Tag: d block

700 MHz Auction: D Block Panic, Damping Expectations, And My Final Thoughts Before the Opening Bell.

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After so much pre-game hype, it’s hard to believe we have actually gotten down to the 700 MHz Auction week. The fun and games will start January 24, although we won’t know (much) about the auction until it is all over sometime in late February or early March.

Not surprisingly, the news that Frontline Wireless , the company that did so much to shape the rulemaking around the “D Block” public/private partnership, went belly up before the auction even started has triggered a round of hand-wringing about the fate of D Block and finger-wagging by those who always thought it was a bad idea to impose any kind of conditions on licenses. As a result, we see a slew of stories questioning whether anyone will bid for D Block (or, at least, meet it’s $1.3 billion reserve price), with some spillover questioning about the future of the auction itself.

While I agree with GigaOm that wireless auctions aren’t for wimps, I do think the panic over Frontline’s failure to scrounge up capital to make the necessary up front payment (the “ante” required to buy “bidding credits” to participate in the auction) is exaggerated. Nor am I as pessimistic that the auction will produce some groundbreaking changes as others, although it could well happen that we get through this auction with no new “disruptive third-pipe providers.” I think we will certainly see the auction hit the $10 billion Congress estimated (and the FCC set as aggreagte reserve price), and we will see C Block meet its $4.6 billion reserve price.

On the other hand, if things start to go poorly in the auction, we may see some panic moves by the FCC, particularly with regard to D Block. The possibility that the FCC may retroactively drop the reserve price on D Block (possibly without holding a reauction) may introduce strategic behavior into the auction. Of course, since no one (including the FCC) can actually talk about this possibility makes the speculation even more insubstantial than usual. Still, since the possibility does exist, and because I think such a course would create real problems with the auction, I briefly discuss it below.

Analysis below . . . .

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We Interrupt This CES Convention For A Breaking 700 MHz News Item

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I’m out here at the Consumer electronic Show with actual blogger credentials (primarily so I can get the free back pack and use the blogger lounge). So, of course, we get major 700 MHz Auction news today before I can even start to do CES blogging.

As reported by my fellow PISC-ER Gregory Rose and elsewhere, Frontline Wireless has dropped out of the bidding. That’s kind of a surprise, given how Frontline fought to get a designated entity credit and still pursue wholesale as a real business model. It’s also impossible to say (at the moment at least) why Frontline self-destructed at the last minute.

Leaving aside the Frontline specifics, the big question is “how will this impact the auction” and “will we see wholesale emerge at all as a model.” Unsurprisingly, most analysts are going conventional and saying (a) D block (which Frontline had targeted) may not attract bids to meet the reserve price, and (c) This makes it even less likely we will see a new entrant, let alone a wholesale new entrant.

Also as usual, I will play the contrarian here. D Block is still very attractive to the conventional carriers looking to get national footprint or others looking for national footprint and willing to work with public safety. If AT&T and Verizon are both serious about this auction (and indications are that they are), both may push hard for D Block — especially if C Block is competitive.

On the new entrant side, it still remains to be seen what Vulcan and Google will do. Even if — as I suspect — Google wants to win the network but not build out, it may find D Block attractive. As holder of D Block, Google could still negotiate with third pary carriers (such as Alltel, US Cellular or even Sprint or T-Mobile) to build the network on its terms and to the satisfaction of public safety. The much lower price of D Block would offset the the aggravation of working with public safety and ensuring that their needs come first.

Finally, there’s Towerstream and the other wild cards like Qualcom. Who knows what they intend, especially given the likely competitiveness for C Block.

So while I’m sorry to see Frontline go, I don’t think it hurts the odds for a very competitive auction or a new entrant. It does potentially make a wholesale network more of a stretch, because Frontline was really the only bidder gung-ho on the model (Google being traditionally in favor of wholesale but making no promises at this point beyond “open”). That’s a shame, but not devestating or fatal to a new entrant.

Stay tuned . . . .

Breaking News: Frontline Bites the Dust

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Frontline Wireless LLC, which submitted an incomplete application to participate in the FCC’s Auction 73 for the 700 MHz band as Licenseco LLC and which was expected to be a major competitor for the D Block nationwide commercial-public safety broadband license, has folded and is “closed for business.”

Industry rumours suggest that Frontline’s bidding entity, Licenseco LLC, failed to make a required upfront payment deadline on January 4.

