On the spectrum

US spectrum auction raises ghost of 3G sales past

A surging US spectrum auction is raising the ghost of 3G sales past. Bidding on a big chunk of wireless bandwidth has passed $35 billion - and the sum is still climbing. The auctions' cloaked nature makes it hard to tell exactly what's driving prices. But history across the Atlantic suggests the frenzy could bring a financial hangover.

The Federal Communications Commission (FCC) is auctioning the largest amount of bandwidth since a 2008 sale that raised about $19 billion. The winners in the current process will pay far more, and for spectrum of a frequency that generally fetches relatively modest prices because it has more trouble penetrating the walls of homes and offices than lower-frequency waves do. A 2006 auction of nearby frequencies raised about $14 billion.

The proliferation of data-hungry mobile devices may explain the enthusiasm on the part of bidders, who are not identified in the FCC's updates. Capacity is tight, especially in urban areas. There will be another auction in 2016 of a larger, more desirable chunk of bandwidth, but wireless firms may want to lock in new bandwidth now. Regulators also have shown they won't permit the top four cellphone carriers to merge, so all must make long-term plans.

Furthermore Dish Network, the pay-TV outfit, owns a big slice of similarly sited spectrum and must put it to use within a few years. Controlling shareholder Charlie Ergen just might be bidding aggressively to combine new bandwidth with his existing stockpile - potentially with the aim of selling it all, or even going after a firm like T-Mobile US to diversify away from Dish's fading pay-TV business. The rising auction value is also causing investors to revalue the spectrum already on Dish's books, boosting the company's stock price.

Whatever the thinking and tactics at play, the eventual top bidders risk getting carried away. Around the turn of the century, eager telecom operators paid almost $50 billion for licences in Germany and another $35 billion in the UK. Winners suffered financial distress, and regulators reconsidered whether auctions were the best option after licensees repaid debt rather than investing in wireless infrastructure. US companies and watchdogs may learn similar lessons.