Finally, again let’s begin our analysis of strategic options for major actors in Auction 73, 700 MHz Band, with a look at the footprints established by many of those actors in two previous Lower 700 MHz auctions (Auction 44 and 49) and the AWS-1 auction (Auction 66):
Cellular Market Areas (CMA) Map for Auction 44
Economic Area Groupings (EAG) Map for Auction 44
Cellular Market Areas (CMA) Map for Auction 49
Economic Area Groupings (EAG) Map for Auction 49
Cellular Market Areas (CMA) Map for Auction 66
Economic Areas (EA) Map for Auction 66
Regional Economic Area Groupings (REAG) Map for Auction 66
The Big Guys
There are quite a few major actors who qualify as the genuine big guys in Auction 73. Their participation and fundamental interests in this spectrum ensure that the reserve prices will be met and likely exceeded on all blocks (with some caveats on D Block).
QUALCOMM makes the list of the big guys in the auction if for no other reason than it nearly scored national footprint (minus the Western EAG) in a Lower 700 MHz auction. The 700 MHz Band auction provides a source of spectrum entirely compatible with its acquisition for its MediaFLO datacasting enterprise. It may be a C Block contender, but it is more likely that QUALCOMM will concentrate on E Block to flesh out its national footprint and consolidate. This isn’t going to be a QUALCOMM versus the world auction; QUALCOMM will narrowly target specific licenses, go after them tenaciously, and then get out if it looks like the spectrum is going for higher prices than expected.
Chevron USA Inc. makes the list of big guys simply because it brings such vast financial resources to the table as one of the world’s principal energy conglomerates. However, I don’t expect Chevron to try to recast itself as a telecoms giant. I expect that it will concentrate on Gulf of Mexico EAs or the Gulf REAG to support its fields there, much in the way PetroCom License Corporation did in the AWS-1 auction. It’s not going to be a Chevron versus Google slugfest for 700 MHz spectrum, as interesting as that fanciful prospect might be.
MetroPCS made a very significant effort to establish national footprint in Auction 66. In addition to the several ES and CMAs it obtained, it also obtained crucial REAG licenses in the Northeast and West. The licenses on which MetroPCS unsuccessfully bid displays patently the national aspirations behind its bidding strategy: AW-BEA003-B (Boston-Worcester MA-NH-RI-VT), AW-BEA003-C (Boston-Worcester MA-NH-RI-VT), AW-BEA010-B (NYC-Long Is. NY-NJ-CT-PA-MA-VT), AW-BEA012-B (Phil.-Atl. City PA-NJ-DE-MD), AW-BEA012-C (Phil.-Atl. City PA-NJ-DE-MD), AW-BEA013-B (Wash.-Balt. DC-MD-VA-WV-PA), AW-BEA013-C (Wash.