Dish Network Corp. (DISH) is in position to be the most aggressive bidder in the first major U.S. airwaves auction in more than five years, which started today. The question is what the satellite-television operator will do with the bargain-priced frequencies if it wins.
Dish may use the frequencies to challenge leading mobile service providers Verizon Wireless and AT&T Inc. (T), or it may act as a conduit and lease the airwaves so companies like Google Inc. and Amazon.com Inc. (AMZN) can provide mobile broadband service.
Chairman Charlie Ergen promised federal regulators that Dish will bid at least $1.56 billion in the nationwide sale of airwaves known as the H Block. The field is open for Ergen because the third-largest U.S. wireless carrier, Sprint Corp., isn’t taking part after pushing for the auction, leaving a field of 23 bidders without the top U.S. mobile providers.
“Dish faces little competition for the H Block and should be able to buy another block of national spectrum at below-market prices,” Walt Piecyk, an analyst with BTIG LLC in New York, said in an interview.
The U.S. Federal Communications Commission is conducting the auction over the Internet during an undetermined number of days, with no winners announced until all bidding has finished. The FCC split the U.S. into 176 areas, and auction participants bid anonymously in successive rounds for airwaves in each region until no more bids are received.
Participants today offered $221.3 million for licenses in 78 areas, with more bidding set for tomorrow, the agency said in a Web posting.
A larger auction in 2008 attracted more than 200 qualified bidders and lasted 38 days with bids totaling $19.6 billion. Verizon Wireless and AT&T were the top winners.
With other major prospective buyers sitting out this round, Dish’s strategy in the new FCC auction is a topic of speculation among analysts and consultants.
“Does Charlie end up buying every license in the auction? Or does he buy 95 percent of them and everybody else buys one or two?” Coleman Bazelon, a Washington-based principal for the Brattle Group, said in an interview.
Bob Toevs, a Dish spokesman, declined to comment on the company’s plans, citing rules that aim to prevent collusion on bids and bar public discussion of auction strategy.
Winning may put Ergen in a position to lease airwaves to Internet or cable companies, Piecyk said. Or the sale may allow Dish to enter the North American mobile-services market, which produced $224 billion in 2012 revenue, according to data compiled by Bloomberg Industries.
Dish is seen adding to spectrum holdings that includes swaths purchased in 2012 from bankrupt satellite providers, as “a minimal critical mass of spectrum is necessary for a new competitor to enter the wireless market,” Piecyk said.
Potential competitors in the bidding include Ntelos Holdings Corp. (NTLS), a regional wireless provider based in Waynesboro, Virginia. Craig Highland, senior vice president at Ntelos, declined to comment.
Also registered to bid is Lynch 3G Communications Corp., a company controlled by Mario Gabelli, chief executive officer of Gamco Investors Inc., who in 2006 paid $130 million to settle U.S. charges that he used sham companies in earlier auctions. Gabelli didn’t admit wrongdoing.
Robert Dolan, president of Lynch, declined to comment.
The auctions help fulfill a priority of the administration of President Barack Obama, who has pledged to almost double the airwaves available for mobile Internet service by reallocating 500 megahertz of government and commercial spectrum. The H Block auction adds 10 megahertz; later auctions will yield more capacity.
Congress said the first $7 billion from the auctions will go to fund a nationwide network for emergency workers, helping to fulfill a gap in radio capabilities identified by the 9-11 Commission, which said communications difficulties contributed to deaths during the terrorist attacks of Sept. 11, 2001.
Funds from the H Block auction will go the new network.
“It’s the first chance for the FCC to raise money via spectrum sales for the new wireless public safety network, so the FCC really wants this auction to go well,” Paul Gallant, Washington-based managing director for Guggenheim Securities, said in an interview.
Sale results won’t say much about the amount of money that later auctions will yield, Bazelon said.
“It’s not really a market transaction,” Bazelon said. The $1.56 billion is “a minimum value” Ergen placed on the spectrum as part of a deal with the FCC, Bazelon said.
Under the agreement struck with the agency last year when Commissioner Mignon Clyburn, a Democrat, was interim chairwoman, Ergen can choose whether to switch airwaves he already owns from sending information to receiving data. The switch would transform the airwaves from carrying light traffic to handling heavy data flows for video and other applications.
Clyburn pushed to begin the auction this month rather than delay it to coincide with the other sales, a tactic that fellow Democratic Commissioner Jessica Rosenworcel said could bring more bids and raise more money.
“To say that a spectrum auction is long overdue is an understatement,” Clyburn said in an e-mail. “This will be the FCC’s first major auction since 2008, and it comes at a time when the commercial market and consumer demand for spectrum has skyrocketed.”
By holding the auction starting today, the FCC “is expediting commercial use of spectrum so it can be deployed as rapidly as possible,” Clyburn said.
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