Spectrum auction kicks off in dismal market

January 24, 2008, 6:18 AM UTC

By Michal Lev-Ram

This is not exactly the best week to kick off a multi-billion dollar wireless spectrum auction, what with the markets melting down and tech stocks like Google, Sprint, Motorola and Apple taking big hits.

But on Thursday the Federal Communications Commission’s 700 MHz spectrum auction begins, and analysts worry that the current economic climate could make it harder for newcomers to come up with the cash needed for opening bids.

The 700 MHz spectrum originally was used for analog television and when the FCC mandated that TV go all-digital by next year, it put the rights to the spectrum on the auction block. The spectrum is highly coveted for broadband because signals can travel long distances and penetrate walls. That attracted the attention of Google, which pledged to meet the minimum $4.6 billion bid requirement and successfully pressed the FCC to require the winner of the auction to allow any mobile device to work on the network rather than just those the wireless carrier chooses. Google subsequently unveiled its Android initiative to develop open operating standards and applications for cell phones.

The FCC has set a minimum bid it wants to receive for the various blocks of spectrum. In total, it hopes to raise at least $10 billion. If that is not met, then the agency will begin a new round of auctions by dropping some restrictions — such as the requirement that portions of the spectrum be open to any mobile device – in the hope of attracting additional bidders.

Already, startup Frontline Wireless backed out of the bidding race last week, reportedly due to a lack of financing.

Still, the auction begins with 214 qualified bidders, including AT&T (T), Verizon Wireless (VZ), Google (GOOG), EchoStar Communications (DISH), Qualcomm (QCOM) and even Microsoft co-founder Paul Allen.

As this will be a blind auction, we will know the amount of each bid but not the identity of the bidder until bidding on all spectrum licenses has stopped.

It could be anywhere from a few weeks to several months before the auction ends and the winners are revealed. Who knows, maybe by then the market downturn will be long over.