Speculation focuses on several possible explanatory scenarios. Frontline has changed its business plan several times and, frankly, I was never completely convinced that it would bid when push came to shove. Verizon’s belated embrace of open attachment rules — the Carterfone condition which the FCC has imposed on Auction 73 — gave many of Frontline’s Silicon Valley backers what they wanted without having to hazard the auction or undertake the encumberance of deployment requirements if they prevailed at auction. The possibility that Google might bid the reserve price on C Block to force Verizon and AT&T to concentrate on battling it out for the C Block REAGs while Google seriously bid on the less expensive D Block to acquire a nationwide third broadband pipe and implement its nondiscriminatory, wholesale open access business model may have had something to do with Frontline’s decision to pull out. The possibility that AT&T may have been interested in D Block for national backhaul could have presaged a serious challenge has also been mooted as a factor in Frontline’s decision.

It’s likely that some of Frontline’s backers and associates — Fortress Investment Group’s Backline bidding entity and Cellular South in particular — will remain in the auction, but Frontline’s demise creates extremely interesting possibilities for D Block competition in the auction.

Part III of the 700 MHz series, Bidding Strategies of the Major Actors, coming soon…

Part IIb — Who's Who in 700 MHz: the Experienced Actors

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Now we turn our attention to the more experienced potential bidders in Auction 73 for the 700 MHz Band. All have participated in either one or more of the three Lower 700 MHz auctions (44, 49, or 60) or the AWS-1 auction (66).

The Big Guys

Cellco Partnership, Verizon Wireless’ bidding entity, spent a whopping $2,808,599,000 in the AWS-1 auction for 13 licenses and comes to Auction 73 well positioned to bid for the C Block REAGs and possibly the D Block nationwide license.

MetroPCS 700 MHz, LLC, is the bidding entity for cellular telco MetroPCS, which spent $1,391,410,000 in the AWS-1 auction for 8 licenses. MetroPCS appears to be looking to establish national footprint and will be a strong contender in C Block, and likely using A and B Blocks to fill in coverage gaps.

Cricket Licensee 2007, LLC, spent $710,214,000 for 99 licenses in AWS-1; Denali Spectrum License, LLC, spent $274,083,750 for one license in AWS-1. Both are owned by LEAP Wireless; if their AWS-1 pattern holds, expect them to be mainly active in A and B Blocks, pushing to achieve national footprint, although Cricket may be a C Block contender.

The incredulity expressed by some of the trade press over the application of tech company QUALCOMM,Inc., to participate in the 700 MHz auction seems odd given the fact that QUALCOMM achieved nearly-national footprint in a Lower 700 MHz auction by spending $38,036,000 for five EA licenses. QUALCOMM is positioned to flesh out national footprint in the A and B Blocks or to become a C Block contender.

Cincinnati Bell Wireless, LLC, is the wireless subsidiary of a regional CLEC which spent $37,071,000 for 9 licenses in AWS-1. Expect Cincinnati Bell Wireless to concentrate in the B Block CMAs to reinforce regional coverage.

Bluewater Wireless, L.P., is Aloha Partners’ Charles Townsend’s new stalking horse. Townsend and Aloha Partners spent $34,853,070 in the three Lower 700 MHz auctions amassing the largest bundle of spectrum in the auctions, which they have sold to AT&T for $2.5 billion. Bet on Townsend trying to recapitulate that coup, probably in the A and B Blocks, but Aloha Partners got completely frozen out in the AWS-1 auction, partly by blocking bidding by incumbents, partly because Townsend was unwilling to bid high enough where he wasn’t facing concerted blocking. Auction 73 is shaping up to be more costly than AWS-1, and I doubt that Bluewater Wireless is going to be able to pick up nearly as much spectrum on the cheap as it did in the Lower 700 MHz auctions.

Cellular South Licenses, Inc., the bidding entity for cellular telco Cellular South, spent $33,025,000 for 12 licenses in AWS-1. Look for Cellular South to continue to cover gaps in footprint in the A and B Bocks, although it may compete for some C Block REAGs.

Cavalier Wireless, LLC, spent $23,572,350 amassing 51 licenses in the Lower 700 MHz auctions and 30 licenses in AWS-1. Cavalier may try to establish national footprint or concentrate on firming up its regional dominance.

Vulcan Spectrum, LLC, spent $15,075,000 gaining 24 Lower 700 MHz licenses; Bend Cable Communications, LLC, spent $528,000 on 2 AWS-1 licenses. Both are investments of Microsoft co-founder Paul Allen. They concentrated on obtaining spectrum in the Washington-Oregon region of the Northwest in Lower 700 MHz and AWS-1, but Allen’s deep pockets make Vulcan in particular a potential C Block contender as well as aspiring for regional coverage consolidation in the A and B Blocks.

