Not Giving Up On The Great Google Prophecy

You can read a far more brilliant analysis by Greg Rose on why the punditry on the trickle of data from the 700 MHz auction is all wrong here. Briefly, Greg maintains that this slow convergence on the reserve price over several weeks of bidding is what to expect from a serious auction, and that the failure of parties to bid heavily on C or D Block in the early rounds with so much activity going on in the smaller blocks is a sign of a strong auction to come. Little players on the side are active for the specific licenses that they want, while the large bidders slowly stalk each other up to the reserve price on the major block.

For me, having stacked much on the Great Google Prophecy, I will cheerfully admit to being too close to things to judge objectively. But here are two tidbits of food for thought.

1) Google CEO Eric Schmidt made the evolution of the wireless net a centerpiece of his speech at Davos. How likely is it that Google CEO would hype the importance of wireless if they were not planing to win licenses?

2) Most analysts predicted Google would come in, bid the reserve price for C Block, and leave. They haven’t. So far, no one has bid the reserve price for C Block. Instead, the price has crept up gradually. Now it could be that Google will only bid high if it must, for fear of getting stuck with licenses it doesn’t want. But if that is the case, why show up at all? “To save face with the FCC?” Yes, but we will know after the auction when the identities of bidders and round by round information is revealed if Google never bid. So the “save face” excuse doesn’t really hold water. Rather, it seems likely that they are bidding like everyone else, i.e., like bidders that want to win.

Straws in the wind, perhaps. But no worse than the straws of data everyone else is trying to spin into gold.

Stay tuned . . . .


  1. Assuming that this is like a bicycle race with the guy right behind the leader holding back before the sprint, Google better plan on meeting the reserve price at a minimum. FCC has the right to reject if all the bids are below the reserve. Not only that but somebody like Verizon could snipe a last minute bid and throw off Google’s game plan.

    What I have seen of auctions in the corporate world are two strategies. 1) Do like what is happening now, inch up to it. 2) Stake to the reserve price and see who gets wet feet. Now the latter strategy requires the bidder to have properly assessed that even at the reserve there is a known ROI exceeding the reserve that none of the competitors have fathomed.

    So I wonder, does that mean no one has done their homework?

  2. Harold,

    There is at least 1 very good reason no one has bid the reserve price for the C block yet — it is not allowed by the auction rules. The rules (and auction software) specifically prohibit jump bids. So the bids must go up gradually. Reading anything into that is folly.

    Second, the “little guys” face a big problem later in the auction because of the high reserve prices. Right now, the A block is at 34% of its reserve price and the B block is at 50%. Both are increasing because of competitive bids on the same blocks. Once that stops, if the total is below the reserve, the bidders face a real free rider problem, hoping that the other guys raise their bids. There is no mechanism like the minimum bids for the REAGs on the C block to push them.

    I hope that these two realities of the rules help in your musings about what is going on in the auction.

  3. Greg:

    First, as always, the reality of jump bids is appreciated. But again, we are not seeing the kind of activity we should be seeing if this were a march to reserve price rather than incrimental bids driven by genuine strategy. But we’ll see. It is, after all, still relatively early in the auction.

    I think we all agree that the reserve prices were not set in a way to maximize the rationality of the auction, but were designed for political cover and to ensure that the government would get $10 billion. And we may indeed end up paying for that in this auction — especially if the larger players hope to stay below reserve and trigger a reauction in A & B without the build out requirements.

  4. Greg Rosston is spot on regarding the auction rules prohibiting certain kinds of jump bidding with minimum acceptable bids, bid increments, and dollar caps on bid increments, viz., <a href=”…“>the relevant rules</a>. Part of the problem here is the conflict between politically-mandated revenue maximisation underlying high reserve prices and the desire not to have all the licenses go to large, extremely well-financed incumbents. The result is an extremely complicated set of rules which act to prolong the auction. I don’t think that these rules actually effect the outcome they were hoped to effect, but they are the rules we are stuck with. It would have been more effective to impose spectrum caps and forbid large incumbents from participating in the auction, but that was politically undoable, so we are left with half-arsed complexity trying to do an ineffectual job.

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