US wireless auction nets US$666.7m

date: 14th December 2000, source: scmp.com

The second day of bidding in the United States auction of airwaves for wireless telephone and data services drew $666.7 million, with AT&T, through its Alaska Native Wireless partner, making an aggressive play for major markets like New York and Los Angeles.

After four rounds of bidding, Alaska Native topped the bidding with a tally of US$433.9 million on Wednesday. It made the highest offers for 11 of the top 15 licences, according to data provided by the Federal Communications Commission (FCC).

The second-highest bidder was DCC PCS, a unit of Dobson Communications and AT&T Wireless Group, which weighed in with offers of US$80.5 million. DCC PCS had high bids in markets like New York and Chicago in the fourth round.

Licences in the large cities continued to attract the highest bids. New York fetched bids of $54.97 million from Alaska Native, DCC PCS and Verizon Wireless, a joint venture between Verizon Communications and Vodafone Group.

Alaska Wireless bid US$36.69 million for one licence covering Los Angeles, the second most sought-after market, and bid US$27.52 million for a second Los Angeles licence. 3G PCS bid US$27.52 million as well for a third licence in that market.

In the auction, which began on Tuesday, 87 bidders are competing for 422 licences that will allow them to fill in gaps in their network coverage, improve service in congested markets and launch new products like wireless data and Internet services.

AT&T, for example, has been trying to improve service in New York, where it previously suffered from dropped calls and overburdened networks.

"In the last rounds, AT&T really pushed ahead. But that doesn't necessarily mean they are going to get those markets. I can't believe that Cingular isn't going to make a push," said CS First Boston analyst Cynthia Motz.

Salmon PCS, which is linked to the Cingular Wireless joint venture of BellSouth and SBC Communications, was eighth in the fourth round of bidding, and Ms Motz said that she had expected a more aggressive start.

NEXTEL BIDDING?

Others, such as Nextel Communications, also have kept lower profiles in first rounds.

Nextel saw its eligibility reduced by half in the fourth round of bidding. Companies gain "eligibility" to participate in the auction based on the upfront payments and the number of licences for which they registered to bid.

If companies do not bid in each round or place bids that are too small their eligibility to participate down the road is reduced.

Nextel has in the past argued that it already has enough spectrum to expand its customer base by four or five times.

It may have decided to scale back its auction participation because it may be counting on other airwaves the US government may make available, or it may wait to bid in another auction slated to begin this spring.

"We believe Nextel may be waiting for the 700 MHz auctions scheduled for March 2001," said Steven Yanis, an analyst at Bank of America Securities.

The FCC in November proposed rules that would make it easier for companies to trade and sign leases for licences covering airwaves that may be going unused in rural and urban areas across the United States.

"One of the reasons that Nextel doesn't feel much pressure to bid is that the federal government had made available additional spectrum that Nextel would be able to use, but that would not be as easily used by other companies," said Drake Johnstone, an analyst at Davenport & Co.

"It has a number of different options to get spectrum at a reasonable price," he added.

Nextel did not return calls seeking comment.

It would take several more rounds before companies' bidding strategies became clear, analysts said. Companies had shown restraint in the first few rounds and kept bids from escalating too high, too quickly, analysts said.

Many industry analysts have expected the auction to raise at least US$16 billion, but others recently ratcheted down their expectations.

"We think the auction will hit US$10.5 to US$12 billion tops. I just don't think [the companies] have the money, and they're already doing spectrum swaps. They saw how the markets punished the companies who made aggressive bids in the European wireless auctions," Ms Motz said.

The auction will continue until no more bids are received and may last until mid-January.

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