With the C-band auction already breaking records for the most money raised at $69 billion so far, when bidding resumes today, we will be in uncharted territory. While the auction has not yet concluded, there are already a number of key takeaways from the rounds so far.
The value of mid-band 5G spectrum, soon
Set to be cleared in 2021 and comprising of 46 of the top 50 most populous markets in the U.S., A block was always going to generate a lot of interest. The question was how much money that interest was worth, particularly compared to the nearly identical BC block spectrum to be cleared in 2023.
For AT&T and Verizon, A block spectrum could fast-track 5G capacity that both carriers need to compete with T-Mobile’s strong mid-band holdings already being deployed with 5G today. For other bidders like Dish Network or Comcast and Charter Communications, it could help accelerate timelines for their own 5G deployments, but there is likely less urgency than for the carriers due to a lack of capacity issues and the pace of their own buildouts.
As bidding for A block stabilizes, we are getting close to an answer on the collective value that participants have placed on near-term ownership of mid-band spectrum. On average, A block licenses have gone for ~10% more than their BC block partners in the same market. That means that taken in its entirety, the 100 MHz in A block is currently worth almost $1.8 billion more than 100 MHz of BC block, which will be functionally identical, but available two years later (and in greater quantities since BC blocks are 180 MHz in total). That establishes a value for time to market for A Block of $900 million per year.
As of round 45, all but one of the A block markets have seen no new bids, but in BC markets, bidding is still going on as equilibrium is approaching with an average of less than 1 supply exceeding demand across all BC markets. However, the closer BC block prices get to A block, the more likely it will be that bidding shifts back to A block markets that we thought were settled.
The fat lady has not yet sung
While bidding for top markets seems to be winding down, the rest of the auction is still going strong. One of the remarkable things about the first 20 rounds was the extent to which bidders began to engage with smaller markets earlier than in past auctions. Over 63% of the U.S. population lives in the top 50 markets and accordingly, auction participants often place much greater emphasis on acquiring spectrum in these markets. While C-band clearly supports this trend, with 90% of all gross proceeds so far coming from the top 50 markets, many markets further down the list are still not resolved and have significant excess demand.
Of the $69 billion gross proceeds so far, $15 billion comes from markets that are still increasing in price. Two-thirds of that are BC markets that fall within the top 50 and should be resolved soon if current trends continue.
The remaining $5 billion comes from smaller 50+ markets – which in aggregate are still averaging over four bids over available supply! Prices increase by 10% each round even if there is just one bid over existing supply, so it is easy to see that could take quite some time for auction participants to collectively determine the value of these smaller markets, 60% of which are still moving auction prices up.
$5 billion may not seem like much compared to the $62 billion that the top 50 markets have already generated, but keep in mind that ABC licenses are still very cheap relative to the rest of the licenses available in C-band.
What can history teach us?
Using the previously largest auction AWS-3 as a benchmark, the smaller markets in C-band still look at face value downright cheap. AWS-3 covered Pops equivalent to the top 50 C-band markets brought in on average $2.15 per MHz/Population compared to just $0.68 per MHz/Population for smaller markets, meaning that AWS-3 bidders effectively priced larger markets at 3.2x more valuable than smaller markets. The current gap between large and small markets for C-band is much higher at over 6.5x.
Using the AWS-3 pricing multiple as a guide, we would arrive at $0.38 per MHz/Pop, up from current pricing of $0.19 per MHz/Pop through round 45, or approximately another $5 billion in gross proceeds.
While it remains to be seen if we will reach that level of bidding intensity for smaller markets, as of now, bid volumes and historical comparisons point towards additional price increases in smaller markets. Given how aggressive bidding has been to date, final gross proceeds in the $75-78 billion range are certainly within the realm of possibility. Only time will tell.
Don Kellogg is vice president and analyst at Recon Analytics. Don has over 15 years of experience consulting with carriers, OEMs and MSOs in the wireless space. Prior to Recon Analytics, he was a Principal at Neustar. Prior to Neustar, Don was the Director of Research at Nielsen’s Telecom practice.
"Industry Voices" are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by FierceWireless staff. They do not represent the opinions of FierceWireless.