Cox Wireless, Inc., was part of the SpectrumCo coalition which gained 137 licenses for $2,377,609,000 in AWS-1, as was part of the Advance/Newhouse Partnership. However, the real powerhouses in SpectrumCo — Comcast, Time Warner, and Sprint/Nextel — decided to sit the 700 MHz auction out. However, Cox’s cable TV operations and Advance/Newhouse’s resources as a newspaper, magazine, and cable TV conglomerate position both of them to be significant bidders for the A, B, and C Blocks.

More below…

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Part IIa — Who's Who in 700 MHz: the New Entrants

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Let’s start with a profile of the new entrants to the 700 MHz auction. Part IIb will profile the potential bidders who were active in the two Lower 700 MHz auctions and the AWS-1 auction.

The Big Guys

I sound a little crazy calling AT&T Mobility Spectrum, LLC, a new entrant, but this AT&T subsidiary technically didn’t exist during previous auctions, although it is essentially Cingular beefed up with AT&T’s Aloha Partners acquisitions from the Lower 700 MHz auctions. It comes to the table holding the most spectrum of any 700 MHz bidder. More detail on possible ATT plans in Part III, but it could range from support of rural telcos with whom it has existing roaming agreements in the A and B Blocks to major challenges for the C Block REAGs or the D Block nationwide license.

Alltel Corporation, the major U.S. cellular company, did extremely well in the PCS auctions, but sat out the AWS-1 and Lower 700 MHz auctions. It’s also a little odd to call Alltel a new entrant, but it’s been a while since it has participated in an auction and it qualifies under the definition of not participating in the run-up auctions to 700 MHz. Look for Alltel to have interests at play in A, B, C, and E Blocks, and I would not rule out the possibility of a try for the D Block nationwide license, although I consider this unlikely.

Licenseco, LLC, is the name under which Frontline is bidding. This is a major D block competitor.

Backline is the name under which Fortress Investments Group is bidding. It brings substantial financial clout to the table and may be a significant C Block actor, although it is unlikely to be a D Block competitor because of an agreement with Frontline.

Chevron USA Inc., the major energy company, automatically becomes a serious competitor because of its financial resources, but I think it will concentrate on Gulf of Mexico CMAs and EAs or the Gulf REAG to support its fields there, much in the way PetroCom License Corporation did in the AWS-1 auction.

Google Airwaves Inc., Google’s bidding entity, singlehandedly changed the nature of the 700 MHz auction by pushing for wireless Carterfone and open, nondiscriminatory wholesale network access conditions. They got the wireless Carterfone condition from the FCC and they insist that they will use an open, nondiscriminatory wholesale network business plan to put together a third broadband pipe. They will definitely be going for the C Block REAGs and possibly some complementary A, B, and E Block spectrum with deep pockets.

More below…

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700 MHz PreGame Show: Reading the Tea Leaves on Verizon and AT&T's Last Moves

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Well the short forms are in, and a surprising number of companies are keeping mum about whether they even filed or not. But a few more interesting tidbits have turned up — notably that Echostar will come to the ball without its dance partner from the AWS auction, fellow satellite TV provider DIRECTV. And Clearwire, an anticipated participant, will sit this one out.

But of course, all eyes turn to the expected big boys of the auction, the largest incumbents, the returning champions, those winners of wireless, the masters of mobility, AT&T and Verizon! These are the guys to beat, the multi-billion wireless guerrillas that should be unstoppable and able to dictate to the market whatever they want. With the cable guys eliminated, they should be on easy street. But with Google making its play, and Frontline getting a 25% “designated entity” discount if it bids on D Block, even the mighty incumbents need to tread warily and brace for battle, lest they end up playing the French to Google’s Henry V at the spectrum equivalent of Agincourt.

With the necessary paperwork in to the FCC on December 3 triggering the anti-collusion rules and ending the last chance to say or do anything related to the auction, every last minute twitch and adjustment of the incumbent will be under intense scrutiny. Professional prognosticators, armchair analysts, and even random bloggers like yr hmbl obdn’t will try to read the tea leaves and predict the outcome of the upcomming spectrum steel cage smackdown.

So with this in mind, it is interesting to note the unusual a last minute wireless asset swap between AT&T and Verizon. Traditionally, wireless carriers have avoided these sort of mutually beneficial deals, preferring to duke it out directly with rivals. But AT&T Wireless and Verizon Wireless are now fully assimilated into the ILEC Borg Collective. Is this last minute swap a sign that the major wireless players will act more like wireline incumbents and work to defend their common interests — such as resisting the intrusion of newcomers Google and Frontline? Or is it merely that there are so few players to whom the companies can divest these assets (in both cases, the swaps are for licenses the FCC ordered divested as conditions on acquisitions) profitably before the Dec 3 short form deadline that this trade was inevitable?

