Yesterday was the day for companies interested in bidding in the 700 MHz auction to file their “Short Form” applications with the FCC. While it will still take a few days for the FCC to process the forms and for companies that made errors to correct the forms and give companies a chance to correct possible errors, we are seeing a few interesting developments already — notably in cable land. It is also interesting to see that MetroPCS and Leap never did get together before the auction.
On the cable side, no real surprise that most cable cos are sitting this one out. (Back in August, I already doubtful they’d want to play.) Actually, the mild surprise is that Cox is going it alone. I have not expected Spectrum Co. (the Comcast/Time Warner/other cable co joint venture) to bid, despite winning big in the 2006 and AWS auction and participating in the rulemaking for the 700 MHz auction. For one thing, thanks to the introduction of anonymous bidding, the cable cos cannot effectively target their industry rivals (like the telcos or the DBS guys) to drive up prices or block them altogether, as they did in the 2006 AWS auction. So a big motivator for the cable companies to participate, i.e. strategic blocking outside the value of the spectrum itself, is gone.
In addition, Sprint divorced itself from the partnership and shacked up with Google, leaving the cable cos with an ugly alimony settlement for the AWS auction and no wireless partner to help them build the network. And, finally, the cable guys haven’t figured out what the heck to do with the AWS spectrum they acquired last summer. While that went relatively cheap (45 cents/mhz pop), it still cost $2.5 Billion with nothing to show and a danger that if the cable cos don’t start building out a network they will lose the licenses at the end of the license term for failure to meet the mandatory performance metrics. (Licensees are required to meet build out and service requirements. The aren’t terribly onerous for the AWS band, but they do require you to build something and push a signal through it.) Given that the 700 MHz licenses have the most rigorous build out requirements ever (in no small part to ensure that folks like Spectrum Co. don’t win the spectrum and then “warehouse” it), the cable cos are very unlikely to buy spectrum on the off chance they’ll figure out something to do with it.
Finally, there is the big reason every is pointing to — the cable stock valuations. Cable stocks have declined significantly this year, both as a function of the general decline in the market and because it looks like Verizon bet right on fiber to the home. Competing against FIOS means that cable operators (particularly Comcast, Cablevision, and Time Warner) are in for another round of expensive capital investment to maintain their competitive footing or risk losing customers to FIOS. In this sort of situation, the last thing investors want to see is cable companies spending billions for licenses they can’t use unless they spend billions more to build networks from scratch.
This last is probably why Cablevision is sitting it out, despite vigorously playing in the AWS auction in ’06, and why Cox, which recently went private, has decided to toss its hat in the ring and play. Cox also has the advantage that licenses that overlap its territories (assuming it does not go for C Block or D Block) also have significant overlap with the area covered by AT&T with its purchase of Aloha. This potentially removes a major competitor for the A and B Block licenses, giving Cox a chance to get coverage of it’s network and offer a package of wireless and wireline services down the road. So Cox can ante up for a chance to catch a bargain without taking a stock hit. By contrast, Cablevision directly overlaps with Verizon for the licenses that cover its region and the adjacent markets into which Cablevision would want to expand. Verizon will fight like a tiger because it wants the spectrum, so the inability to block due to anonymous bidding does not help Cablevision. And, because Cablevision is publicly traded, even anteing for a chance to play will cost it big time.
UPDATE Apparently, Cablevision did file a short form. A Cablevision spokescritter said that Cablevision was reserving the right to bid, but declined to say if Cablevision would bid. Earlier stories I had seen said they wouldn’t bid. Well, I give them credit for trying. Good luck trying to break out of NYC.
All in all, I consider the elimination of Comcast and Time Warner as potential bidders to be a real win for the public interest. As I have written before, allowing cable companies to bid for this spectrum raises extremely serious competition problems and would make it virtually impossible to see a new, independent broadband provider emerge. Given that the 700 MHz auction creates a potential “transformative moment” for wireless broadband, and therefore potentially for broadband generally (especially the much hoped for “third pipe”), I breathe a huge sigh of relief to see the cable boys out of it.
Stay tuned . . . .