Danger Looms in 600-MHz Spectrum Auctions

Every now and then, mobile service, device or application providers make big mistakes. Microsoft “missed” the importance of the Internet. Nokia missed the importance of web browsing. Mobile service providers have misjudged the value of spectrum and nearly bankrupted themselves.

Given the surprise run-up in prices bid for 700-MHz AWS-3 spectrum, results already are being seen in reverse auction prices for 600-MHz spectrum auctions.

In some cases, initial prices have been reset at an order of magnitude higher ranges. In New York City, the median bid for a full power station rose to $660 million from $410 million.

In Los Angeles, initial prices  jumped to $560 million from $340 million.

In Portland, Ore., the initial price  rose to a median of $170 million from just $18 million. In Nashville, Tenn., prices climbed to $220 million from $20 million

There’s danger here.

When auctions for third generation network spectrum were held in Europe, carriers overbid, creating financial pressures that nearly bankrupted a number of tier one service providers. (“Shocking,” some sarcastically will note).

And every cost anywhere in the delivery ecosystem utlimately is paid for by end users. So higher spectrum prices will mean higher retail prices, one way or the other.

Concern about excessive prices already has arisen in some 4G auctions. On the other hand, there has been some speculation that 700-MHz AWS-3 prices were bid up so much because carriers think the 600-MHz auctions might not provide as much value.

Indeed, the very structure of the reverse auction process encourages “high prices.”

In a two-step process, the auction has to encourage TV broadcasters to part with spectrum by offering large payments. Only then will spectrum be made available for mobile service providers to buy.

So high initial prices are not necessarily the ultimate prices buyers might pay. Also, the voluntary clearing process also means it might be hard to assemble uniform national footprints of new spectrum. That might lead to lower prices in secondary and tertiary markets.

Also unclear is what other developments in the spectrum area might occur. Dish Network has amassed a significant collection of spectrum assets to enable it to launch a new Long Term Evolution mobile network.

Whether Dish Network ultimately will do so is not clear, though. Some think Dish Network might ultimately simply sell the spectrum to another firm, or might create a national wholesale business, or sell all of Dish Network--video business and spectrum--entirely.

Any of those moves would affect demand for 600-MHz spectrum.