-Balt. DC-MD-VA-WV-PA), AW-BEA029-B (Jacksonville FL-GA), AW-BEA029-C (Jacksonville FL-GA), AW-BEA030-B (Orlando FL), AW-BEA030-C (Orlando FL), AW-BEA031-B (Miami-Fort Lauderdale FL), AW-BEA031-C (Miami-Fort Lauderdale FL), AW-BEA033-C (Sarasota-Bradenton FL), AW-BEA034-B (Tampa-St. Petersburg FL), AW-BEA034-C (Tampa-St. Petersburg FL), AW-BEA035-B (Tallahassee FL-GA), AW-BEA035-C (Tallahassee FL-GA), AW-BEA040-B (Atlanta GA-AL-NC), AW-BEA057-B (Detroit-Ann Arbor-Flint MI), AW-BEA064-B (Chicago-Gary-Kenosha IL-IN-WI), AW-BEA127-B (Dallas-Fort Worth TX-AR-OK), AW-BEA128-B (Abilene TX), AW-BEA129-B (San Angelo TX), AW-BEA135-B (Odessa-Midland TX), AW-BEA137-B (Lubbock TX), AW-BEA153-C (Las Vegas NV-AZ-UT), AW-BEA160-B (LA-Riverside-Orange Cnty CA-AZ), AW-BEA160-C (LA-Riverside-Orange Cnty CA-AZ), AW-BEA163-B (San Fran.-Oakland-San Jose CA), AW-CMA001-A (New York-Newark NY-NJ), AW-CMA002-A (Los Angeles-Anaheim CA), AW-CMA003-A (Chicago IL), AW-CMA005-A (Detroit-Ann Arbor MI), AW-CMA006-A (Boston-Brockton-Lowell MA-NH), AW-CMA008-A (Washington DC-MD-VA), AW-CMA009-A (Dallas-Fort Worth TX), AW-CMA012-A (Miami-Fort Lauderdale FL), AW-CMA014-A (Baltimore MD), AW-CMA022-A (Tampa-St. Petersburg FL), AW-CMA051-A (Jacksonville FL), AW-CMA060-A (Orlando FL), AW-CMA068-A (Flint MI), AW-CMA093-A (Las Vegas NV), AW-CMA124-A (Santa Barbara CA), AW-CMA167-A (Sarasota FL), AW-CMA168-A (Tallahassee FL), AW-REA001-E (Northeast), AW-REA001-F (Northeast), AW-REA002-D (Southeast), AW-REA002-E (Southeast), AW-REA003-D (Great Lakes), AW-REA003-E (Great Lakes), AW-REA004-D (Mississippi Valley), AW-REA005-D (Central), AW-REA005-E (Central), AW-REA006-E (West), and AW-REA006-F (West). MetroPCS is well-capitalised and bid aggressively in the AWS-1 auction. It has become a major actor and will heavily compete in A, B, C, and E Blocks, aiming at definitively establishing national footprint. I doubt that it can prevail against ATT, Verizon, and Google across the board, but it should give the rest of the big competitors a hell of a challenge.
Cricket, owned by LEAP Wireless, was a major winner in Auction 66, as even a cursory glance at the maps of its successful bids discloses, and it did so with a complete mix of EA, CMA, and REAG bids. Its unsuccessful bids complete the picture: AW-BEA003-B (Boston-Worcester MA-NH-RI-VT), AW-BEA003-C (Boston-Worcester MA-NH-RI-VT), AW-BEA006-B (Syracuse NY-PA), AW-BEA006-C (Syracuse NY-PA), AW-BEA007-B (Rochester NY-PA), AW-BEA008-B (Buffalo-Niagara Falls NY-PA), AW-BEA010-B (NYC-Long Is. NY-NJ-CT-PA-MA-VT), AW-BEA010-C (NYC-Long Is. NY-NJ-CT-PA-MA-VT), AW-BEA012-B (Phil.-Atl. City PA-NJ-DE-MD), AW-BEA012-C (Phil.-Atl. City PA-NJ-DE-MD), AW-BEA013-B (Wash.-Balt. DC-MD-VA-WV-PA), AW-BEA013-C (Wash.