05:55 PM

700MHz Auction: Thrill May Be Gone

After two rounds, it's not guaranteed that the FCC will meet its total reserve price, or minimum winning bids, of $10 billion.

As the second round of bidding closed in the federal government's auction of valuable wireless spectrum in the 700-MHz band, it became clear how far the ground has shifted since the sell-off was originally announced more than a year ago.

While potential licensees ponied up the minimum opening bid for several of the chunks of available spectrum, including the highly prized "C block," many licenses went without bids through the first two rounds, and it's not guaranteed that the FCC will meet its total reserve price, or minimum winning bids, of $10 billion.

The C block, for instance, which comprises a package of licenses in all 50 states, received an opening-round bid of $1,037,548,000 and a Round 2 offer of $1.24 billion. But the reserve price is much higher, at $4.6 billion.

All told, bidders have put up a total of just under $2.8 billion so far. The bidding will continue through as many rounds as necessary until no further bids are received, and the auction will likely take a month or more to complete. The identities of bidders will not be revealed until after the auction finishes.

Despite intense lobbying for months, the interest of Google and a passel of startups vying to compete with the big wireless carriers, and a rule change by the FCC requiring winning bidders to open any resulting networks to any device and any application, many observers now believe the auction will wind up being a disappointment. If reserve prices are not met, the FCC has the right to reauction the spectrum, without open network regulations. And high-profile startups like Frontline Wireless, founded by former FCC Chairman Reed Hundt, failed to come up with the necessary down payment to qualify for the auction.

Google, meanwhile, which pledged to bid at least $4.6 billion in the auction to persuade the FCC to impose open-network requirements on the winners, is thought to be unlikely to top competing bidders -- or to actually build a network if it does win. The Nos. 1 and 2 U.S. wireless carriers, Verizon Wireless and AT&T, are expected to be the biggest bidders -- but could opt to "warehouse" the spectrum rather than spend the money to build expensive new networks to compete with their existing services.

Stock market turmoil and the looming economic downturn may further dampen ardor for what most analysts describe as the last big sell-off of high-priced spectrum in a generation.

"Is it an ideal time to necessarily be conducting an auction?'' asked FCC Chairman Kevin Martin at a public briefing earlier this month. "I'm not so sure. But we're required by law to conduct the auction at this time.''

"A lot of people were declaring the auction dead before it even started," said Bastian Schoell, director of North American business development for wireless at Nortel Networks. "There's a possibility that every potential bidder will say, given the state of the capital markets, 'Let's wait it out.' But I'd say, let's get to Round 15 before we decide that."

One item of interest was that a bidder met the minimum $472 million opening bid for the D block, which has been designated as a public safety channel by the FCC. The winner of the D block will be required to build out a network, and will have to share it with public-safety agencies during times of emergency. Even that bid, however, is being viewed with skepticism, according to telecom lawyer Terry Cavanaugh, an attorney with Davis Wright Tremaine in Washington, D.C.

"I would not read too much into a bid being placed on the D block," remarked Cavanaugh in an e-mail. "The bid is below the $1.3 billion reserve price, so as a practical matter, it is not really a binding bid."

The auction resumes on Friday with Round 3.

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