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Airwaves auction likely to top $17 billion

With only a handful of markets still available, it appears that the U.S. Treasury will come out about $17 billion richer after auctioning off hundreds of wireless licenses.

WASHINGTON--With only a handful of markets still available, it appeared Thursday that the U.S. Treasury would come out about $17 billion richer after auctioning off hundreds of wireless licenses.

After 95 rounds of bidding in the Federal Communications Commission's auction of wireless spectrum, the total pledge stood at more than $16.85 billion, a record for a federal airwaves auction.

Although the auction was intended for start-ups, the bidding in the month-long auction quickly came to be dominated by major providers such as Verizon Wireless and those carriers' smaller partners.

The demand for wireless services is growing rapidly, particularly for phones using PCS technology, the spectrum that has been auctioned over the last two months. Carriers winning spectrum say they hope to meet that growing demand as well as prepare for more advanced services such as data delivery and eventually high-speed Internet access.

Sales of Internet-ready wireless phones will surpass 1 billion annually by 2004, according to Cahners In-Stat Group, and by the end of 2002 nearly all such phones will be Web-enabled. However, "carriers throughout the world will roll out Internet access at different speeds," said Cahners senior analyst Ken Hyers.

Verizon was by far the auction's largest bidder, pledging $8.7 billion. Driving its bidding upward was the steep price it paid for New York City, spending $5.6 billion for two licenses there.

AT&T Wireless bidding partner Alaska Native Wireless was second with $2.89 billion, which included $1.48 billion for New York's third license, quite a distance from Alaska.

Just behind Alaska Native Wireless was Cingular's bidding partner Salmon PCS, which had pledged $2.35 billion. Cingular is a joint venture between BellSouth and SBC Communications.

Bidding through partners allows major carriers to not only bid on licenses that are reserved solely for small carriers but also to receive via their partner the so-called entrepreneurial discount of up to 25 percent that small carriers have deducted from their bids.

This system has left some small carriers not affiliated with large providers believing that they can't keep up with the bidding on some licenses, and there is a possibility that one or more carriers will file suit against the FCC for not running a fair auction.

New York was the most expensive market at about $7.1 billion, but others also proved pricey. Those with three licenses, such as New York, also saw those licenses won by more than one bidder.

Los Angeles was second in this group, with $1.5 billion pledged for its three licenses, and Washington, D.C., was third, with $606 million pledged. Minneapolis drew $466 million for its three, Seattle $385 million, Houston $377 million, Boston $356 million, Pittsburgh $325 million, San Diego $278 million and Denver $213 million.

Among cities with only one license for sale, Atlanta was the largest with a $495 million bid from Salmon. Salmon also bid $285 million on Dallas' sole license. Verizon was the leading bidder in several one-license cities, including $399 million in San Francisco, $277 million in Philadelphia, $138 million in Salt Lake City and $104 million in St. Louis. VoiceStream Wireless bid $108 million for Milwaukee's sole license.