-Balt. DC-MD-VA-WV-PA), AW-BEA015-B (Richmond-Petersburg VA), AW-BEA018-B (Greensboro-Winston-Salem NC-VA), AW-BEA019-B (Raleigh-Durham-Chapel Hill NC), AW-BEA020-B (Norfolk-Virginia Beach VA-NC), AW-BEA023-B (Charlotte-Gastonia NC-SC), AW-BEA024-B (Columbia SC), AW-BEA026-B (Charleston-North Charleston SC), AW-BEA028-B (Savannah GA-SC), AW-BEA028-C (Savannah GA-SC), AW-BEA031-B (Miami-Fort Lauderdale FL), AW-BEA034-B (Tampa-St. Petersburg FL), AW-BEA039-B (Columbus GA-AL), AW-BEA040-B (Atlanta GA-AL-NC), AW-BEA043-B (Chattanooga TN-GA), AW-BEA044-B (Knoxville TN), AW-BEA047-B (Lexington KY-TN-VA-WV), AW-BEA049-B (Cincinnati-Hamilton OH-KY-IN), AW-BEA049-C (Cincinnati-Hamilton OH-KY-IN), AW-BEA050-B (Dayton-Springfield OH), AW-BEA063-B (Milwaukee-Racine WI), AW-BEA064-B (Chicago-Gary-Kenosha IL-IN-WI), AW-BEA064-C (Chicago-Gary-Kenosha IL-IN-WI), AW-BEA070-B (Louisville KY-IN), AW-BEA071-B (Nashville TN-KY), AW-BEA073-B (Memphis TN-AR-MS-KY), AW-BEA074-B (Huntsville AL-TN), AW-BEA078-B (Birmingham AL), AW-BEA078-C (Birmingham AL), AW-BEA080-B (Mobile AL), AW-BEA081-B (Pensacola FL), AW-BEA082-B (Biloxi-Gulfport-Pascagoula MS), AW-BEA083-B (New Orleans LA-MS), AW-BEA083-C (New Orleans LA-MS), AW-BEA084-B (Baton Rouge LA-MS), AW-BEA085-B (Lafayette LA), AW-BEA086-C (Lake Charles LA), AW-BEA087-B (Beaumont-Port Arthur TX), AW-BEA090-B (Little Rock AR), AW-BEA095-C (Jonesboro AR-MO), AW-BEA096-B (St. Louis MO-IL), AW-BEA096-C (St. Louis MO-IL), AW-BEA099-B (Kansas City MO-KS), AW-BEA099-C (Kansas City MO-KS), AW-BEA107-B (Minneapolis-St. Paul MN-WI-IA), AW-BEA107-C (Minneapolis-St. Paul MN-WI-IA), AW-BEA118-B (Omaha NE-IA-MO), AW-BEA122-B (Wichita KS-OK), AW-BEA124-B (Tulsa OK-KS), AW-BEA125-B (Oklahoma City OK), AW-BEA130-B (Austin-San Marcos TX), AW-BEA131-B (Houston-Galveston-Brazoria TX), AW-BEA131-C (Houston-Galveston-Brazoria TX), AW-BEA132-B (Corpus Christi TX), AW-BEA133-B (McAllen-Edinburg-Mission TX), AW-BEA134-B (San Antonio TX), AW-BEA141-B (Denver-Boulder CO-KS-NE), AW-BEA147-B (Spokane WA-ID), AW-BEA151-B (Reno NV-CA), AW-BEA151-C (Reno NV-CA), AW-BEA153-B (Las Vegas NV-AZ-UT), AW-BEA153-C (Las Vegas NV-AZ-UT), AW-BEA157-B (El Paso TX-NM), AW-BEA158-B (Phoenix-Mesa AZ-NM), AW-BEA158-C (Phoenix-Mesa AZ-NM), AW-BEA160-B (LA-Riverside-Orange Cnty CA-AZ), AW-BEA160-C (LA-Riverside-Orange Cnty CA-AZ), AW-BEA161-B (San Diego CA), AW-BEA164-B (Sacramento-Yolo CA), AW-BEA164-C (Sacramento-Yolo CA), AW-BEA166-B (Eugene-Springfield OR-CA), AW-BEA167-B (Portland-Salem OR-WA), AW-BEA167-C (Portland-Salem OR-WA), AW-BEA170-B (Seattle-Tacoma-Bremerton WA), AW-BEA170-C (Seattle-Tacoma-Bremerton WA), AW-BEA176-C (Gulf of Mexico), AW-CMA001-A (New York-Newark NY-NJ), AW-CMA002-A (Los Angeles-Anaheim CA), AW-CMA003-A (Chicago IL), AW-CMA005-A (Detroit-Ann Arbor MI), AW-CMA006-A (Boston-Brockton-Lowell MA-NH), AW-CMA007-A (San Francisco-Oakland CA), AW-CMA010-A (Houston TX), AW-CMA012-A (Miami-Fort Lauderdale FL), AW-CMA016-A (Cleveland OH), AW-CMA017-A (Atlanta GA), AW-CMA018-A (San Diego CA), AW-CMA019-A (Denver-Boulder CO), AW-CMA021-A (Milwaukee WI), AW-CMA022-A (Tampa-St. Petersburg FL), AW-CMA023-A (Cincinnati