Following the Auction's ProgressWednesday, January 30, 2008
Looking at the current activity for the 700-MHz auctions on the FCC site, we can’t get much of a sense of what is happening at this stage nor can we draw many conclusions since this is a blind auction and we cannot tell who is bidding on what.
As I write this, round thirteen is complete and we are moving into round fourteen. The early rounds don’t mean much because the bidders are posturing and watching to see how much is bid for what. We are told that the reserve has been met for the B block (734 licenses) and this makes sense because this block’s licenses are exactly the same as the existing licenses for cellular and PCS coverage. They are being fought over by those who already have systems up and running but need more spectrum in specific cities or areas.
Meanwhile, the A block (176 licenses), except in a few specific areas, is not drawing much interest at this point, which is surprising to me. Some of the A block licenses have been bid on eight to fourteen times, but the bids are still low and some areas have not been bid on at all. But it’s still early in the process.
When does the bidding stop? We know bidding for the C block will continue until the reserve price is met ($4.6B) or until the other blocks all go one round without new bids, whichever comes first. This is a cat and mouse game. In order to keep the C block alive, all a bidder has to do is make sure there is a bid on another block in each round. We have not yet entered into the bidding wars many of us expected to see, but again, it is still early.
If you look back, you will find that in 1995 during the PCS auctions there were 112 rounds for the A and B blocks and 184 rounds for the C blocks. In 1997, there was an auction for 800-MHz Specialized Mobile Radio Service licenses that lasted for 235 rounds and the most recent AWS auctions in 2006 went for 161 rounds and lasted almost a month. I fully expect this auction to go on longer than the AWS auction because the consensus is that this spectrum is more valuable, albeit more expensive.
Remember that there are twelve licenses for the C block that can be bid on and they can be aggregated into groups or someone can bid on the whole block. The package getting the most attention, naturally, is for all fifty states. The last bid, round thirteen as of this writing, was $4.2B and the FCC minimum bid for round fourteen, which will be over by the time you read this, is set at $4.8+B and would put the C block over the reserve price. Once this happens and there is no chance the C block will go back to the FCC, the real bidding on this block will begin. It is evident (as evident as anything can be in this type of auction) that the full fifty state bids have chased most of the bidders for single or multiple C block licenses away. The only licenses showing any real activity are outside the United States―Guam, Puerto Rico, American Samoa and the Gulf of Mexico―and these bids are still very low. Puerto Rico, for example, has a single bidder in the amount of $862,000 from round one and the minimum bid for round fourteen is $948,000, which is not a lot of money for that amount of spectrum in Puerto Rico.
The D block (one license) is the most worrisome to me. This block is part of the public-private partnership that is designed to give first responders access to a nationwide network built out by a commercial entity on a shared, priority basis. So far, there is only one bid of $128,210 in round one. This is disturbing to me, as it must be to the public safety community, but I suspect some entity will keep it alive until after the C block closes if possible, and turn its attention to the D block if it does not win the C block―at least I hope so.
I’d like to make one point here about the D block. Those who believe it will solve any and all interoperability problems between first responders don’t understand all of the issues. The D block will help with data, video and, perhaps over time, push-to-talk and VoIP, but it won’t be used for dispatch nor will it be used for communications at the scene of an incident where simplex operation is needed (peer-to-multi-peer in the IT world). The data services will help in coordinating large incidents between agencies for sure, and after voice is added, this will help with some of the congestion and coordination between agencies. However, neither of these will reach into the field and solve the logistics issues at an incident. I think a lot of people misunderstand this and believe the D block will make all things interoperable.
While I was writing this, round fourteen closed. We still do not have the reserve price for the C block and the D block bid remains at one, but it now appears as though some of the B blocks are getting more attention. All of this goes to prove that you cannot predict anything with this type of bidding, nor can you even figure out who is in the game.
Has Google bid for the C block yet? I missed that call, figuring it would bid the reserve price of $4.6B in round one and then go home, having accomplished what it wanted, which is to ensure that the open network and device rules stay in place. But no one has bid the reserve price as the cats and mice are still chasing each other and trying to figure out what to do next. There can be no side deals, and there is no way to know what your competitors are doing at any given time.
Since Frontline is out of business and not bidding on the D block, who is? It would make sense for AT&T and Verizon to bid on it, but perhaps not as much if they end up with the C block. On the other hand, if the D block is sent back to the FCC, politics will get in the way again and those who have a “better” idea of how to make the public-private partnership work will come out of the woodwork. Everyone has an idea about this and I would not be surprised to see Frontline back in business and knocking on the FCC’s door, although the FCC might view Frontline as a company that made a lot of noise and then bailed at the last minute and not pay any attention. But I think Frontline has enough clout to at least be heard with a new proposal.
To my way of thinking, one of the best solutions for the D block would be for Qualcomm to buy it, contract for a world-class network and lease capacity to all comers. It is sitting at the bidders table, but there are as many reasons for Qualcomm to not go for the D block as there are to go for it.
The bottom line is that it is too early to make predictions as to the outcome of the auction. Instead, we will all have to wait to see who wins what. Then we will have to wait another six to nine months to find out who has traded, leased or otherwise bartered their spectrum holdings away to someone else. Only then will we know the real outcome.
Andrew M. Seybold