licenses up for grabs.
US spectrum licenses are split up via city or area and by frequency, a policy that's resulted in operators having a patchwork quilt of coverage and capacity across the country -- often having plenty in one city, but little or none in the next. For example, T-Mobile and pre-merger Cingular had a network-sharing agreement that gave Cingular access to New York City and T-Mobile a network in California and Nevada, areas the companies couldn't have served on their own. Many of the licenses on offer are for rural areas and smaller cities, so it's perhaps then no surprise that prepaid no-frills operators Metro PCS and Cricket are active bidders, though Metro PCS has made the largest overall bid -- almost $375 million for a block in Los Angeles.
It takes a guide to decipher the auction results, thanks to FCC rules that give discounts and other advantages to small companies that bid. The major carriers then either partner with small firms, or create their own, to take advantage. So "Royal Street Communications" is essentially a proxy for Metro PCS, "Cook Inlet" for T-Mobile, "Vista PCS" for Verizon, "Edge Mobile" for Cingular, "Wirefree Partners" for Sprint, the strangely named "Alaska Native Broadband 1 License" for Cricket parent Leap Wireless, and so on.
Some argue the rules are outdated, and do more harm than good, and point to the fact that most of the licenses on offer were originally snapped up in 1996 by NextWave Telecom, which went into bankruptcy before paying its $4.7 billion bill. It took years for the legal wrangling to produce an outcome, depriving US consumers of services utilizing the spectrum for that entire time, as well as government coffers of some actual payment for the licenses.
NextWave, for its part, refuses to die. Its latest plan is "to leverage new technology to roll out a dual-use network aimed at third-party providers of advanced IP-based wireless services and public safety services to government users", which sounds like a tall order for a company that's never really done much physical work with its spectrum. Analysts are understandably skeptical, while a NextWave exec pops back that analysts don't know what it's like to build and operate a network. Pot...kettle...black?