Econoklastic

700 MHz: More Evidence for Success of Anonymous Bidding Rules

I’d like to reiterate what fellow Wetmachiner Harold Feld wrote yesterday: the telecoms incumbents’ claims of problems arising from anonymous bidding are nonsense, part of a campaign to sow disinformation lest Auction 73 (700 MHz) and its success persuade the FCC to permanently adopt anonymous bidding rules for its auctions.

I call your attention to this table, which compares the number of bids on each license in B Block in rounds 1-26 of Auction 73 to the number of bids on each comparable CMA in Auction 66 (AWS-1) in rounds 1-26 of that auction. Note that in general the smaller the CMA number, the larger the population of the CMA (e.g., CMA001 is New York City and its immediate environs, CMA002 is the Los Angeles area, etc.).

What is striking about the data presented in this table is threefold. First, significantly more bids are being placed in general in rounds 1-26 in Auction 73 than in Auction 66. Second, extraordinarily more bids are being placed on the smaller and intermediate-size CMAs in Auction 73 than in Auction 66. Third, a much smaller percentage of licenses are receiving no bids in the first 26 rounds in Auction 73 than in Auction 66.

I am hard put to find an explanation of this extraordinary increase in competition, particularly for the smaller and intermediate-size licenses, which does not involve the effects of anonymous bidding. I suggest that the data, even though they do not disclose bidder identities, are entirely consistent with a more vigorous presence of new entrant and non-incumbent bidders who are protected from retaliatory and blocking bidding by large incumbents by anonymous bidding and are, therefore, more willing to engage in strong competition.

The telcos and cablecos can wail and moan to Communications Daily about the “risks” of anonymous bidding to the FCC, but the principal risk of anonymous bidding seems thus far to be the risk that fat-cat telecoms incumbents won’t be able to get all the spectrum in this auction by their usual bullying and exclusionary tactics. There’s no risk at all to the treasury — revenue from the auction is already wildly exceeding pre-auction projections — and there’s no risk that competition will be wan, as the data presented here amply demonstrate.

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Econoklastic

Definitely Not Smarter Than the Average Bear

Much of the press surrounding the first two days of the FCC’s 700 MHz auction has been like this Information Week story. I confess to being both amazed at the shallowness of the reporting and amused at its gloom and doom tone. To hear the press tell it, it’s time to be very bearish on this auction.

A look at historical precedent is salutory. The FCC’s Integrated Spectrum Auction System files for Auction 66 and Auction 73 are the places to start.

At the end of round four in Auction 66 (AWS-1), the high bids for the EAs, CMAs, and REAGs were, respectively, 4.15%, 7.09%, and 12.03% of the final net PWB prices with 47.84% of licenses receiving at least one bid. At the end of round 4 in Auction 73 (700 MHz Band) the high bids for EAs (A and E Blocks), CMAs (B Block), REAGs (C Block), and the nationwide D Block license were, respectively, 31.87%, 43.03%, 39.06%, and 26.99% of reserve price with 83.80% of licenses receiving at least one bid.

Auction 66 netted $13.7 billion. Auction 73 has a reserve price threshold of $10,386,011,520. By any objective criteria Auction 73 is off to a much better start generally than Auction 66 was. The fact that the D block has had only one bid in the first four rounds isn’t terribly unusual; several licenses which eventually went in Auction 66 for very substantial sums had very little early-round action. It’s important to point out that auctions with relatively high reserve prices tend to exhibit slow convergence bidding on reserve price and provide significant incentive to try to obtain the license for as little over reserve price as possible. When this tendency is coupled with the FCC’s bidding increment rules, it is rather obvious that the auction is going to take some serious time and that it’s rather impressive how close to reserve price the bidding is at so early a stage.

Auction 66 ran 161 rounds. I expect Auction 73 to run at least 100 rounds, and probably significantly longer. It is much too early to announce that the results of Auction 73 are disappointing… unless you appear to know as little about how FCC spectrum auctions actually work as much of the press does.

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Econoklastic

The 700 MHz Band Auction, Part IIIb: More Mid-Range Competitors

Once 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 Mid-Range Competitors (Continued)

Cablevision is bidding as CSC Spectrum Holdings LLC. In Auction 66 it bid as Dolan Family Holdings and got creamed by incumbent blocking bidding. Cablevision unsuccessfully bid on two EAs, AW-BEA010-B (NYC-Long Is. NY-NJ-CT-PA-MA-VT) and AW-BEA010-C (NYC-Long Is. NY-NJ-CT-PA-MA-VT), and the following CMAs: AW-CMA001-A (New York-Newark, NY-NJ), AW-CMA042-A (Bridgeport-Stamford-Danbury CT), AW-CMA062-A (New Brunswick-Perth Amboy NJ), AW-CMA070-A (Long Branch-Asbury Park NJ), AW-CMA144-A (Orange County NY), AW-CMA151-A (Poughkeepsie NY), AW-CMA551-A (Ocean NJ), and AW-CMA552-A (Sussex NJ). Cablevision unsuccessfully sought all three licenses for the Northest REAG: AW-REA001-D, AW-REA001-E, and AW-REA001-F. The pattern is straightforward: replicate the footprint of their cable service in the NY-CT-NJ region in the A and B Blocks and try for one of the Northeast REAGs. Cablevision didn’t get it in AWS-1 and it has to do well in Auction 73 or its triple play options are seriously curtailed. Anonymous bidding helps Cablevision only a bit, because the chief competitors know exactly where they have to bid and it is prime spectrum in the richest market in America.

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Econoklastic

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

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.

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