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Thursday, August 10, 2006

AWS-1 Auction - Day 2 Observation 1

There is currently reluctance for the big players to bid on the smaller CMA and BEA licenses.

For an illustration of the problem, look at the Top 50 markets represented by CMA001 to CMA050. 26 of these licenses currently have no bid. Los Angeles has had 2 rounds of bids and only 1 – New York have people bothered to bid in every single round. All of the other 22 licenses have only had 1 bid. T-Mobile is in the lead in 19 of the markets having bid in round 1.

The reason for the reluctance for bidding is explained on a small scale with this example from Hawaii.
Say you want 20MHz in Hawaii and bid $100m in the REA008-F, someone in the next round bid $110m for the spectrum, but you notice that the cumulative bids on CMA050 ($20m), CMA385 ($10m), CMA386 ($10m), CMA387 ($10m) are only $50m so you place a bids on each of the individual licenses. As the bidding evolves the price of CMA050 rises to say, $150m, whereas the total price for the region rises to $160m. This is perfectly rational if the bidders value the “rural” areas of Hawaii at next to nothing. It could also mean that you could be left with “stranded” licenses in the rural areas which are only worth something when “bundled” together with the major license CMA050.
It will be interesting to see when the big players (ie Cingular, Verizon, T-Mobile and Wireless DBS) stop bidding on REA-F licenses and start moving into the smaller pool. This will be some sort of signal that they believe the value of REA-F has peaked.

For some like Wireless DBS, it may be pointless actually owning the smaller licenses as the value is only if then have spectrum which they can offer to all its’ base, hence the reason it seems to be the only major bidding in Alaska....