700 MHz Auction - Latest Update

Ahead of the auction officially starting on January 24th, I'd previously posted a couple of blog entries that gave some of the background into the process, and why this spectrum is potentially important.

As a reminder, the auction is for a total of 60 MHz of spectrum, broken down into 5 Blocks (A through E). Block C is the most attractive block as it contains the most bandwidth -- 22MHz in total, broken into two 11MHz pairs -- and also because it consists of fewer regions, making it easier to assemble a contiguous, nationwide network. Also (primarily thanks to Google's lobbying efforts, and their commitment to meet the reserve bid of $4.6bn), the winner of this block must commit to creating an open-access network, meaning any device capable of supporting the appropriate protocols gets to play.

As always with the FCC, the processes and procedures tend to be a little bit more complicated than most people would like. Here's a summary of how 'Auction 73' works.

• Bidding began on January 24, in two consecutive rounds. Every business day, there is a total of three bidding rounds. After each round concludes, the FCC discloses the current asking price for each block without revealing anything about the winning bidders. Bidding continues indefinitely until no additional bids are placed.

• The reserve price for Block A is $1.81 billion; Block B, $1.37 billion; Block C, a whopping $4.64 billion; Block D, $1.33 billion, and Block E, $904 million. If at the end of bidding any reserves have not been met, a new auction, Auction 76, will automatically be spawned.
  

• The FCC's open-access requirement on Block C would be dropped if Auction 76 is triggered, fueling rumors that Google intends to bid up to the reserve price and then drop out. The date and new reserve prices for the remaining blocks would be decided when (and if) it's determined that Auction 76 is necessary.

So, here we are on day 5, and let's see how things stand:

• On most hotly contested C block, the current high bid is $4.3b, while the next qualifying bid must be at least $4.75b.

• As a whole, the auction has to gross over $10.3b, and that mark was also hit around noon today with $10.8b bid so far. That means that it’s extremely likely now that the auction will conclude successfully, and that the C Block will be won

• On the mixed public safety/private use D Block, the reserve price is $1.4b, but the bidding has hit only over $500m. If the bids don’t reach the reserve price, the block will likely be reformulated. Just days before the 700MHz auction began on Jan. 24, Frontline Wireless, one of the chief champions of the public/private public safety auction plan, dropped out, unable to secure adequate financing for the project.

While there are a total of 214 bidders for the various bands of spectrum, three players are considered front-runners for the C Block; Verizon Wireless, AT&T and Google. Industry watchers believe that having expended a lot of political capital in getting the open access provision included, Google are only staying in the race until the qualifying conditions are met, and they can gracefully decline to bid any further. Both AT&T and Verizon Wireless are looking at this Block for implementing their 4G plans (even though AT&T is already acquiring Aloha Partner's 700 MHz licenses. Thanks to the 70 MHz of spectrum that they have in many major markets (which is earmarked for their Xohm WiMAX roll-out), Sprint are sitting this one out, which is just as well, given their current financial situation.

All in all, while we don't have the final numbers in (sounds a bit like a primary, doesn't it), it seems like the auction is on track to a successful conclusion. Clearly, if the open access provision kicks in, we are all set to win. Google's CEO, Eric Schmidt, put it this way - “No matter which bidder ultimately prevails, the real winners of this auction are American consumers who likely will see more choices than ever before in how they access the Internet.”