700Mz spectrum valuations - II

Well, its official. Verizon is the biggest winner of the 700MHz spectrum auction with AT&T coming close second. And it should be a disappointment for all those Google fans out there as the company failed to win any spectrum (Well, is this really a disappointment ? The Open Access guidelines as Google wanted still stay !! Lets keep the analysis part for later). The Auction netted around US$19.5 Bn to the governments kitty, a tad short of the expected US$20 Bn. Although the auction lasted for more than 50 days, nothing much happened the whole of last month with the bids just about coming in at base levels to keep the auction alive - this is quite understandable as the bidders may want to evaluate and reevaluate their options.

Let us take a closer look at what was on platter. A Total of 62 MHz was up for grabs during the auction with 22MHz for C-Block(12 regional licences) which came with open access rules. The D Block, a nationwide licence comprised of 10MHz but again it was paired with public safety deployment guidelines. The Rest of the blocks A,B & E made up the rest 30MHz of spectrum and mostly made up of licences for regional/local areas. So who wins what ?

• Again i cannot help but start with the C Block where Verizon has won 7 of the 12 licences. It might have been a intentional strategy by Verizon not to bid for the rest 5 licences as it mostly comprised of "not-so-attractive" markets like Puerto rico, Alaska, American samoa etc.
• It was never AT&T's strategy to aggressively bid in the auction, thanks mainly to the acquisition of Aloha Partners where it got more than 10MHz of spectrum in this band. It was however a big winner for the B Block auction where it won small regional licences. It will surely use these licences to complement the spectrum it already possesses in this band and extend the service coverage.
• So the auction for C Block must have been a two horse race between Google & Verizon. Google as originally committed would have quit the auction at reserve price leaving the next highest bid(that of Verizon) to win that block. The Fact that the coveted C-Block got sold at just above reserve price will definitely come as a disappointment to FCC.
• However,the disappointment on the face of auction was the D-Block spectrum where the bids fell much much lower than the reserve price. The FCC has now officially delinked D-Block from the auction and it is still unclear what it is going to do with the spectrum. Frontline Wireless & Qualcomm were the main bidders in this hallowed block, and I still cannot figure out the business rationale behind Qualcomm bidding for this Public Safety block.
• And if you thought that the auction will throw up new nationwide operators then you ought to be disappointed. Apart from Chevron, which won a regional licence, there were hardly any new faces in the winners column.
• Everyone believed that this auction would present the cable operators with their best chance of entering the wireless space. But "Everyone" were proved wrong. None of the cable operators apart from COX (which again was limited to regional presence) had anything to show for after the auction.
• Believers of the "third" pipe who were expecting that the auction will open up a third pipe (after mobile & DSL/wireline) into people's homes were doing only that, continue to "believe" after the results were officially declared.
• Echostar, a DBS powerhouse is the next big winner after Verizon and AT&T at the auction but it is still not clear how the company plans to use those licences. Will it convince an existing operator (T Mobile ???) for a tieup or will some cable operator (who has missed out on the spectrum during the auction) be a probable partner.

So, how will the eventual scenario shape up ? People may believe that Google after lobbying successfully for open access with FCC, is still a winner but i believe that with Verizon holding the spectrum that matters, Google may have to lobby doubly harder to ensure FCC pushes Verizon to strictly implement open access. Verizon on its part will continue over-selling devices in normal spectrum and underselling those that fall under open access. You can control and govern what applications ride my networks but you cannot control the way I market or sell stuff and do my business. Keeping this whole "open access" thing aside, I still have a huge committed shareholder base to whom I'm answerable. This is surely a huge disappointment to the likes of Skype, Google etc. Remember, there are still no working manuals & guidelines to tell Verizon what exactly comprises open access. If i were Google and if i was knowing that Verizon is walking away with a piece of spectrum that forms an integral part of my strategic growth path then i would certainly have got aggressive at the auction (considering the kind of financial backing that Google has) and would have bid above the originally committed bidding at reserve price.

But where were the cable guys ? Did the Pivot tie up with Sprint change their minds? Are they evaluating other options like WiMAX? The Response of the Cable lobby certainly leaves everyone disappointed including the FCC. It may have been one of the main reasons why 700 MHz didn't fetch what it should(leaving reasons like Economic slowdown aside). Sprint distanced itself from the auction citing enough spectrum availability to cater to its strategic requirements. T Mobile has presently got its interests laid elsewhere in FMC & UMA. Verizon turned "open", just days before the start of 700 MHz auction and I'm really sorry that I'm having to say this, but it may have entered(and won) the auction to block competition and entry of new operators in the wireless space thereby threatening its oligopoly. Kevin Martin, the chairman of FCC may declare the auction as a resounding success but if fetching money was his reason to celebrate then he deserves all the kudos and celebrations. Keeping the monetary aspect aside, the auction in its true sense is well and truly a failure. The fact that out of the $19.5 Bn that has been garnered from the auction, around $16Bn will be paid by Verizon & AT&T doesn't sound healthy at all. The Digital TV switchover is expected to be completed by the start of 2009 and the spectrum should be ready by February 2009, by which time we should have some clarity on the plans of Verizon. But at the moment, the consumer is left high and dry, contemplating "Competition ?? What Competition ??"

As with the rest of my posts, only time knows the future.