OH-KY-IN), AW-CMA026-A (Phoenix AZ), AW-CMA027-A (San Jose CA), AW-CMA032-A (Hartford-Bristol CT), AW-CMA033-A (San Antonio TX), AW-CMA034-A (Rochester NY), AW-CMA035-A (Sacramento CA), AW-CMA036-A (Memphis TN-AR-MS), AW-CMA037-A (Louisville KY-IN), AW-CMA039-A (Salt Lake City-Ogden UT), AW-CMA040-A (Dayton OH), AW-CMA042-A (Bridgeport-Stamford-Danbury CT), AW-CMA043-A (Norfolk-Virginia Beach VA-NC), AW-CMA045-A (Oklahoma City OK), AW-CMA046-A (Nashville-Davidson TN), AW-CMA047-A (Greensboro-Winston-Salem NC), AW-CMA051-A (Jacksonville FL), AW-CMA057-A (Tulsa OK), AW-CMA060-A (Orlando FL), AW-CMA061-A (Charlotte-Gastonia NC), AW-CMA067-A (Greenville-Spartanburg SC), AW-CMA071-A (Raleigh-Durham NC), AW-CMA075-A (Austin TX), AW-CMA077-A (Tucson AZ), AW-CMA079-A (Knoxville TN), AW-CMA083-A (Mobile AL), AW-CMA088-A (Chattanooga TN-GA), AW-CMA101-A (Beaumont-Port Arthur TX), AW-CMA104-A (Newport News-Hampton VA), AW-CMA106-A (Jackson MS), AW-CMA109-A (Spokane WA), AW-CMA116-A (Lexington-Fayette KY), AW-CMA121-A (Trenton NJ), AW-CMA127-A (Pensacola FL), AW-CMA128-A (McAllen-Edinburg-Mission TX), AW-CMA135-A (Eugene-Springfield OR), AW-CMA153-A (Columbus GA-AL), AW-CMA173-A (Biloxi-Gulfport MS), AW-CMA194-A (Waco TX), AW-CMA227-A (Anderson SC), AW-CMA252-A (Pascagoula MS), AW-CMA265-A (Fort Walton Beach FL), AW-CMA410-A (Brown IN), AW-CMA446-A (Spencer KY), AW-CMA449-A (Trimble KY), AW-CMA562-A (Yates NY), AW-CMA626-A (Laurens SC), AW-CMA627-A (Cherokee SC), AW-CMA628-A (Chesterfield SC), AW-CMA632-A (Hampton SC), AW-CMA669-A (Edwards TX), AW-REA001-F (Northeast), AW-REA002-D (Southeast), AW-REA002-E (Southeast), AW-REA002-F (Southeast), AW-REA003-D (Great Lakes), AW-REA003-E (Great Lakes), AW-REA003-F (Great Lakes), AW-REA004-D (Mississippi Valley), AW-REA004-E (Mississippi Valley), AW-REA004-F (Mississippi Valley), AW-REA005-F (Central), AW-REA006-E (West), and AW-REA006-F (West).
Cricket sought to make the strategic jump to national footprint in Auction 66 and very nearly succeeded. I expect it to use the same general strategy — a complex mix of EA, CMA, and REAG bids — to finally acquire a fully national footprint in Auction 73. It is well capitalised and fully capable of challenging any other major participant for any license. The only reservation I have is whether it has the long-term staying power to persevere in a slugfest with ATT, Verizon, Google, and MetroPCS. On many licenses in Auction 66 it certainly showed that it was ready to go toe-to-toe for the long haul, but on others it blinked and yielded on licenses it could have won. It will probably do better than MetroPCS, but it remains to be seen whether it will be the big winner. It’s a definite major player in the A, B, C, and E Blocks and a potential dark-horse entrant for D Block, although I think it unlikely that Cricket will make a really serious D Block effort.
