Reuters - Verizon and AT&T dominate airwaves auction

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Verizon and AT&T dominate airwaves auction

Friday, Mar 21, 2008 4:3PM UTC

By Peter Kaplan

WASHINGTON (Reuters) - Verizon Communications Inc <VZ.N> and AT&T Inc <T.N>, the two largest U.S. mobile phone companies, grabbed the lion's share of a $19.12 billion auction of airwaves being vacated by television broadcasters.

Verizon and AT&T won more than $16 billion of licenses, according to auction results released on Thursday, airwaves they plan to use to enhance existing voice and data services, as well as underpin a new wave of wireless technologies.

The possibility of a nationwide video network was raised by a $711 million slice of the 700 megahertz airwaves being won by Frontier Wireless, a partner of satellite television operation DISH Network Corp <DISH.O>. DISH declined to comment.

But No. 2 wireless provider Verizon and No. 1-ranked AT&T dominated the Federal Communications Commission auction that started January 24 and ended Tuesday after 260 round of bidding.

"It means that the two big guys just got much bigger," said Rebecca Arbogast, an analyst with Stifel Nicolaus.

Verizon Wireless, a joint venture with Vodafone Group Plc <VOD.L>, won the biggest nationwide block of spectrum, with a $4.74 billion bid that trumped $4.71 billion offered by Internet leader Google Inc <GOOG.O>, FCC officials said.

Verizon Wireless also won 25 regional licenses.

AT&T won 227 licenses in regional licenses around the United States. The company can pair those airwaves with a large piece of 700-megahertz spectrum it gained earlier this year in its $2.5 billion acquisition of Aloha Partners.

The 700-megahertz airwaves are considered valuable because they travel long distances and can penetrate thick walls.

"AT&T's strong spectrum holdings position the company to further enhance the quality and reliability of existing wireless broadband and voice services, and to set the foundation for new-generation wireless broadband technologies and services," Ralph de la Vega, head of AT&T's wireless unit, said in a statement.

Overall, AT&T spent a total of about $6.64 billion and Verizon spent $9.63 billion at the auction, Arbogast said.

PRICES PAID

Blair Levin, another analyst at Stifel Nicolaus, said the price of Verizon's nationwide block of spectrum was less than the price for smaller regional licenses, based on the number of potential subscribers in the areas each one covers.

And even though the nationwide block came with the open-platform requirements for any device and software, "I would say they probably did get a good deal," Levin said.

Analysts said the spectrum acquired by AT&T was more expensive per potential subscriber, but came with fewer restrictions, and was more valuable to AT&T because it was next to the Aloha Partners spectrum it already controls.

Verizon shares closed 2.8 percent higher to $36.12, while shares of AT&T ended up 2.2 percent at $36.85, both on the New York Stock Exchange. Shares of DISH rose 2 percent on Nasdaq to close at $28.62.

Analysts say the major carriers will be able use the airwaves to offer consumers more advanced services such as broadband access via mobile phones and wireless broadband to laptop computers.

FCC Chairman Kevin Martin called the auction "a significant success," citing the record amount of money raised for the U.S. Treasury and a requirement the nationwide spectrum won by Verizon be accessible to a range of devices and software.

Martin said the auction would enhance competition, citing the spectrum won by Frontier Wireless.

NO MAJOR NEW ENTRANT

But the auction results dimmed hopes that the newly available spectrum would lead to a major new competitor in the wireless business.

Google's participation in the auction had sparked some hopes that the company could jump into the wireless business. But Google won no licenses in the auction, the FCC said.

Nevertheless, the auction was seen as a victory for Google, since the bidding was high enough to trigger the "open-platform" rules it requested for the nationwide airwaves eventually won by Verizon.

Google called it a victory for American consumers. "Consumers soon should begin enjoying new, Internet-like freedom to get the most out of their mobile phones and other wireless devices," said a statement from Google lawyers Richard Whitt and Joseph Faber.

Google shares edged up 0.4 percent to $433.55 by Nasdaq's close.

The FCC also said it would set aside a block of the 700-MHz airwaves that did not reach the $1.3 billion minimum bid.

This block was to be shared with public safety agencies and drew a lone bid of $472 million, which was then subtracted from an earlier $19.59 billion tally for the auction.

Industry analysts have speculated that the minimum price was too high, or that the rules for negotiations with emergency responders were too onerous.

The FCC could decide to re-auction the so-called D-block airwaves and perhaps modify the rules to make it more attractive.

(Additional reporting by Sinead Carew in New York; Editing by Tim Dobbyn)