US wireless auction tipped to flop

Today's US airwaves auction is not likely to be the $18bn bonanza the US government expected, according to analysts.

The 422 licences that go on the auction block later today cover much of the East Coast of the US and large parts of Texas, California and the Great Lakes region. They are key to the big US operators seeking to extend their coverage and cope with peak demand - dropped calls are American mobile users' biggest complaint. Mobile, or cellphone, use is bounding ahead in the US with 107 million customers now signed up. But there is unlikely to be the frantic bidding seen in other countries earlier in the year. Eric Kintz, ecommerce and telecommunications associate partner at consultants Roland Berger, said: "You won't see the crazy prices we saw in Europe [for 3G licences], especially Germany and the UK. The 15 biggest markets, that's where the battle will be." The $18bn estimate was made by bankers Merrill Lynch after an offer of $5.3bn for the 95 licences held by bankrupt company NextWave Telecom was turned down. Seeing the sky-high bids in Europe, both regulator Federal Communications Commission and US legislators felt a bonanza was due. Since then a number of European wireless spectrum auctions have failed, notably in the UK, Switzerland and Austria, and expectations have been lowered. Although some of US bidders are cash-rich, banks are now reluctant to lend to telecommunications companies and the networks have still to be built. Elliott Hamilton, senior vice president at consultants Strategis Group, said: "I do not expect the auctions to raise tremendous amounts of money." Many analysts have dropped the lower band of their estimates to around $10bn. Over 80 companies have made down payments totalling $1.8bn for the spectrum auction. The US has two further auctions scheduled over the next two years.