Wireless Companies Urge Auction Delay

The FCC has designated that the spectrum currently held by television stations for their analog broadcasts will be allocated for 3G wireless companies. They're getting ready to sell the licenses for it in a process similar to the one that put more than $30 billion into the public till in Britain last month. But the FCC has not bothered to set up a timetable to get the current occupants off the spectrum, saying only that it must be done by 2006. Nine companies sent a letter to the FCC explaining why this is a hardship they hope to avoid.

By Bill Mann (TMF Otter)
July 31, 2000

Nine major wireless telecommunications companies jointly sent a letter to the Federal Communications Commission (FCC) urging it to delay its scheduled auction of wireless licenses until June of 2001. The source of the problem is that some of the television stations that are vacating the allocated spectrum get to retain their rights until 2006, which greatly diminishes the present value of those channels to the wireless companies.

The petitioning companies -- including AT&T Wireless (NYSE: AWE), BellSouth (NYSE: BLS), Ericsson (Nasdaq: ERICY), Motorola (NYSE: MOT), Nextel (Nasdaq: NXTL), Verizon (NYSE: VZ), and Vodafone Airtouch (NYSE: VOD) -- asked that the auction be delayed until a firm plan for hand over can be negotiated with the broadcasters. Absent such a plan, the carriers taking over the spectrum will be unable to properly formulate their business strategies in using the new spectrum.

After the recent U.K. spectrum auction, which cost the winning companies an aggregate $30 billion, the carriers are rightfully concerned that they will be forced to bid on incredibly expensive airwaves without a firm strategy for putting them to use.

The preparations for third-generation (3G) wireless are well underway in the United States -- as elsewhere -- with all of the big carriers and manufacturers jockeying for position in providing the service. But the enormous cost of the licenses in the U.K. auction, and subsequent ones sold in Europe and in Asia, has meant companies are being put in the untenable position of bidding on a limited number of licenses they feel they must have to stay viable.

The FCC, for its part, has yet to put together guidance for moving the current occupants of that same spectrum, which means that companies could be spending billions of dollars for licenses with no way of forecasting when they can begin to recoup their investments.

So for the FCC -- which has already delayed the auction once -- to proceed as scheduled would show a severe lack of foresight. For one, without a schedule for moving the TV stations off the spectrum, they would be forcing the carriers to bid on something with questionable present value but enormous future value. And though the FCC certainly has the opportunity to gain an enormous amount in licensing fees from the auction, the more certainty the bidders have, the more the government might expect the licenses to fetch.

Buyer Beware -- Company, Investor, and Consumer
I'm not a big fan of this process. As the U.K. situation shows, the government is in the position of being both the arbiter and the beneficiary of the auction. But this is the system we've got, so there's little use in grousing about it.

It therefore becomes the government's (read: the FCC's) responsibility to ensure that the auction is done in a way that provides maximum benefit to the bidders, without trampling the already infringed-upon rights of the current occupants. Going through with the process now meets the needs of neither, and as a result the companies, their shareholders, and their consumers are set to suffer.

Your Turn:
Come give your thoughts on the FCC spectrum auction at our Wireless World discussion board. Should it go on as scheduled? What risks do you see in delaying the auction?

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