Satellite TV providers DirecTV Group and EchoStar Communications on Wednesday pulled out of the Federal Communications Commission auction for licenses to deliver advanced wireless services.
The joint venture formed by the two companies, called Wireless DBS, was expected to be one of the hungriest bidders putting up $972.5 million for the auction. But early this week, Wireless DBS began scaling back its bids. Eventually, it withdrew altogether.
Roger Entner, a telecommunications analyst at Ovum Research, believes the price of the licenses was too steep for the satellite companies to swallow.
"When the bulls start fighting, the calves get hurt," he said. "In the first few rounds, when it didn't matter much, the satellite guys were king of the hill. But the moment they got out of the sandbox and into the larger playground, they were sent out financially."
Robert Mercer, a spokesman for DirecTV, declined to comment. EchoStar spokeswoman Kathie Gonzalez confirmed Wireless DBS had stopped bidding, but declined to comment.
Analysts speculated that the satellite TV providers were interested in the spectrum, which falls between 1.7GHz and 2.1GHz, so they could use the airwaves to build a wireless broadband network. Using a technology called WiMax, they could have provided a broadband service offering downloads between 2mbps and 4mbps.
Satellite TV companies, such as EchoStar and DirecTV, are fighting for survival as they face tougher competition from cable operators and now telephone companies, which are selling consumers bundles of services that include high-speed Internet access, telephony and TV service. Currently, satellite only offers TV service. EchoStar and DirecTV have separately partnered with phone companies Verizon Communications and AT&T. But as the phone companies roll out their own TV services, the relationship with satellite operators will likely fade.
For now, dreams of owning their own broadband network will have to wait. The satellite operators could bid on the 700MHz spectrum that will come up for auction by the FCC in 2008, but Entner said it's unlikely the satellite companies could afford this spectrum.
"If EchoStar and DirecTV thought the current spectrum was too expensive in this auction, wait until the 700MHz spectrum auction," he said. "The 700MHz spectrum is better-quality. It can penetrate walls better and propagate over longer distances."
The FCC had expected to raise up to $15 billion during the auction. So far, the sale of 1,122 licenses has raised almost $9.8 billion in 19 rounds of bidding.
T-Mobile and Verizon Wireless lead the bidding. T-Mobile, owned by Deutsche Telekom, is the fourth largest cell phone company in the U.S., and it has the least amount of spectrum. The company was expected to bid aggressively for licenses, so it can build a next-generation mobile network to compete against its rivals, Cingular Wireless, Sprint Nextel and Verizon Wireless.
The auction for the spectrum will continue until bidding stops, which means it could last for several more weeks.