The Wall Street Journal-20080115-FCC-s Airwaves Auction May Fail to Lure Bidders
Return to: The_Wall_Street_Journal-20080115
FCC's Airwaves Auction May Fail to Lure Bidders
WASHINGTON -- Federal regulators' bet that companies would leap at the chance to buy heavily discounted airwaves in an auction may be collapsing less than two weeks before the auction begins.
Federal Communications Commission officials are hoping for the best, noting that big carriers such as AT&T Inc. and Verizon Wireless could potentially bid for the discounted airwaves, which include conditions requiring the winner to share its wireless network with emergency responders.
But the recent demise of the most likely new bidder, start-up Frontline Wireless LLC, which pushed for the nationwide license, means that the likelihood of a new national wireless competitor has dropped.
"We are still hopeful that there will be someone who will emerge as being willing to take on this challenge," one FCC official said.
Yesterday, the FCC said 214 bidders have qualified for the auction, which is expected to raise at least $10 billion. Google Inc. and big wireless companies including AT&T will likely focus on larger regional blocks, which could be put together to form a national wireless network.
Less than two weeks from the auction's Jan. 24 start, however, there may be no white knight coming to claim the discounted airwaves. The deadline to apply for the auction closed well before word of Frontline's shuttering became known.
If the $1.33 billion reserve price isn't met, FCC officials could be put into the uncomfortable place of re-auctioning the spectrum, possibly without some or all of the stringent conditions that it has imposed on the airwaves.
It isn't clear yet which companies might bid. The FCC's auction rules bar companies from discussing the auction. The agency won't release information about which companies bid on which airwaves until the auction ends.
Frontline, led by former FCC Chairman Reed Hundt and venture capitalists John Doerr and James Barksdale, hoped to bid on the 10 megahertz of spectrum set aside by the FCC for joint use by the private and public sectors. Although the start-up successfully convinced the FCC to give it a 25% small-business-discount credit to bid in the auction, the company's founders were unable to raise enough capital to make the $1.33 billion minimum bid, according to people familiar with the matter.
"Just like the New Hampshire primary, you don't know until it happens. Surprises can happen," said Blair Levin, a telecom analyst at Stifel Nicolaus.
But with Frontline the only company to publicly raise its hand to bid on the license, it isn't clear who else might be seriously contemplating it. "There aren't a lot of wildcards in the deck here," Mr. Levin said.
The FCC auction involves some of the nation's most valuable airwaves. Those airwaves are being used by broadcasters to send analog television signals. Next year, however, the U.S. is scheduled to transition to digital-only television broadcasts, which take up a fraction of the current space.
Congress set aside a large section of the airwaves for the use of public-safety groups, but building a network to take advantage of the extra airwaves was estimated at as much as $10 billion. The FCC adopted a plan to offer discounted airwaves to a company willing to share its network with public-safety groups. The company would be required to give first responders priority access to the network during emergencies.
Addressing concerns about selling government property at a discount, the FCC adopted stringent new rules on the spectrum, which may have scared off some investors and potential bidders. The winning bidder would have to put up a $128 million nonrefundable down payment and would be required to satisfy conditions of a nonprofit set up to oversee the creation of the national wireless broadband network.
If no bidders reach the minimum price, the FCC has several options, including awarding the airwaves to the highest bidder. In July, the agency introduced rules for the auction, noting that if the reserve price isn't met, "we should leave open the possibility of re-offering the license on the same terms in a subsequent auction, as well as the possibility of re-evaluating all or some" of the conditions.
The FCC could dump the requirement that the winner shares its national wireless network with public-safety groups. It could also give the winner significantly longer to build out its network to cover more than 99% of the population than the current 11 years.
Congress mandated that the auction begin by the end of January with the proceeds deposited by the end of June.