Alltel, the national cellular provider, sat out the previous 700 MHz and AWS-1 auctions, giving us very few priors over its strategy for Auction 73. It has PCS holdings which point to interests in A, B, C, and E Blocks and it is likely to have deep pockets, going for a wide variety of licenses. I expect it to be a very serious C Block contender, although I expect strategic depth with targeted backups in A and B Blocks. Alltel is poised to make a major move here and the only question is whether it has the resources to stand up against concerted bidding pressure from ATT, Verizon, and Google. There is some chance that Alltel will bid on D Block, but I don’t think it terribly likely.
Cellco Partnership, Verizon Wireless’ bidding entity, spent $2,808,599,000 in the AWS-1 auction for 13 licenses, and bid on all the lower-48 REAGs and Hawaii (as well as EAs and CMAs in Louisiana and Hawaii to plug coverage holes). Verizon is extremely well positioned outside the Western REAG from prior acquisitions and could concentrate on obtaining a West REAG. However, I think that it has bigger problems which require it to bid on the majority of the C Block REAGs: Google’s threat to create a national wholesale open access third broadband pipe is a threat to the dominance FIOS has established over ATT’s puny U-Verse and the cablecos’ outmoded technology; it is serious and Verizon needs to exclude Google. Furthermore, cracks appeared in the incumbent telcos’ united bidding front in Auction 66 with Cingular (now ATT Mobility) trying to stick it to Verizon on several key licenses. ATT represents a major threat if it is no longer content to divide geographic regions now that it has acquired Aloha Partners’ 700 MHz spectrum, not as great a threat as Google’s wholesale open access business model, but a threat nonetheless. I expect Verizon to be one of, if not the most, important actors in the C Block bidding for these reasons.
There are also good reasons to believe that Verizon will be a major bidder on D Block, a prospect even before Frontline’s collapse. Cyren Call’s Morgan O’Brien was thought by many observers to be angling to have Cyren Call bought out by Verizon last spring and summer, and since Cyren Call was hired as consigliere to the Public Safety Spectrum Trust, O’Brien has looked more and more like a shill for Verizon’s interests. The Bidder Information Document which PSST has put out for prospective D Block bidders looks like it was tailor-made for Verizon or ATT. Verizon certainly has the contacts and experience with the public safety community to make the commercial-public safety network envisioned in D Block work.
ATT Mobility was looking like a has-been for Auction 73 until its $2.5 billion acquisition of Aloha Partners’ Lower 700 MHz spectrum. Cingular did well in the AWS-1 auction, but it took the Aloha Partners’ acquisition to position ATT to go head-to-head with Verizon and Google in Auction 73. An argument can be made that ATT will simply try to pick up bargains at the margins without being a serious contender in Auction 73. However, I think that a detailed look at the footprint ATT has acquired through Cingular in Auction 66 and Aloha Partners in the Lower 700 MHz auctions points out a critical problem for ATT: it is significantly weaker east of the Mississippi than one would otherwise expect. Furthermore, it has major backhaul problems which it can resolve only by success in obtaining more 700 MHz spectrum. Finally, it needs either more 700 MHz spectrum or to acquire Echostar (and possibly both) to have any hope of making U-Verse three-play a genuinely competitive concern. ATT has to go big in C Block and I think it will. There’s the additional factor that it has to block Google, since a wholesale open access third national broadband pipe would shoot Whitacre tiering in the head once and for all, and ATT has a great deal invested in being able to impose oligopoly rents on the internet. That means that ATT will be extremely active in C Block, with strategic backups in A and B Blocks. ATT is also likely to be a serious D Block competitor. It has the experience, contacts, and existing technology to interface relatively seamlessly with the public safety community and, as noted above, the PSST’s message to potential D Block bidders seems tailored for the telcos.
