5G spectrum auctions total $ 80.9 billion; the winners announced soon

Whenever someone accesses the Internet through their smartphone, their wireless operator transmits this data over the air on frequencies that only they are licensed 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 almost certainly use them to build a faster and more powerful 5G network, changing the competitive dynamics of the telecommunications industry.

Earlier this month, the Federal Communications Commission announced that bidders had offered $ 80.9 billion of 280 megahertz of airwave, or spectrum, licenses in what is known as Auction 107.

After 97 rounds of tenders, the total was well above the $ 20 billion to $ 30 billion range that most outside observers predicted last summer, and underscores how crucial this auction is for businesses. telecommunications.

“Once these 5G networks deployed on this medium-band spectrum are deployed, the jump in performance will be so dramatic that if operators are not in this game, they will be left behind,” said Doug Brake, broadband policy director of the Foundation for Information Technology and Innovation, a think tank.

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 can’t comment until down payments have been paid. A notice published by the FCC on Jan. 26 reminded contestants 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 winners will be able to choose the exact regions and spectrum blocks they want. Bidders have won licenses, but specific awards are not yet final. The results should be published in a few weeks.

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

The FCC is involved in allocating spectrum to avoid interference, or when two groups are using the same wavelengths at the same time, which makes it less efficient. That’s why the FCC is running this auction, which aims to ensure that winning groups have the capital to actually use the spectrum. Most of the profits go to the US Treasury.

Not all wavelengths are created equal. The higher frequencies only travel short distances, but can transmit huge amounts of data thanks to recent advances in antennas and modems. Lower frequencies can travel long distances but are less well suited to pumping large amounts of data.

The C-band wavelengths that are auctioned are in the middle. It’s actually called the middle band spectrum. Some call it “golden loop spectrum” – as in, it’s just for 5G.

Verizon, the current US leader in mobile subscribers, doesn’t have a lot of mid-band spectrum. It’s tried to make up for that with its “ultra-wideband” 5G that promises to download 4K movies in seconds, but those waves don’t travel far. It’s like a wi-fi hotspot. But if Verizon wins this auction, it could create a faster network than current 4G networks and not force the company to build towers on every block.

“If you’re Verizon, now you have the ability to get the spectrum you need because you don’t want to lose the beachhead of being seen as the leading company. They’ve sort of dominated the LTE world or 4G, “said Walt Piecyk, co-founder of LightShed Partners, which closely monitors spectrum auctions. “Are you going to let T-Mobile, or even AT&T take over as the 5G network of choice?”

T-Mobile has acquired licenses for another block of mid-band spectrum through its merger with Sprint. So he doesn’t need to win this auction as much as Verizon. But he is still expected to be a bidder for various reasons. If he wins, that means his rivals didn’t. Even if it doesn’t win, auctions could raise the price.

AT&T must also win. But he has spent a lot in recent years. In 2018, he paid over $ 85 billion for Time Warner, which included HBO.

That spectrum would also be a big buy, but at the same time AT&T also needs medium-band spectrum to build the wireless network that powers their 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 “scare off investors.”

Cable companies like Comcast, Charter and Cox are also registered to bid. Charter and Comcast have formed a joint venture called C&C Wireless Holding Company to bid on the frequencies. But spectrum is less strategic for broadband companies, and they’re less likely to pay outrageous prices.

A wild card is Dish, whose president Charlie Ergen has shown a propensity to take over spectrum and raise prices in the past.

Not all the possible winners out of the 74 entities that registered to bid, but they are the biggest. No large tech company publicly registered to bid. There is an outside possibility that a tech giant quietly participated in the auction through one of the entities, but that is highly unlikely, Piecyk said.

The spectrum auctioned is between 3.7 GHz and 3.98 GHz. But not everything is sold at the same time. It is divided into smaller 20 MHz blocks and divided into 406 geographic regions. In total, 5,684 licenses are up for grabs.

In the second phase of the auction, starting on February 8, the parties that won bids in the first part will participate in a process of allocating these blocks.

It’s a complicated process. A tutorial slide set for parties participating in the so-called “award phase” includes 44 slides, in addition to a 58-page user guide for the software required to submit bids.

A key aspect is that there is a range of spectrum in the auction, the “A block”, which is more valuable than others because the winner can start building a network on those waves as soon as the auction is finished. this year. Other parts of C-band won’t be network ready until 2023, and time is of the essence.

The spectrum auctioned was initially allocated to satellite operators, which are upgrading to the 4.0 to 4.2 GHz range. Satellite companies that were originally allocated spectrum will receive multibillion-dollar incentive payments and relocation fees to help them get off spectrum faster.

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

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

This all costs a lot of money, in addition to the money the winner will already have committed to paying for the spectrum. Investors will need to closely monitor whether the winners issue debt or raise funds in other ways to finance the construction of the network.

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

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

“They’re all fighting for a big turnout to compete for the next 10 years,” said Brake.