5G spectrum auction bids total $ 80.9 billion; winners announced soon

Every time someone accesses the internet via their smartphone, the wireless service provider sends the data through the air on frequencies that only the license has to use.

In the coming weeks, licenses to use some of the most valuable frequencies will be awarded to the highest bidder. Whoever wins will surely use them to build a faster, more powerful 5G network, which will change the competitive dynamics in the telecommunications industry.

Earlier this month, the Federal Communications Commission announced that bidders had offered $ 80.9 billion on 280 megahertz airwave licenses, or spectrum, at auction 107.

After 97 rounds, the total was significantly higher than the range of between $ 20 and $ 30 billion that most outside observers predicted last summer, highlighting how critical this auction is for telecommunications companies.

“Once these 5G networks deployed on this mid-range spectrum are rolled out, the leap in performance will be so dramatic that if the carriers are not in play, they will be left behind,” said Doug Brake, broadband policy director at Information Technology and Innovation Foundation, a brainstorm.

The winners of the auction have not yet been announced. Verizon, AT&T, T-Mobile and other parties involved in the auction are in a quiet period where they can not comment until the final payment has been made and the payouts have been paid. A notice issued by the FCC on January 26 reminded applicants that they could not legally talk about non-public information such as who won or lost.

The FCC also said the auction is going into a second phase in which the winners can choose exactly the regions and spectrum blocks they want. The bidders have won licenses, but the specific commissions are not yet final. The results are expected to be announced in a few weeks.

The auction is a big deal for Verizon, T-Mobile and AT&T, the three major US wireless companies. All three are expanding 5G networks.

The FCC is involved in spectrum allocation to prevent interference, or when two groups use the same wavelengths simultaneously, making it less effective. Therefore, the FCC is holding this auction, which is aimed at making sure that the winning groups have the capital to use the spectrum. Most proceeds go to the U.S. Treasury.

Not all wavelengths are created equal. The highest frequencies travel only short distances, but can transmit large amounts of data with recent advances in antennas and modems. The lowest frequencies can travel long distances, but are less suitable for pumping large amounts of data.

The C-Band wavelengths offered at the auction are in the middle. This is actually called mid-band spectrum. Some call it ‘goldilocks spectrum’ – as in, it’s just right for 5G.

Verizon, the current US leader in mobile subscribers, does not have much mid-range spectrum. Attempts have been made to make it up with its ‘ultra wideband’ 5G that promises to download 4K movies within seconds, but the waves are not moving far. It’s like a wireless hotspot. But if Verizon wins this auction, it could build a network that is faster than current 4G networks, and does not require the company to build towers on each block.

“If you’re Verizon, now’s your chance to get the spectrum you need because you do not want to lose the beachhead to be considered the leading company. They have dominated the LTE or the 4G world,” he said. Walt said Piecyk, co-founder of LightShed Partners, who follows spectrum auctions closely. “Are you going to take over T-Mobile, or even AT&T, as the 5G network you prefer?”

T-Mobile has obtained licenses for another block of mid-range spectrum through the merger with Sprint. It is therefore not necessary to win this auction like Verizon. However, for several reasons it is expected to be a bidder. If it wins, it means its competitors did not. Even if it can not win, the price can increase the price.

AT&T must win too. But it has spent a lot over the last few years. In 2018, it pays more than $ 85 billion for Time Warner, which included HBO.

This spectrum would also be a big purchase, but at the same time AT&T also needs a mid-range spectrum to build the wireless network that drives its cash flow. Raymond James analyst Frank Louthan said in a note earlier this month that if AT&T spends $ 23 billion on spectrum, its balance sheet could be ridiculed by investors.

Cable companies such as Comcast, Charter and Cox are also registered to bid. Charter and Comcast form a joint venture called C&C Wireless Holding Company to bid on the frequencies. But the spectrum is less strategic for broadband companies, and they will be less likely to charge prices for it.

One wildcard is Dish, whose chairman, Charlie Ergen, intended to pick up spectrum and offer prizes in the past.

It is not every possible winner out of the 74 entities that have registered to bid at the auction, but it is the big one. No large tech companies publicly registered to bid. The possibility from the outside is that a technology giant quietly participated in the auction through one of the institutions, but that is very unlikely, Piecyk said.

The spectrum offered is between 3.7 GHz and 3.98 GHz. But it is not all sold at once. It is divided into smaller 20 MHz blocks, and further divided into 406 geographical regions. In total, there are 5,684 licenses available.

In the second phase of the auction, which starts on February 8, parties that won a bid during the first part will participate in a process to split these blocks.

It is a complicated process. A slider for tutorial for parties participating in the so-called ‘allocation phase’ is 44 slides long, and it is in addition to a 58-page user manual for the software required to submit.

An important aspect is that there is a variety of spectra in the auction, the ‘A block’, which is worth more than others, because the winner can already start building a network on the air by the end of this year. Other parts of the C-band are only ready for networking in 2023, and time is of the essence.

The spectrum offered at the auction was originally allocated to satellite operators moving to the 4.0 to 4.2 GHz range. The satellite companies originally allocated to the spectrum will receive billions of dollars in incentives and millions in costs to get them off their spectrum faster.

Once the commissioning phase is completed in the coming weeks, the winners will be announced.

Then the hard work begins: building the network, which includes finding mobile sites, installing equipment and marketing the new network to potential customers.

It costs a lot of money in addition to the money the winner has already committed to pay the spectrum. Investors need to keep a close eye on whether the winners are issuing debt or otherwise raising money to fund the network build-up.

The 5G networks on the C-band spectrum do not come online overnight. The earliest of the blocks ready for use is the end of this year. But once built, phones will be ready – for example, Apple’s iPhone 12 supports the specific frequencies available at this auction.

But this spectrum purchase is not a short-term commitment for the winners. The licenses are a major strategic asset in the wireless industry that could shape the competitive landscape for years to come.

“They’re all fighting to get a substantial stake to compete for the next ten years,” Brake said.