US Wireless auction nets US$501m on first day

date: 13th December 2000, source: scmp.com

A dash for fresh new airwaves in the United States began in earnest on Tuesday with wireless companies offering a net US$501.2 million after two rounds of bidding for licences that will advance the deployment of mobile wireless devices.

Verizon Wireless, a joint venture between Verizon Communications and Vodafone Group, topped the competition with a net US$131.1 million in bids during the second round, according to the US Federal Communications Commission.

Salmon PCS, which has ties to the joint venture of BellSouth Corp and SBC Communications known as Cingular Wireless, was in second, offering US$72.3 million for licences. Sprint Corp followed with a net offering of US$71.3 million, the agency said.

Licences in major cities received the highest bids, including bids of US$38.2 million each by DCC PCS, a wholly owned subsidiary of Dobson Communications Corp, and Sprint for licences in New York City.

The second-most desired market was Los Angeles with Salmon and Verizon both bidding US$25.5 million for licences in that market, according to the FCC.

Eighty-seven bidders are competing for 422 licences that will enable them to launch new products, fill gaps in coverage and improve service in a sale of spectrum that analysts expect will be the most lucrative in US history.

"You're seeing a little positioning when you see people bidding on large markets now, but it will take some time before people really start to show their hand," said Carr Krueger, a partner with Arthur Andersen.

Winners will be able to use the licences to offer mobile telephone and fax services as well as advanced tools capable of two-way data transmission via mobile phones, pagers and other wireless devices.

The bidding is expected to continue until no more bids are received and analysts predict the auction will conclude in mid-January.

Many industry analysts have expected the auction to raise at least US$16 billion, and possibly much more given the consumer demand for wireless services - money that will flow into the US Treasury's general coffers.

"You have this balance here that there are aggressive companies going after key markets but they are not going to go too far because they are aware that financial markets will downgrade them (if they are seen as bidding too much)," said Eric Kintz, associate partner at Roland Berger Strategy Consultants.

Salomon Smith Barney on Tuesday estimated the auction would pull in between US$15 billion and US$20 billion. But Lehman Brothers, citing evidence from recent spectrum auctions in Europe, in a research note on Monday set its sights a bit lower at US$11 billion, still above the net US$9.2 billion raised in a 1996 FCC sale.

"I don't think it's coming out of the blocks exceptionally strong. I would be surprised it we hit the US$15 billion," said Mr Krueger.

Legal challenges

Allegheny Communications late on Monday unsuccessfully sought to delay the auction, charging the FCC's rules for entrepreneurs that offered licences to smaller companies were a sham for bigger players.

The company cited as an example the relationship between Salmon PCS and the BellSouth-SBC joint venture Cingular Wireless.

Salmon qualified for bidding on 170 licences allotted only for small, developing companies, proving they had gross revenues of less than US$125 million in each of the past two years and total assets of less than US$500 million.

The FCC opposed Allegheny's move and a US appeals court refused to halt the auction, according to the agency. However, Allegheny could challenge any licences ultimately awarded.

Also late on Monday, NextWave Telecom filed the first brief in its effort to reclaim licences that were repossessed by the FCC because of non-payment and are now a part of the agency's auction.

"Fundamental fairness should have precluded holding an auction before the merits of NextWave's appeal have been decided in court, particularly in light of the FCC's 'guarantee' to restore the licences," NextWave spokesman Michael Wack said in a statement.

The FCC has said if NextWave were ultimately successful in its bid to win back the licences it won in 1996, the companies that had won the licences in the latest auction would have to relinquish them but would be reimbursed.

Encourage new development

One hope at the FCC is that fresh spectrum will encourage companies to develop and launch third-generation devices that allow for faster and more advanced services, such as video display and wireless Internet access.

In Japan, for example, so-called i-mode mobile phones have garnered 14 million users who can log on to the Internet on a screen the size of a business card - much more advanced than offerings in the United States.

What may also make bidders throw down large chunks of money in the latest US auction are licences in major markets where there is already massive congestion that can lead to dropped calls or poor connections.

To provide a break around the Christmas and New Year holidays, the FCC will stop the auction after bidding finishes on December 21 and will resume on January 5.

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