And now we come to Google. Google Airwaves, Google’s bidding entity, is well-positioned to move on either C or D Block and possibly both. I could easily see Google bidding the reserve price on C Block to force Verizon and ATT to compete heavily there, then similarly bidding the reserve price on D Block and walking away with it while Verizon and ATT slug it out for C Block. All Google needs is C or D Block to implement its national wholesale open access business model, and it really needs one or the other to keep the telco’s and cableco’s from having a permanent boot across its throat via Whitacre tiering oligopoly rents. Google has sound reputational reasons for bidding at least the reserve price on any block on which it bids, given its assurances to Chairman Martin during negotiations over its openess conditions, and Google has the aggressive deep pockets and commitment to openess which make it unlikely that it could be dissuaded from D Block by Morgan O’Brien the way rumour has it that Frontline’s investors were. I’d be interested in seeing how long PSST would be willing to take the heat for O’Brien’s behind-closed-door dealings with Google posting its negotiation position and O’Brien’s on its public blog, “because the public has the right to know.” And deep pockets can pay for a hell of a lot of lawyers. I’ve never bought into the hypothesis that Google was unserious about the 700 MHz auction. There are compelling real-world reasons why Google needs a national third broadband pipe, reasons which involve peril to its very existence as a successful company, and I have no reason to believe that Google is prepared to exist at the sufferance of the telcos and cablecos. They’ll be at the table in Auction 73 and they’ll be there to win either C or D Block, and possibly both. Whether they’ll succeed or not is the real question. I certainly hope that they do, but the outcome is too close to genuinely call.
The Wild Cards
There are a few bidders in Auction 73 on whom we have little in the way of actual priors or who have resources which will potentially allow them to act in unexpected ways dissimilar to their patterns in previous auctions.
Bluewater Wireless, L.P., is Aloha Partners’ Charles Townsend’s new entrant in 700 MHz. Having made a killing selling off his Auction 44, 49, and 60 holdings to ATT Mobility, he is looking to make another killing in Auction 73. I don’t think so. Aloha Partners were successful because the Lower 700 MHz auctions weren’t terribly rich or competitive, and ATT was stuck going into Auction 73 with truly dreadful prospects. $2.5 billion for what Townsend had paid $34,853,070 was cost-effective to level the field for ATT against the other major 700 MHz contenders. That isn’t going to happen this time. ATT, Verizon, Cricket, MetroPCS, and Google aren’t going to leave many bargains to be scavenged by Bluewater Wireless, but I could be wrong and Townsend may be willing to ante up for a seat at the high table.
Paul Allen’s Vulcan Spectrum and Bend Cable Communications will be in Auction 73 and the smart money will bet that they will continue to concentrate on consolidating and expanding their holdings in the Pacific Northwest. But Allen has a pot of money, and that makes him a potential major actor.
Cox Wireless and the Advance/Newhouse Partnership are the only participants in Auction 66’s powerhouse, Spectrumco, who showed up for Auction 73. Both could be major actors, but without Time Warner, Comcast, and Sprint/Nextel they don’t have the financial resources that Spectrumco could deploy. If they follow the Spectrumco strategy, they’ll concentrate primarily on EAs and CMAs, but establishing a national footprint that way takes more money than they are likely to be willing to spend. I may be wrong about this, but I expect them to be more regional actors, particularly in the south and midwest.
Vavasi NexGen Inc. is owned by Bellevue, WA-based Indian Connexion, a U.S. company which is, in turn, owned by Vavasi Telegence, an Indian technology company. The parent company is a major actor on the subcontinent and appears to be seeking serious entry into the US market. It has deep pockets and could be a major contender, but faces major foreign ownership problems. There’s simply no way to tell how they’ll do in Auction 73. It would be refreshing if their business model involved outsourcing customer service to, say, Flint, MI.
A Final Word of Thanks
That, then, is my take on Auction 73.
I conclude by thanking somebody I never thought I’d be thanking for anything. It’s fairly obvious that I’m not a Republican and I’m fundamentally an opponent of big business. I never thought I’d have much good to say about Kevin Martin, but without his support Auction 73 would never have been the test platform for fundamental changes in how the FCC conducts and implements spectrum auctions: anonymous bidding and wireless Carterfone. I wish we had gotten more, but I never expected to get this much, and we wouldn’t have without Kevin Martin’s (and that of the Office of the FCC’s Chief Economist) hard pushing against several of his Republican colleagues and a largely captive bureaucracy in the Wireless Bureau that fought reform tooth and nail every inch of the way.
I may disagree with Kevin Martin about a great deal, but he is a man who keeps his word. And that’s saying a hell of a lot in DC.