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At first glance, the bidding in the multibillion-dollar U.S. wireless spectrum auction is a battle of unknowns. After 23 rounds of bids totaling $11.1 billion, an entity called Cellco Partnership leads the auction with bids of $5.5 billion. In second place is a company called Alaska Native Wireless with about $2 billion in bids, and in third is a wireless concern called Salmon PCS. Since none of these companies is a household name, the Federal Communications Commission appears to be meeting its mandate to set aside certain wireless licenses for small, entrepreneurial cellular operators. But look more closely. The real powers behind all three bidders are the country’s largest wireless service providers. Cellco is actually Verizon Wireless, the joint venture between Verizon Communications and Britain’s Vodafone plc. The name Cellco is a holdover from the 1995 merger between Bell Atlantic Corp. and Nynex Corp., both later folded into Verizon along with GTE Corp. While Alaska Native and Salmon PCS are indeed small companies, both are more than 80 percent owned by the country’s second- and third-largest cellular providers: AT&T Wireless Group and Cingular Wireless, the joint-venture between SBC Communications Inc. and BellSouth Corp. Alaska Native and Salmon PCS are known as “designated entities,” allowing their primary owners to participate in bidding for any of the 422 licenses up for sale. Bidding for some wireless licenses is restricted to smaller companies, but the FCC allows those same small companies to arrange partnerships with larger cellular companies to acquire wireless spectrum licenses that can cost tens of millions of dollars. The “designated entity” arrangement led one cellular startup participating in the auction, Allegheny Communications of San Antonio, to file suit charging that the FCC has all but turned a blind eye to large companies’ efforts to skirt the true intention of the set-aside program. The U.S. Court of Appeals for the District of Columbia denied an Allegheny petition to stay the auction. But the court has agreed to consider whether the FCC’s conduct of the auction runs counter to a congressional mandate that some licenses be open only to smaller companies. “The whole thing is a little curious, isn’t it?” said Dana Frix, an attorney with the law firm O’Melveny & Myers LLP, which represents Allegheny. “Congress said that there shall be a diversity of voices providing cellular services and that certain benefits should accrue to emerging businesses. Our concern here is that the company doing the bidding really isn’t the company that it says it is.” Spokesmen for both AT&T and Cingular acknowledged their companies held majority stakes in Alaska Native and Salmon PCS but would say little about their bidding arrangements. The chairman and CEO of Salmon PCS, George Crowley, did not return phone calls seeking comment. Alaska Native officials could not be reached. The larger telecoms have justified the arrangements as the best way to fill in gaps in their nationwide networks. Thus, a cellular caller in North Dakota can have access to the same user plan as a customer in New York. In addition, many of the smaller licenses would otherwise lay dormant. The FCC has defended the apparent loophole as the best way to provide small cellular startups with the capital needed to launch operations in an industry with high up-front costs. “The rationale is that this is a deep-pocket game and the little guys don’t have enough money to do it on their own,” a Wall Street analyst said. Other small cellular companies have joined forces with larger telecoms. Black Crow Wireless is doing the bidding for Chicago-based U.S. Cellular. And DCC PCS, bidding on behalf Dobson Communications Corp., is an affiliate of AT&T Wireless, as is Triton PCS, which uses the “designated entity” Lafayette Communications. So while 87 wireless companies originally qualified to participate in the bidding for 422 repossessed or previously unsold licenses, only a handful of cellular providers have dominated the auction. And activity has been concentrated on the larger markets of New York, Chicago and Los Angeles, where the top three participants, Verizon, AT&T and Cingular, have each made bids. “So far, the big players have focused on the big markets, because they all want to be able to demonstrate they can handle new services involving data and video,” said Eric Kintz, an associate partner at Roland Berger, a management consulting firm. “Toward the end, you’ll see some of those players picking up the smaller market licenses because they’ll be cheap.” The auction, which recessed before the Christmas weekend, is scheduled to resume Jan. 4. When it does, two of the country’s top cellular providers, Sprint PCS and Nextel Communications Inc., will not be participating. Sprint dropped out of the auction, one analyst said, because it already operates a nearly national spectrum network and more important, its current financial situation would not permit it to take on more debt. And although Nextel, which operates a nationwide network at a low radio-band frequency, needs to upgrade its system, the Reston, Va.-based company prefers to wait for the 700-megahertz spectrum auction scheduled for the spring. �Copyright 2000, The Deal, LLC. All Rights Reserved.

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