Cable, Satellite, Cell-Phone Cos. Eye FCC Auction On Wed

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WASHINGTON (Dow Jones) Cable companies satellite broadcasters and cell phone service providers are lining up to compete for valuable new wireless licenses next week when the government kicks off an auction that could raise as much as USD15 billion.

The Federal Communications Commission on Aug. 9 commences an auction for 1,122 licenses for spectrum that is currently being used by the military and law enforcement. The licenses would help wireless carriers such as T-Mobile upgrade their services, while allowing cable and satellite companies to get into new business lines. The money raised will help switch government users to another frequency.

No one has more at stake than T-Mobile USA, a unit of Deutsche Telekom. The fourth-largest US wireless carrier lacks the capacity to provide mobile Internet services, which the three top players are already doing. If it wants to keep pace with its rivals, T-Mobile will have to bid aggressively for a multitude of spectrum licenses. Among the markets considered essential: New York.

"T-Mobile is in a bind," said Roger Entner, an analyst with research firm Ovum. "Everybody else can pass it by. They can wait two years and get different spectrum."

Analysts expect that rivals Cingular Wireless, Verizon Wireless, and Sprint Nextel may place bids partly to ensure that T-Mobile doesn't get spectrum too cheaply. The three wireless companies could always wait until the FCC's next big auction, to occur by 2008, when airwaves with the power to penetrate through walls will come up for sale. But waiting also would mean foregoing a chance to scoop up spectrum that could come in handy as high-capacity Internet usage expands.

For example, Verizon Wireless, owned by Verizon Communications and Vodafone Group, could make a play for spectrum in some select market and plans ahead for future capacity needs. While it still has a comfortable position, Robert W. Baird & Co. analyst William Power said it would be prudent for the company to buy some spectrum to meet its rapidly growing subscriber base.

Cable Companies

Cable companies already offer television, Internet, and phone service. But they lack cell-phone services - which could be sold to consumers as part of a whole package. Comcast and Time Warner have teamed with Sprint up to bid for wireless licenses through a group called SpectrumCo. The group has placed $637.7 million in upfront bids, among the highest.

But their intentions remain a mystery. Last year, Sprint formed a joint venture with a consortium of cable providers to provide wireless service. It's unclear whether the spectrum licenses will go towards the joint venture, or to the individual cable companies. Sprint, by itself, already has spectrum it acquired from its merger with Nextel Communications. It's considered unlikely that the cable companies would take the spectrum for themselves since they have had a poor track record of offering wireless service. They previously sold their wireless business to Sprint.

Satellite Companies

In the meantime, satellite companies would benefit from the ability to offer high-capacity service - or "broadband." With the increased focus on bundling TV service with broadband Internet and phone service, satellite companies are seen as at a disadvantage because of their inability to offer services other than video.

"Network guys are in this battle of the bundles, and increasingly the core part of the bundle is broadband," said Blair Levin, a former FCC official who is now a telecommunications analyst at Stifel, Nicolaus & Co. Inc.

Both DirecTV Group, which is owned by News Corp., and EchoStar Communications have paired up with phone carriers to offer competing bundles, but these measures are considered temporary since the phone companies are investing in fiber optic cable to create their own TV service. EchoStar and DirecTV have teamed up to form Wireless DBS LLC, a consortium that has put down $972.5 million to bid.

The auction may stretch into September. FCC auctions don't close until the bidding ends. In the meantime, analysts are divided on whether the auction will raise $15 billion. Although proceeds typically exceed estimates, some analysts say that the amount of available spectrum may outweigh demand.

-By Siobhan Hughes and Roger Cheng, Dow Jones Newswires; 202-862-6654; Siobhan.Hughes@dowjones.com; roger.cheng@dowjones.com

(END) Dow Jones Newswires"

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