Mexicos MMDS Auction Closes with High Prices

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Mexico City -- Mexico's government raised $63
million through the auction of wireless cable spectrum in a competitive bidding process
that concluded this month.

A total of 44 multichannel multipoint distribution service
(MMDS) concessions were granted to top bidders in a landmark auction. It was not only the
first time that Mexico has sold off wireless spectrum, but it was also the first auction
of its kind in Latin America.

Traditionally, spectrum has been granted on a discretionary
basis across the region, but public auctions where licenses go to the highest bidder are
becoming the vogue. This past October, Brazil began the biggest ever sale of MMDS and
hardwire cable licenses in Latin America, although the winners have not yet been
announced.

Given Mexico's groundbreaking auction, there is no
established benchmark to measure its prices against. Bid participants, however, testified
to a hard-fought bidding process, which generated bullish prices.

TV Espectro de San Luis -- which won 24 concessions, the
highest number snagged by one single company -- said prices were slightly higher than
anticipated, but they were still within an acceptable ballpark.

'Some bidders complained that the auction was
expensive. But theprice ranges bid were reasonable -- certainly reasonable enough
to make a good business,' said Espectro's president, Mauricio Enrique Vinay
Hill.

Vinay said the company ended up paying an average of $6 per
household, rather than an expected $5 per household.

'We didn't think that the price would pass $5,
but it wasn't a problem that we paid a little more than that. In Latin America, the
average [price per household] for MMDS is probably somewhere between $5 and $9,'
Vinay added.

Mexico's largest MMDS operator, MVS Multivisión,
disagreed that auction prices settled at a fair and acceptable level. Multivisión felt
that they soared so high that the company made a surprising decision to withdraw from the
auction completely, without taking one license.

'After 20 days [of the auction], prices had risen so
high that to have continued, we would have had to double the investment that we had set
aside,' said Ignacio Rodríguez, Multivisión's vice president. 'People
were paying crazy prices ... At those kind of prices, it'll take decades to recoup
investments.'

Instead, Multivisión is concentrating on selling its
programming services to operators, although it did not rule out future partnerships with
new licensee winners, Rodríguez added.

Unsurprisingly, bid winners didn't share
Multivisión's gloomy predictions about time frames to reach the breakeven point.
Espectro expects to start making a profit in five years' time and to achieve a total
subscriber base of some 2 million, Vinay said.

Espectro's strategy is to target highly populated
areas where there was little competition in the way of hardwire cable. In the territories
where the company won concessions, Vinay estimated that there are some 200,000 existing
hardwire cable subscribers.

Mexico's virgin pay TV market makes it an attractive
prospect, analysts said.

'There's a low penetration level of pay TV
services and a high level of TV penetration, and households watch an average of over five
hours of TV a day. All of those factors are driving the [pay TV] business,' said
Leonardo Simpser, senior media analyst at investment bank Deutsche Morgan Grenfell's
office here.

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