And what should we make of Verizon’s announcement it will embrace Google’s “android” open platform for wireless? Is it just another move by Verizon to adjust to the T. Googlii lifestyle needs and turn a challenge to its business model into an opportunity to make huge profits? Or is this a final effort by Verizon to ward off my Apocalyptic Google Prophecy by persuading Google it doesn’t need to win licenses to get what it wants?

Finally, there is Verizon’s Petition for Reconsideration asking the FCC to reverse its decision to allow Frontline to keep its “Designated Entity” bidding credit while still doing 100% wholesale, but only for D Block. Is this just yet-another-round of the non-stop sniping between Frontline and Verizon? A signal that Verizon is interested in D Block? Or even a possible feint to disguise it’s intention to go for C Block and leave D Block to others?

More below . . . .

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700 MHz Final Tweaks: Limited Relief for Frontline, Google Looks to Bid

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So with the December 3 date for the filing of short forms to participate in the 700 MHz auction looming ever closer, we see some last minute shifting about and settling of a few lingering details. First, in the I called it category (as did my friend and fellow Wetmachiner Greg Rose, various news outlets report that Google seems increasingly likely to bid in the 700 MHz auction. Further support for the idea that Google really intends to bid comes from their filing a request for clarification from the FCC that when the FCC said “no discrimination,” they meant the usual statutory version that allows discounts for volume customers and such what (the usual statutory language prohibits “unreasonable discrimination,” which allows for things like bulk discounts provided everyone that meets the criteria gets the same deal).

Mind, it isn’t a sure thing Google will bid until it files a short form, and folks can file to bid without being willing to put up the money. But given the number of folks who said Greg and I were on crack for expecting Google to actually put up its own money to go against the likes of Verizon, we can perhaps be forgiven for patting ourselves on the back for being so far out ahead of the curve on this.

More importantly, perhaps, is the FCC’s decision last week to provide limited help to Frontline Wireless by allowing a designated entity (DE) that wins the D Block auction to wholesale its spectrum without losing its DE credit. (You can read the FCC Press release here and the full text of the Order here.) Now how does this help? And why limit it to D Block? And what the heck is a “DE” anyway?

Answers and speculations below . . . .

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Assessing the 700 MHz Order Part IV: Lingering Doubts and Details

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The Wireless Bureau has released its Public Notice (“PN”) for the 700 MHz auction. In addition to setting the date for the start of the auction as January 16, 2008, the PN also addresses a bunch of questions left over by the Order. The biggest of these are: (a) Setting rules for package bidding; and (b) setting reserve prices on a “per block” (rather than “per license” basis) for the auction.

What does that mean? Well, the Commission in the Order decided to protect itself politically from accusations that it had set the rules too aggressively and therefore killed the auction. The Commission therefore used its authority to create “reserve prices,” or minimum prices that bidders must meet before the Commission will award the licenses. The Commission has used reserve prices before, but generally on a license by license basis not on a “block by block” basis. Nor has the Commission ever guaranteed a reauction if a block of licenses fails to meet a set reserve price.

“Package bidding,” as discussed in previous posts, means allowing people to bid on a set “package” of licenses rather than requiring a bidder to bid on each license individually. This encourages people to bid because it means I won’t get stuck with licenses I don’t want if I fail to win one or two critical licenses that make it worthwhile (this is called the “exposure” problem). So if I only want the C Block licenses if I can get national coverage, I will still participate in the auction because I know if I lose any C Block licenses, I won’t get stuck paying bilions for the licenses I did win but now no longer want.

The use of this combination of factors, along with the failure of the Commission to adopt an “either/or” rule that would require a bidder to go after either the D Block license or C Block licenses, makes me uneasy. I can see scenarios where a bidder gets the D Block cheap, then chooses to enhance coverage by bidding aggressively for one or two C Block licenses. That’s not necessarily bad, except it may prevent the creation of a second national player because it deprives the second national player of licenses it needs to complete its package (I’m not postulating deliberate blocking, you understand, I’m looking at the potential interplay of circumstances frustrating the likelihood of new national entrants). OTOH, the ability to bid on both D block and C Block may encourage bidders to be more aggressive in both blocks, and may create a larger pool of bidders for these blocks over all.

But what really worries me is the reserve prices. Why? See below . . . .

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