Steve:
I do not believe there was any active collusion between WNP and Nextband.
I agree with Zorro about the insufficient eligibility for bidding. For example, because of the high up-front payments, there were only 5 bidders capable of bidding on LA. WNP, Nextband, Rivgam, PCTV Gold, Cortelyou. (Winstar purchased 13.0 million bid units with its up-front payment — LA required 13.094 million)
If memory serves, PCTV Gold dropped out almost immediately, Rivgam chewed up their waivers rather quickly and ended up winning only Las Vegas. Rivgam put up 33 million but only spent $6.0 million.
So were are left with only three potential competitors for LA. Now take into account that the bid units for a high bid are subtracted from your total available pool for the next round. For example, you have 10 bid units. In round 1, your high bids use up 7 bid units (your were outbid in the other 3). In round two, you only have 3 units of eligibility to bid.
This was a serious constraint. Reviewing the final tally, Nextband's high bid for LA came in the second round. Basically 25% of their bidding flexibility was locked up. WNP in the first round had bid $135 million #reply-3469424 using almost all (if memory serves) their bid units. One could only say for sure by reviewing the round-by-round but I think it is safe to say that WNP was incapable, in many rounds, of placing a higher bid for LA due to their existing high bids. Similarly for Nextband, I don't believe they had the bid units available to effectively counterbid. LA chewed up 25% of their total; one knew that Nextband (being a Craig McCaw driven venture) would win Seattle and Portland, (cellular history 101) combine that with the Nextlink cities and any of Nextel's must have's, and a lot of eligibility is gone. The fact that 10 of WNP's first round bids never received a counter-bid is telling. (22 million pops in some great markets)
Cortelyou and Winstar made the top ten markets, excepting LA, competitive. Cortelyou eventually gravitated to their home (cellular history 101 again) and Winstar, to the extent they could, played spoiler to Nextband by grabbing San Francisco. They later played spoiler to WNP by grabbing CVUS.
The fact that both WNP and Nextband ended the auction with less eligibility than they started might lead one to believe that they were not trying to hard. I happen to believe, at least for WNP, that they were capital constrained. Remember, this was a cash on the barrel auction. VC firms don't have lines of credit, they cannot raise cash quickly and hence I believe there was only so much they could spend. Even more important, if they attempted to raise additional cash for more bidding, the "controlling principals" of WNP would have been further diluted. As it was, IMO, the capital structure of WNP really pushed the envelope of the Commission's DE Rules.
Finally, the very structure of Nextband argues to the conclusion that this was no pre-arranged deal with Craig McCaw. Why go to the trouble of setting up a JV between Nextlink and Nextel? At first blush, the structure seemed to say that -- individually -- both Dan Akerson and Wayne Perry - had gone to Craig saying "this spectrum looks interesting. Given what had happened in the last auction, WCS, perhaps we can pick up some bargains." Craig, not wanting to have his senior lieutenants fighting among themselves in an auction room, put them in a JV. Strangely enough, prior to the auction some people had figured out that Craig should be going all out to wipe the table (combining Nextlink, Teledesic and LMDS into a seemless nationwide broadband delivery platform -- deployed only in those areas where a network capital efficiency advantage existed.) The tepid up-front payment said he hadn't got it, yet.
Having said all that, the true principals of WNP, the VCs, played real hardball. These are the sharpest VCs in wireless telecommunications. Yet, there was endless talk about technology risk, auction risk, competitive risk, etc., etc. You can be sure the undercurrent of those comments reached the ears of other potential bidders like the IXC's and the cable companies. I'm sure the WNP participants knew that with a 45% discount, no deep pockets in the room, and a Commission stung by the auction failures (IVDS, C Block, WCS) they could push the envelope if coming out of the auction they were "too big to fail" and hence by shrewd tactics create the spectrum arbitrage play of the decade. If a principal of one of the VC firm's could be believed, there was never any intention to do anything with the licenses other than to flip them. Paraphrasing an actual quote at a conference prior to the auction, ‘...I would be embarrassed if anyone actually thought I intended to build out.' This with a Commission staffer on the dais.
It worked because no substantial competition showed up; but I've heard rumors that it was real, real close.
Hardball, masterfully executed, but, IMO, no collusion.
ww |
