Editor's Corner: Demand for 600 MHz weak as incentive auction plods along

FCC headquarters
colin gibbs

So much for the “spectrum extravaganza.”

Stage 3 of the auction fizzled out after a single round that generated a mere $19.7 billion in bids, less than half of the $40.3 billion that was needed to end the event. The dismal round followed a second stage that also lasted only one round, generating $21.5 billion in bids before sputtering to a halt in October.

The incentive auction was designed to enable the FCC to serve as something of a matchmaker, going back and forth between broadcasters and bidders in multiple rounds to eventually settle on a price that struck a balance between supply and demand.

Network operators have long complained of a “spectrum crunch,” but the event has clearly fallen short of expectations: Multiple analysts speculated a year ago that the auction could generate $60 billion or more as bidders vied for the 600 MHz airwaves often described as “beachfront” property. And FCC Chairman Tom Wheeler said earlier this year he expected to see a “spectrum extravaganza” during the auction.

The auction failed to live up to the hype for a few reasons:

  • Demand for 600 MHz airwaves isn’t what it used to be. Low-band spectrum had been highly prized for its propagation characteristics, but carriers are increasingly looking to mid- and high-band spectrum to increase capacity as data usage continues to ramp up. Sprint CFO Tarek Robbiati said last week that 600 MHz is “spectrum of the past,” and Sprint may not be the only operator to believe that.
  • Carrier budgets have tightened. The U.S. wireless market has grown more competitive over the last two years as smartphone penetration has plateaued. And capex spending on networks has slid this year as operators plot their strategies and investments in advance of 5G. It seems they simply don’t have as much money to spend as they did during the auction of AWS-3 spectrum, which ended in January 2015 after generating $45 billion.
  • AT&T may have been selected to build out FirstNet. No official announcement has been made yet, but reports surfaced last week indicating AT&T may have been selected to build and maintain the nation’s first broadband wireless network dedicated to public safety. The winner of the FirstNet contract stands to gain access to a swatch of 20 MHz of spectrum, Jonathan Chaplin of New Street Research recently observed, which could significantly lessen AT&T’s interest in bidding aggressively at auction.
  • Consolidation in telecom is likely on the way. Federal regulators stymied Sprint’s effort to merge with T-Mobile, but the incoming Trump administration will probably take a much friendlier view of tie-ups in the telecom market, which would make it easier for them to combine their spectrum assets. Meanwhile, cable companies such as Comcast and Charter might look to merge with existing carriers to enter the U.S. wireless market rather than investing heavily to buy their own airwaves.

It’s possible, of course, that carriers are still salivating over the 600 MHz and are just waiting for the clearing cost to drop again before bidding more aggressively. Stages 2 and 3 failed to generate much interest, but there’s still a chance that a fourth stage could heat up and bring an end to the entire event.

For now, though, it seems there simply isn’t nearly as much interest in 600 MHz airwaves as the market thought there was.