US 3G auction tops $15bn

date: 16th January 2001

The first big auction of wireless communications licences in the US since the mid-1990s looks set to end shortly with bids that are almost as high, on a comparable basis, as those seen in last year's auctions of third-generation (3G) licences in the UK and Germany.

The bidding has not prompted the sort of concerns about overpayment seen in Europe last year, however, and US wireless stocks have rallied strongly so far this year.

Total bids in the auction, which began a month ago, topped $15bn last week for the first time.

With the bidding process now in its third and final stage, the contest is expected to wind down as early as this week.

Unlike the 3G contests in Europe, the US auction has been a fragmented affair covering 422 different local licences across the country. Most of the spectrum, which is being sold in bl ocks of 10 or 15 megahertz, was reclaimed from other wireless companies that went into bankruptcy.

With less spectrum on offer, the total amount raised looks set to fall well short of the £22.5bn ($33bn) paid in the UK's 3G auctions, or the DM98.8bn (E50.5bn, $48bn) raised in Germa ny.

On a more comparable basis, however, the prices paid are likely to come close.

At the most basic level, US carriers have so far bid $3.62 for each Mhz of spectrum to reach each potential subscriber (or "pop") covered by the licences, according to a calculation b y Linda Mutschler, wireless analyst at Merrill Lynch.

That figure compares with an average of $4.08 paid in the UK and German auctions.

With the most intense bidding concentrated in big cities, prices in some cases have risen much higher. Verizon Wireless, whose affiliate, Cellco, leads the bidding for one of three 10Mhz licences available in New York, has offered $1.6bn, equivalent to $8.90 for each Mhz to reach each of the 18 .1m people covered by the licences.

Despite the high relative prices, US wireless company shares have rebounded strongly from their lows in the past two weeks, with Sprint PCS up 40 per cent and AT&T Wireless up 50 per cent.

Unlike 3G spectrum in Europe, US carriers will be able to use their new licences for the present generation of voice services, and in many cases they already have the networks to put the licences to use immediately.

Also, by selectively bidding on licences to fill gaps in their footprint or add to spectrum in cities where they were running short, they have been able to target their bids on market s where they can earn the quickest return.

By late last week, Verizon Wireless had confirmed its position as the most aggressive bidder with offers totalling $6.1bn, according to Michael Rollins, wireless analyst at Salomon Sm ith Barney.

Cingular Wireless, a joint venture between SBC Communications and BellSouth, had bid $2.9bn, while AT&T Wireless had committed $2.5bn. Three other wireless companies that are seeking to build a national presence - Sprint PCS, Nextel and VoiceStream, which has agreed an acquisition by Deutsche Telekom - have either pulled out of the race or have not bid widely.

Sprint PCS already has extensive holdings of unused spectrum, while the other two are expected to bid more aggressively in another national auction due to begin in March.

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