5G Spectrum Auction Bids Total $ 80.9 Billion; winners will be announced soon

Every time someone connects to the Internet through their smartphone, their wireless provider sends that data over the air on frequencies that only they have the license to use.

In the coming weeks, licenses to use some of the most valuable frequencies will be allocated to the highest bidder. Whoever wins will almost certainly use them to build a faster, more powerful 5G network, changing the competitive dynamics of the telecom industry.

Earlier this month, the Federal Communications Commission announced that bidders have bid $ 80.9 billion on 280 megahertz in air wave licenses, or spectrum, in what is referred to as Auction 107.

After 97 rounds of bidding, the total was significantly higher than the $ 20 billion to $ 30 billion range most outside observers predicted last summer, underlining just how crucial this auction is for telecom companies.

“Once these 5G networks deployed on this midband spectrum are rolled out, the performance leap will be so dramatic that if providers don’t play in that game, they’ll be left behind,” said Doug Brake, broadband policy director at the Information Technology and Innovation Foundation, a thinktank.

The winners of the auction are not yet public. Verizon, AT&T, T-Mobile and other parties involved in the auction are in a quiet period where they won’t be able to respond until final payment has been received and deposits paid. A notice from the FCC on Jan. 26 reminded applicants that they cannot legally talk about non-public information, such as who won or lost.

The FCC also said the auction is entering a second phase where the winners can choose the exact regions and spectrum blocks they want. The bidders have won licenses, but the specific orders are not yet final. The results are expected to be released 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 in the process of developing 5G networks.

The FCC is involved in spectrum assignment to avoid interference, or when two groups are using the same wavelengths at the same time, making it less effective. That’s why the FCC is organizing this auction, which is to ensure that the groups that win have the capital to actually use the spectrum. Most of the proceeds go to the US Treasury.

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

The wavelengths of the C-band to be auctioned are in the middle. It’s 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, doesn’t have much midband spectrum. It has tried to make up for it with its “ultra-wideband” 5G that promises to download 4K movies in seconds, but those waves don’t reach very far. It’s like a WiFi hotspot. But if Verizon wins this auction, it can build a network that is faster than current 4G networks and the company won’t have to build towers on every block.

“If you’re Verizon, now you have the opportunity to get the spectrum you need because you don’t want to lose the beachhead that you are seen as the leading company. They pretty much dominated the LTE or the 4G world said Walt Piecyk, co-founder of LightShed Partners, who closely monitors spectrum auctions. “Will you let T-Mobile or even AT&T take over as the 5G network par excellence?”

T-Mobile acquired licenses for another block of midband spectrum through the merger with Sprint. So it doesn’t have to win this auction as often as Verizon. But it is still expected to be a bidder for several reasons. If it wins, that means its rivals haven’t. Even if it doesn’t win, bidding can increase the price.

AT&T must also win. But it has spent a lot in recent years. In 2018, it paid out more than $ 85 billion for Time Warner, including HBO.

This spectrum would also be a big buy, but at the same time, AT&T also needs midband spectrum to build the wireless network that powers its cash flow. Raymond James analyst Frank Louthan said in a note earlier this month that if AT&T spends $ 23 billion on spectrum, the balance sheet could “scare investors.”

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

A wild card is Dish, whose chairman Charlie Ergen has shown a tendency in the past to pick up spectrum and offer prizes.

That’s not every possible winner out of the 74 entities that registered to bid in the auction, but those are the big ones. No big tech companies publicly registered to bid. There is an outside possibility that a tech giant may have quietly participated in the auction through one of the entities, but that’s very unlikely, Piecyk said.

The spectrum to be auctioned is between 3.7 GHz and 3.98 GHz. But it is not all sold at the same time. It is split into smaller 20 MHz blocks and further divided into 406 geographic regions. All in all, there are 5,684 licenses up for grabs.

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

It’s a complicated process. A tutorial slide deck for parties participating in the so-called “order phase” is 44 slides long, which is in addition to a 58-page user manual for the software required to submit bids.

An important aspect is that there is one spectrum in the auction, the “A block”, which is more valuable than others, because the winner can start a network on those airwaves as early as the end of this year. Other parts of the C-band will not be network ready until 2023, and time is important.

The spectrum offered for auction was originally allocated to satellite operators, moving into the 4.0 to 4.2 GHz range. The satellite companies originally assigned the spectrum will receive billions of dollars in incentive payments and relocation fees to help them get off their spectrum faster.

Winners will be announced once the assignment phase is completed in the coming weeks.

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

All of that costs a lot of money, on top of the money the winner has already committed to pay for the spectrum. Investors will need to keep a close eye on whether the winners are going into debt or otherwise raising money to fund network building.

The 5G networks on the C-band spectrum don’t come online overnight. The first blocks that are ready for deployment will be at the end of this year. But when built, phones are ready – Apple’s iPhone 12, for example, supports the specific frequencies up for grabs in this auction.

But this spectrum purchase is not a short-term commitment for the winners. The licenses are an important strategic asset in the wireless industry that can shape the competitive landscape in the coming years.

“They are all fighting to make a big commitment for the next 10 years,” said Brake.