Spectrum auction exceeds expectations

With the imminent rise of third-generation wireless standards, established service providers and start-ups have demonstrated a willingness to empty their pockets for spectrum licenses in prime markets such as New York, Los Angeles and Chicago.

The Federal Communications Commission's latest wireless spectrum auction, which ended late last month, netted a surprisingly hefty $17.6 billion.

Verizon Wireless, VoiceStream and Cingular Wireless - SBC and BellSouth's wireless joint venture - were among the bolder auction participants. Alaska Native Wireless, a cooperation of Native American-owned companies that are partnering with AT&T, was one of the most active entrepreneurial companies.

Most industry watchers estimated that the FCC's auction would bring in about $15 million, says Eugene Signorini, analyst at the Yankee Group.

Verizon Wireless showed that it was not going to allow another service provider into New York, where it is a market leader, Signorini says. The company is spending $2 billion on licenses in New York alone.

Wireless service providers are also more concerned than anticipated about having enough spectrum to support 3G services. Although the FCC is planning another spectrum auction this year, Signorini says it may not take place as soon as was originally expected.

The FCC was scheduled to auction off the 700-MHz wireless bands in March, but announced last week that it is postponing the auction until September 12. This is not the first time the FCC has delayed the auction - the licenses were originally set to be auctioned off last September - but it's not surprising the process has been postponed yet again. Issues such as existing television companies using the spectrum are still lingering, Signorini says. And wireless service providers that were betting on beefing up their networks with 700 MHz spectrum have lost confidence in the FCC's ability to get that auction off the ground.

No provider wants to be left behind when it comes to keeping up with 3G deployment. There isn't a set amount of spectrum that a provider absolutely needs to support 3G, but 15 MHz to 30 MHz seems to be the range that many are striving for. The 3G services will allow users to send wireless data transmissions at up to 384K bit/sec and increase the battery life of most handsets.

Verizon Wireless won two of the three PCS spectrum licenses in the New York area. Alaska Native Wireless nabbed the other. Verizon is spending $8.8 billion for spectrum in Los Angeles, Chicago, San Francisco Philadelphia, Boston and Washington, D.C.

Alaska Native Wireless is spending $2.9 billion for licenses in New York and Los Angeles. And Salmon PCS, a partnership between Cingular Wireless and Crowly Digital Wireless, is spending $2.3 billion for licenses in Boston, Dallas and Los Angeles.