Spectrum Auction Theory: Watch For A Sneak Attack From The Mississippi Valley

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fcc-logo.pngYou know how on eBay, if you really want to win an auction, you have to snipe in your bids at the very end? Well, something very similar may be happening in the ongoing government auction for wireless spectrum. The FCC set up the rules of the auction to try to prevent such last-minute sniping, but some deep-pocketed bidders may have found another way to hold back their true bid until the very end of the auction.

According to the rules of the auction, bidders in each round (several of which are held each day) must submit an upfront payment to be eligible in that round. And to remain eligible, they have to either bid each round (except that everyone gets three waivers to sit out a round), or remain the highest bidder (in which case they don’t have to beat their own previous bid).

There are dozens of blocks of spectrum companies can bid on, but the one that has gained the most attention is the so-called nationwide C-block that pulled in a bid of $4.7 billion yesterday, and then saw no more action. Because of the pattern of previous bidding, and the eligibility rules, some of us watching concluded that the bidding war was over for that block and that an unknown winner existed, perhaps Google or Verizon.

But there is another possibility. Companies can also bid on parts of the C-block on a regional basis (Northeast, Southeast, Great Lakes, Mississippi Valley, Central, West). Although there have been bids on these regional blocks, none of them have shown up as “provisionally winning bids” because the $4.7 billion for the whole country is still more than the sum of the regional bids. But a company can stay eligible by placing new bids for one of the regions, and then make a bid for the national block at the end.

And that may be exactly what is happening. If you look at bids for the Mississippi Valley region over the last few rounds, for instance, there was a bid for $884 million in Round 24, $1.2 billion in Round 25, and $1.4 billion in Round 26. That is a big company (or companies) with a lot of cash making those bids. One theory is that this big company is just biding its time until it makes a bid for the national block. The longer it waits, the less competition it is might encounter because other bidders will be more likely to have used up their waivers or stopped bidding altogether. Unless, of course, the other big potential bidders are pursuing the same strategy. So this ain’t necessarily over yet.

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Anyone can watch the auction electronically as it occurs. Go to this FCC Web page for Auction 73, click on “View Auction Result,” then click on the Results tab. Round 26 just finished, and the FCC is currently due to collect $18.6 billion in provisional winning bids across all blocks.

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