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Cellcos face challenge from satellite, cable cos in AWS auction

Top 10 bidders commit $4bn in upfront fees

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Analysis One of the US's largest ever spectrum auctions kicks off this week, with 168 companies listed as applicants for a share of the AWS (Advanced Wireless Spectrum) band, which could support 3G or other broadband wireless services.

Auction 66 is for 1,122 regional licenses in the 1710-1755MHz and 2110-2155MHz bands. The seemingly endless and often highly technical bickering over the rules for bidding have finally been resolved, but continue to be at the forefront of discussions, as the FCC regulator starts to consider how far it needs to change a creaking system in time for the auctions of even more desirable former analog TV spectrum in 700MHz, due to take place in early 2008.

The bidders

The level of upfront payments is certainly a strong sign of interest and commitment and reveals the likely major bidders - and so the likely big winners. The top 10 bidders alone put up almost $4bn in deposits:

  1. DirecTV/Echostar/Liberty, $972m
  2. Sprint-Cable Co joint venture, $637m
  3. T-Mobile USA, $583m
  4. Cingular Wireless, $500m
  5. Verizon Wireless, $383m
  6. Leap Wireless, $255m
  7. MetroPCS, $200m
  8. Cablevision, $149m
  9. Nextwave Broadband, $142m
  10. US Cellular, $80m

Gone are the days when the cellular operators largely had to bid against each other - often through smaller regional proxies - for valuable mobile-suited bandwidth. Now they are facing competition from cable and satellite TV firms and many non-traditional operators, encouraged by the US technology neutral approach.

The FCC has already raised $4.3bn (out of an expected total netting of $15bn) in upfront payments that companies put down as a deposit to reserve the right to bid. The largest of these was almost $1bn and came from a consortium of the two US satellite TV broadcasters, News Corp unit DirecTV and EchoStar.

DirecTV is also understood to be close to completion of an agreement to use the broadband wireless network and spectrum of 2.5GHz operator Clearwire to add a broadband return path and potential quadruple play to its satellite services - a venture that could also incorporate EchoStar.

Success in the AWS auction might be an alternative to a partnership with Clearwire, but could equally well complement it, creating a larger total store of spectrum and faster roll-out opportunity for the satellite players, as they battle to match the mobile triple play ambitions of the cable operators and the large telcos. Both these major groups are also in the running for AWS spoils.

The telcos, which are building a quad play based on IP services delivered over a combination of fiber, DSL and mobile networks, are building up the spectrum arsenals of their mobile arms, although in this particular auction, Verizon Wireless is expected to be more aggressive than the mobile arm of AT&T BellSouth, Cingular Wireless.

T-Mobile USA is in bad need of an AWS win since it lags behind the other national players in terms of 3G spectrum, but its nearest challenger, Alltel, is sitting this one out, complaining about the quality of the frequencies on offer and reserving the cash pot it has set aside for such purchases for the 700MHz sale in over a year's time.

The cablecos, for their part, are also working in cahoots. Four majors - Comcast, Time Warner Cable, Cox and Advance Newhouse - already have a mutual joint venture to use Sprint Nextel's current and future wireless networks to deliver a mobile quadruple play.

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