Expectations were already high going into the FCC’s auction for C-band spectrum, and bidding reached new levels this week, generating nearly $70 billion in gross proceeds as of Wednesday before heading into a holiday break.
For comparison, the highest grossing spectrum auction in the U.S. (before Auction 107) was the AWS-3 auction in 2015. It set a record, closing at $44.899 billion in provisional bids after 341 rounds.
The C-band action offering 280-megahertz started on December 8, and at two weeks in, it’s taken a strong position as the biggest U.S. spectrum auction ever. Two rounds were completed Wednesday, 45 in total, with gross proceeds of $69.83 billion. Some higher-end estimates for the auction had ranged from $35.2 to $51 billion.
Bidding is set to resume January 4 after taking a break for the holidays.
At the close of Tuesday’s rounds Roger Entner, principal and founder of Recon Analytics, noted that action was still going strong.
“It’s pretty remarkable,” Entner told FierceWireless.
After 45 rounds, the average nationwide price per MHz PoP price for licenses was of $0.81. That rises to $0.96 across categories when factoring in accelerated clearing payments and relocation costs to move satellite operators out of the band band, estimated at $9.7 billion and $3.3 billion respectively.
Analysts had estimated C-band licenses would be between $0.20-$0.50 per MHz PoP.
The nationwide price for A block licenses per MHz Pop was $1.21 as of Wednesday, while BC prices were $1.11 per MHz PoP according to tracking by BitPath COO Sasha Javid.
Demand for most of the category A blocks (which includes the first 100-megahertz tranche of spectrum in 46 of the top 50 markets that has a clearing schedule of December 2021) has evened out, but Entner said activity in markets other than the top 50 PEAs picked up a lot earlier than it normally does, helping drive Auction 107.
In the top 20 PEAs at the end of round 43 there were still 12 markets that had competition, mostly for BC blocks, but also a few category A, including PEAs of Miami, Phoenix, and Minneapolis-St.Paul.
“Gross proceeds have been driven by surprisingly robust and persistent demand,” wrote Javid in an analysis Tuesday morning. “In Round 36, I suspect that a large bidder pulled back significantly in the largest markets given that all the top 10 markets experienced a drop in demand.”
New York, perhaps unsurprisingly, has commanded the highest total price, standing at around $515 million for category A and BC. But Entner recalled auctions where New York accounted for 50% of proceeds, and it’s making up a much smaller slice in C-band – signaling just how broad the interest is.
That interest can partly be attributed to the fact that spectrum is a scarce resource, and this is the main opportunity for exclusive mid-band licenses for 5G on a nationwide basis.
“[C-band] is the only spectrum that’s around in the mid-band,” Entner said. “So people take what they can get.”
He believes a lot of the motivation is that contiguous blocks are available in the 3.7 GHz band, so carriers can make larger channels that make a big difference in 5G.
Ability to pay and catching up with T-Mobile
There are 57 participants in the clock phase, though winners won’t be disclosed until the auction ends.
T-Mobile, AT&T and Verizon are all among registered bidders, as is Dish Network.
Verizon in particular is lacking unused mid-band resources for 5G, unlike competitor T-Mobile who has a trove of 2.5 GHz from Sprint that it already has a head start deploying.
Verizon raised $12.5 billion in debt ahead of the C-band auction and Wells Fargo, like other firms, anticipated Verizon will spend the most, previously estimating around $22 billion in gross proceeds to get its hands on 120 MHz of mid-band.
AT&T also needs the spectrum to compete in 5G, but there were questions about just how much the carrier will be able to pony up for C-band because of debt and cost-cutting initiatives. Wall Street analyst firms estimated AT&T could spend anywhere from $4.3 billion to $20 billion for C-band.
But as proceeds climb higher, it appears the criticalness of mid-band spectrum is far from lost on bidders.
‘It is higher than what I expected, simply on the ability to pay side,” Entner said of the proceeds, noting it will likely delay Verizon’s debt-to-equity ratio goals and increase AT&T’s debt. However, he thinks the carriers realize they need to catch up with T-Mobile.
“You have a really hard value proposition if you’re charging premium prices for a budget experience,” he said, and to avoid that AT&T and Verizon need spectrum. “This will help close the gap with T-Mobile. Very expensive, but that’s what it takes.”
All three major carriers have rolled out nationwide 5G either using low-band spectrum or dynamic spectrum sharing (DSS) technology, but performance hasn’t proved better than 4G LTE. Verizon has deployed 5G with high-band millimeter wave in parts of 60 cities, and AT&T has a few mmWave markets, but mid-band is seen as the sweet spot in delivering both capacity and coverage.
T-Mobile says its 2.5 GHz can deliver 300 Mbps and peak speeds up to 1 Gbps.
High prices won’t slow down 5G deployments
Proceeds so far show that bidders will spend heavily for coveted C-band spectrum, but Entner doesn’t think the spending will end up hurting or delaying 5G rollouts.
“We have a healthy industry here,” he said, noting that operators have never paid less for their debt than today thanks to refinancing at low single-digit rates. Because of that, they’ve “all cleared several hundred million dollars worth” of interest they previously would have paid.
So while they may be taking on more debt, Entner stressed that it’s more affordable than ever.
“Now is the best possible time to go into debt for the right reasons, and buying spectrum is the right reason,” Entner said.
Still, he acknowledged there’s not much of a choice if AT&T and Verizon want to remain competitive against T-Mobile. C-band is expected to be a key for 5G in the U.S. and the next opportunity for mid-band isn’t set in stone.
The FCC intends to hold an auction for 100-megahertz between 3.45-3.55, currently used by federal operations, but details still need to be worked out and it may not be a clear channel like what’s currently being offered in Auction 107.