700 MHz Auction Takes On Texas Hold 'Em-Like Aura

Jan 25, 2008 (12:01 PM EST)

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While bidders in the FCC auction of wireless spectrum in the 700-MHz band are anonymous, a few clues to their strategy emerged at the close of Round 4 in the bidding on Friday afternoon.

As in a tightly contested game of Texas Hold 'Em, the prevailing plan seems to be "Play it cautious, stick to the minimum bids, and wait for your opponents to drop out."

Total bids reached $3.7 billion, just over one-third of the way to the FCC's total combined reserve price (i.e., minimum winning bids) of $10 billion. A total of $503 million in additional bids were placed in Round 4 over the third round; but interestingly, about $300 million of that was offered for one chunk of spectrum -- the so-called "C block," a nationwide package of licenses that was expected to gain the most interest (and the most dollars) from major wireless carriers Verizon Wireless and AT&T.

So far, each round has seen one bidder up the ante on the C block to the minimum bid required for that round. The minimum bid for the C block in Round 5, which will begin on Monday morning, is $2.15 billion. If the current pattern holds, a single bidder will offer that much to open the fifth round.

If bidding on the C block reaches $4.6 billion, the reserve price, the winner will be subject to open-access requirements set by the Federal Communications Commission: the resultant network must be open to third-party devices and applications. If the bids fail to reach that price, the FCC will re-set the auction -- most likely with the open-access requirements waived.

That reserve price happens to be exactly the amount that Google pledged to bid in the 700-MHz auction in order to persuade FCC chairman Kevin Martin to impose the open-access requirements. Many analysts believe that Google has no intention of winning the auction but will bid up the price to the reserve level in order to make sure that the open-access requirements kick in.

Other slices receiving intense bidding include big-city spectrum in the "B" block, with a license for Los Angeles netting $46.4 million in bids so far, one for Chicago hitting $66 million, and one in the New York City area grabbing $102.7 million in bids.

Through Round 4, 921 of the 1,099 available licenses have received bids, few of them meeting the FCC reserve price. The 700-MHz auction was at one time predicted to bring $15 billion in revenue to the U.S. Treasury. After a disappointing start Thursday, that seems a remote prospect at this point -- but the bidding will likely continue for weeks.