PCS License Auction Gets Going Today : Telecom: Big players dominate what’s expected to be the biggest FCC wireless permit sale yet.
After weeks of publicity and financial jockeying, a surprisingly large number of companies will sit out today’s start of the federal government’s multibillion-dollar auction of licenses for a new generation of wireless phones.
But the absence of numerous prospective bidders is unlikely to dim the luster of an event that will be presided over by Vice President Al Gore and Federal Communications Chairman Reed E. Hundt, and has attracted many of the biggest names in telecommunications.
Today’s auction of 99 broad-band licenses to launch an affordable mobile phone network for the masses will be by far the largest and most important in a series of controversial license sales that began this summer and have so far widely exceeded financial expectations.
“This could be one of the defining moments for wireless communications,” said Todd Wolfenbarger, a spokesman for McCaw Cellular, the nation’s largest cellular phone operator.
The personal communications services, or PCS, license auction will offer a rare opportunity to get in on the ground floor of what some predict will become a booming $40-billion-a-year market for wireless communications by early in the next century.
PCS holds the promise of go-anywhere mobile communications that will permit consumers to send and receive phone calls, computer data and faxes through devices as small and as unobtrusive as a wristwatch. They could be available in major cities within a few years at a monthly rate below that for cellular phones.
“From the nation’s perspective, the auction is important in paving the way for vigorous hand-to-hand competition in wireless markets,” FCC Chairman Hundt said. “In the very near future, mobile communications is going to be (as commonplace) as the sale of bread . . . .”
The auction, which will likely last several days, is expected to generate more than $10 billion over the next five years--more revenue than Uncle Sam has raised over the past half a century selling offshore oil-drilling rights to private companies.
Although 74 applicants met a registration deadline to bid on licenses for the wireless telephone technology, just 30 later submitted the hefty cash deposits to qualify them to bid.
The last-minute no-shows in the FCC auction include such prominent players as the computer data giant EDS of Plano, Tex., Radio-fone Nationwide Paging Services of Matarie, La., and U.S. Airwaves, headed by a former US West executive.
Although a recent Standard & Poor analysis determined that some of the biggest auction participants could borrow as much as $5.6 billion to pay for PCS licenses, the large number of no-shows has added to concern that bidding in the FCC’s richest auction may not be as spirited as the first one in July. That event drew $800 million in bids--about 10 times more than expected--for 10 nationwide licenses for a new wireless paging service.
The Justice Department has been investigating whether some recent alliances formed to bid in the PCS auction could violate federal antitrust laws. The probe was launched after several big telecommunications companies--including three of the regional Bell telephone companies as well as two of the nation’s biggest long-distance carriers, AT&T; and Sprint Corp.--began forming partnerships or acquiring rivals to fortify their financial war chests for bidding.
The competitiveness of the bidding might be further undercut by the fact that the FCC has already awarded--at below-market prices--three lucrative PCS licenses covering Southern California, New York City and Washington, D.C., under a controversial preference policy to reward PCS technology innovators.
“I don’t think that the average PCS price will be all that high,” said Betty Massick-Columbo, a telecommunications analyst at S.G. Warburg & Co. in New York. “The alliances that are being formed dramatically reduce the number of bidders for each market (and) . . . the business case for the financial viability of PCS is unclear enough that the companies will be very careful in their bidding strategies.”
Amy Damianakes, a spokeswoman for PSC Primeco, the PCS limited partnership of Bell Atlantic, Nynex, US West and AirTouch Communications, would not comment on the strategy of her partnership, but agreed that bidding could be cautious.
“I think you have to be very clear on your strategy and price points,” she said. “It’s going to be a long chess game.”
The FCC has spent nearly $400,000 to outfit a vacant postal service room near the Capitol with more than 20 bidding booths and a dozen operator phone banks to field bids from auction participants.
Bids will be entered on the computer terminals and conducted in three-hour-long rounds, and participants will be allowed to re-evaluate their initial bids or drop out of competition for 20 minutes after each bidding round.
Exhausting bidders’ financial resources could take some time, however, since the 30 participants include many telecommunications heavyweights.
All seven of the regional Bell companies are bidding, for instance. Three of them--US West, Bell Atlantic and Nynex--are part of a consortium headed by cellular provider AirTouch Communications and have plunked down a deposit of $55 million to bid on 26 PCS licenses.
Another consortium made up of long-distance carrier Sprint Corp. and three of the nation’s largest cable TV companies is also bidding on more than two dozen licenses. Other deep-pocket bidders include AT&T; and its recently acquired McCaw Cellular unit, GTE, Pacific Telesis Mobile Services and a new company called ALAACR Communications, which is headed by cellular phone mogul Craig McCaw.
Several PSC applicants that dropped out of competition said they were deterred by the financial firepower of these big players.
Vitelcom, the wireless subsidiary of the Virgin Island telephone company, said it applied to bid and was financially prepared to submit a multimillion-dollar deposit but was scared off by the competition.
“It was not the deposit but the financial commitment overall and what it would take to play seriously against these other companies,” said John W. Hunter, a Washington communications lawyer who represents Vitelcom.
The absence of a diverse PCS ownership pool for the large licenses, however, could thwart development of the kind of intense competition that drove down long-distance phone rates following the breakup of the AT&T; monopoly, some critics say.
Even some auction participants now concede that PCS won’t compete head-on with the cellular phone network but, rather, will compliment it because so many PCS bidders are made up of cellular firms looking to fill holes in their coverage areas with new wireless technologies.
“I think more and more people are not looking at PCS as replacement technology, but looking at it as an extension of cellular at a different (radio) frequency,” said Wolfenbarger of McCaw. That synergy, he added, is what attracts companies like McCaw to PCS.
