Ready, Set, Rent!

Coke Bottle AntennaSee Full Article in PDF
When the A/B Block PCS Auction ended in 1995 an unusual real estate phenomenon occurred. Cellular operators paid way too much to lease it. No, this wasn’t driven by low interest rates, the refi boom, Option ARMs or teaser rate mortgages. It was driven by a race for market share.

And, boy, was it a doozy. An analog-based industry had just gone digital. Wall Street was throwing money at this new enterprise as they were starting to inflate the dot-com bubble, and the FCC found a new revenue source for something they had previously given away for free. 

Before there was an auction for spectrum, the government had employed an inefficient lottery system to allocate spectrum. When the government realized that they could be the ones making money out of thin air (as economist Peter Cramton quipped after the first auction 15 years ago), the wheels were set in motion for a new industry dynamic that would profoundly affect future operating costs and the way carriers do business.

I know because I was there. I watched as players like WirelessCo, AT&T, PCS PrimeCo, Pacific Telesis, GTE, American Portable Telecommunications, Ameritech Wireless, Western PCS, Powertel PCS Partners and others together paid in excess of $7 billion for spectrum and then turned around and spent billions more to build their network — all before even selling their first PCS phone. They needed the frequency to build the network. They needed the network to sell the phones. They needed to sell the phones to appease the investors. The race was on.

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