U.S. carriers seek spectrum to fill gaps
By Jessica Hall, Reuters
13 November 2000
Most telephone companies bidding in the December auction of U.S. wireless licenses will focus on big cities such as New York to fill gaps in their networks, but Nextel Communications Inc. must grab vast amounts of spectrum for wireless data services, analysts said.
"Carriers in the U.S. obviously have holes that need to be filled," said WIT SoundView analyst Tim O'Neill. "The end game in the U.S. is coverage. We found that for the Fortune 1,000 (companies), the No. 1 requirement was coverage, not cost.
"The most vulnerable is Nextel - It has holes (in its network) and capacity issues," he said. "Cingular has holes it needs to fill. Sprint PCS is probably in the best position."
The auction, scheduled to begin Dec. 12, includes 422 repossessed or previously unsold licenses in 195 markets. Most of these licenses cover small cities or rural areas.
About 170 licenses are designated for small, entrepreneurial companies, so the mega-carriers cannot bid on them.
Unlike recent wireless auctions in Europe in which multiple national licenses were sold, the United States is selling spectrum only in random markets, making it an impractical way for carriers to assemble a coast-to-coast network.
As a result, analysts expect the auction to raise only $16 billion to $25 billion - much less than the $33.3 billion and $42.5 billion raised by Britain and Germany, respectively.
Merrill Lynch & Co. estimated the auction would raise about $18.5 billion. The firm estimated that large markets of at least 2.5 million potential customers would fetch $6 per megahertz per potential customer - a key measure for the industry - while mid-sized markets would bring about $4, and small markets, with less than 750,000 potential customers, about $2.
Of course, the auction of the licenses at the 1900-megahertz portion of the airwaves spectrum may be delayed due to legal wranglings over licenses revoked from bankrupt wireless company NextWave Telecom Inc. An industry source said the Clinton administration and Senate Republicans have considered ordering a delay of the auction.
NextWave bid about $4.8 billion for 90 licenses in 1996 but was unable to raise the funds to pay for them and went into bankruptcy protection in 1998. NextWave requested the auction be delayed until the U.S. District Court in Washington decides if the government's repossession of the licenses was lawful.
"YOU CAN NEVER HAVE TOO MUCH SPECTRUM"
Shares of U.S. wireless companies have been under pressure in recent months on investor concerns about the potentially high cost of the bids. Analysts, however, said only a few markets such as Chicago, Los Angeles and New York will spark intense interest. Some licenses may fail to attract any bids at all.
"We sense that there is a fair amount of interest in the large markets, some targeted interest in the medium markets and lesser interest in the smaller markets - but always interest at the right price," Merrill Lynch analyst Linda Mutschler said in a recent research report.
Carriers such as Verizon Wireless, Sprint PCS Group, Cingular and AT&T Wireless Group Inc. will likely bid on targeted markets to broaden their reach.
Smaller companies, such as Leap Wireless Inc., Cook Inlet, and Lafayette Communications Company L.L.C., are expected to participate as "designated entities" that can bid on the restricted licenses, analysts said. International companies such as France Telecom also may participate.
"Some carriers want spectrum for additional capacity," Mutschler said. "Some carriers want spectrum for higher-speed data services. Some carriers want spectrum to fill in holes in their existing footprints. As one carrier put it, you can never have too much spectrum."
NEXTEL, CINGULAR SEEN AS BIG SPENDERS
AT&T Wireless, which already holds licenses in the top 50 U.S. markets, will be picky and could spend less than $1 billion. Other carriers such as Nextel and Cingular, a joint venture of BellSouth Corp. and SBC Communications Inc., need to be more aggressive and could spend between $6 billion and $10 billion each, analysts said.
Nextel contends it already has enough spectrum to grow its existing customer base of 6.2 million subscribers by four or five times. Analysts, however, think Nextel needs more capacity to handle the expected boom in wireless data services.
Nextel last year sought to acquire many of the licenses revoked from NextWave for more than $8 billion, but it later dropped the bid amid legal battles over the licenses.
"They said that they don't need spectrum, but the fact that they put forth an $8 billion bid makes us think that despite what they said, they will be pretty aggressive," said Knox Bricken, a Yankee Group wireless analyst.
"I think they are trying to downplay their ability (to pay high prices) and interest in the auction to prevent driving up the prices," Bricken said.
Cingular also needs spectrum. It lacks a presence in eight of the top 50 U.S. markets and only has a small amount of capacity in New York. Cingular may to try to fill in its holes in Pittsburgh, Minneapolis, Denver, Portland, Salt Lake City and Norfolk, and bulk up its presence in Tampa, analysts said.
CARRIERS FILL IN HOLES THROUGH SPECTRUM SWAPS
Many large companies in recent weeks decided to swap spectrum through private deals rather than chasing after markets in potentially costly bids.
AT&T Wireless and Sprint PCS swapped licenses in undisclosed markets, while Cingular and VoiceStream exchanged licenses covering about 35 million people.
Verizon Wireless, meanwhile, bought licenses from Alltel Corp., gaining 11.4 million potential customers in six states.
Bids for "some markets (in the auction) will go really high ... but carriers realize that it's in their best interest to sort out their spectrum needs on their own," Bricken said.
Of course, the 1900-megahertz auction is not the last chance for carriers to grab extra spectrum. The United States will auction 700 MHz-band licenses in the spring. Regulators also have taken steps to make more airwaves available by proposing new rules to aid the creation of a secondary market for leasing and trading wireless licenses. |
