3.45 GHz auction kicks off, $672M in Day 1 proceeds

spectrum
In a note for investors after the first round, New Street Research analysts said demand looked hot at the 3.45 GHz auction. (Getty Images)

The Federal Communications Commission’s Auction 110 for mid-band spectrum kicked off Monday with two rounds of bidding complete.

Results show gross proceeds as of the end of bidding on Day One stood at $672,410,700. The reserve price set by the FCC means the 3.45 GHz needs to generate at least $14.77 billion, based on clearing costs of moving incumbent federal users out of the band.

The 3.45 GHz auction offers 100-megahertz of mid-band spectrum, with a 40-megahertz cap for the amount any single bidder can acquire.

In a note for investors after the first round, New Street Research analysts said demand looked hot.

All of the main players, including AT&T, T-Mobile, Verizon and Dish Network are among 33 qualified bidders.

New Street said that in the first round, bidders requested 185-megahertz (on a national average basis).

“This suggests all four national carriers are bidding for 40MHz in the auction, meaning the auction is on the right track to close (though it is early),” wrote New Street analyst Philip Burnett.

Some additional demand could be coming from regional players (UScellular also is participating) and financial bidders.

There’s some speculation that Verizon could drop out, in which case New Street still expects prices to end at $25 billion – lower than the $35 billion projected if Verizon bids to win. Others like LightShed Partners have laid out a number of reasons why Verizon would want to acquire a full 40-megahertz at auction (and AT&T even more so).

RELATED: What’s in the cards for the 3.45 GHz auction?

Sasha Javid, COO of BitPath, tracks auction results closely and in a Monday post said the auction was underway slowly.

For excess demand compared to prior auctions, the 3.45 GHz “has come in at the low end” meaning potentially a shorter auction with less rounds than previously expected, he wrote.

There are a few caveats for the 3.45 GHz band that weren’t seen in the blockbuster C-band auction – including the 40-MHz spectrum cap per carrier.

“This 40-MHz cap in particular could suppress auction revenues because carriers generally prefer larger contiguous blocks for their 5G services,” Javid wrote.

Others, including investment analysts, have pointed to the 40-megahertz cap as something that could limit or even cause the auction to fail and not meet its reserve price.

RELATED: U.S. midband spectrum 3.45 GHz auction just around the corner

There’s also coordination requirements on licensees in some areas with the DoD for federal military users that will need to keep using the band in certain locations or at certain times.

“By my estimates, roughly 18 percent of the MHz-POPs will be subject to coordination at the close of the auction (albeit using very conservative 100 meter tower height assumptions),” Javid noted.

He posited the possibility of price impacts for so-called “impaired” blocks as the auction continues, especially in those that have significant coordination requirements even after the first year.

Javid told Fierce that the coordination requirements aren't necessarily preventing bidders from vying for those impaired licenses, but "the bidders are clearly opting for the less impaired licenses when available in the same PEA." That indicates to him that participants are still somewhat uncomfortable with the coordination process. 

"The coordination requirements are also clearly suppressing demand in San Diego and Seattle, though DC and Philly seem to be doing OK despite being similarly impaired," Javid said. 

Still, 3.45 GHz is key mid-band spectrum that carriers want for 5G, and the main near-term opportunity for auctioned airwaves.