U.S. spectrum auction prices jump to $12.9 billion

Total bids for new wireless spectrum hit US$12.9 billion yesterday, a $1.2 billion jump since the last auction round Dec. 21.

Verizon Wireless Inc. in Bedminster, N.J., was the leader in yesterday’s bidding, with a total of $4 billion. Two small companies backed by major carriers finished the 27th round of the auction just behind Verizon.

Alaska Native Wireless, a consortium of Alaskan corporations based in Fairbanks with a 39.9 per cent interest held by AT&T Wireless Inc. in Redmond, Wash., submitted high bids of $2.76 billion. Salmon PCS in Chevy Chase, Md., backed by Cingular Wireless in Atlanta, had total high bids of $2.2 billion.

The deep-pocket backing for smaller companies that received “entrepreneur” status from the Federal Communications Commission – and a 25 per cent discount on the cost of their bids – has caused one small entrepreneur to give up the fight for a license. Paul Posner, president of Allegheny Communications Inc. in Pittsburgh, said his company offered $32 million yesterday for licenses in the San Antonio market but couldn’t continue fighting today against entities backed by AT&T and Cingular.

Posner said the high prices in the San Antonio market were, in his view, “purely” due to the heavy financial backing Salmon and Alaska Native have received from their partners. A spokesman for AT&T Wireless declined to comment on Posner’s statement. Cingular Wireless didn’t return calls for comment.

While some analysts have predicted the auction will continue until it reaches $20 billion, the price they believe national carriers will pay for increasingly limited spectrum, at least one analyst and investor said the spectrum isn’t worth such inflated prices.

Francis McInerney, a partner at North River Ventures New York, called the current auctions “a waste of time and money. “It’s the wrong piece of spectrum at the wrong time.” McInerney said unlicensed spectrum in the frequency range used by wireless LANs is riper for exploitation based on the ability of that spectrum to support data rates at 10M bit/sec., as opposed to the 144M bit/sec. maximum for the cellular frequencies up for grabs in the current auction.

That dovetails with the thinking of Mark Goode, president and CEO of Mobilestar Network Corp. in Richardson, Tex., which earlier this week signed a deal to provide wireless LAN connectivity for customers in the 3,000 coffee shops operated by Seattle-based Starbucks Coffee Co. in North America.

Goode said carefully engineered wireless LAN technology could also be deployed to cover wider areas, adding that he is in discussions with unnamed railroads to provide high-speed wireless LAN service in the Northeast corridor.