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

Most competition in Auction 110 could be concentrated among the big carriers. (Getty Images)

The next U.S. mid-band spectrum auction is set to start on October 5 for spectrum in the 3.45 GHz range.

Leading up to Auction 110, analysts have speculated how carriers might or might not show up.  

The deadline to resubmit incomplete applications and upfront payments was September 7, so the FCC should soon be releasing a final list of participating bidders. AT&T, Dish and T-Mobile all submitted applications, while Verizon was on the incomplete list as of the initial filing deadline.

RELATED: Big 3 carriers, Dish apply for 3.45 GHz auction

AT&T appears to be favored to spend the most on 3.45 GHz spectrum, followed by T-Mobile and Dish. Some think that Verizon, fresh off heavy C-band spending, is likely to bow out or participate just to drive up prices. The carrier may still bid to further bolster upper mid-band reserves.

Spectrum expert and President of AllNet Insights & Analytics Brian Goemmer thinks Auction 110, which has a total of 100 MHz, could really come down to three carriers that are zeroed in on the most urban markets.

With AT&T’s roughly 80-megahertz of upper mid-band spectrum (from C-band), the carrier is at a shortfall, Goemmer told Fierce.

RELATED: The skinny on the top 5 C-Band winners

Comparatively, T-Mobile has about 190 MHz of upper mid-band, Verizon 180 MHz and Dish 20 MHz, according to LightShed Partners.

“When you’re at a shortfall, you don’t have the ability to be picky about the neighborhoods that you’re in,” Goemmer said. “[AT&T] just needs to pick up a couple more neighborhoods of spectrum so all in all they have a more competitive picture of total upper mid-band spectrum.”  

Last week LightShed Partners estimated AT&T would dole out more than $12 billion at the upcoming 3.45 GHz auction – but acknowledged it’s likely much higher than other firms’ projections. Cowen analysts, meanwhile, said in early September that they see AT&T spending $9 billion to come away with 40-megahertz. New Street Research is similar, pegging a roughly $10 billion price tag for AT&T to acquire the maximum allowed (Auction 110 rules limit winners to a 40-megahertz cap).  

Overall, Cowen expects the next mid-band auction to generate between $21 billion and $25 billion. Proceeds of $25 billion is New Street’s base case if three national carriers bid. Verizon just spent and won big at C-band, but if the carrier shows up to win, the firm thinks the 3.45 GHz auction could reach $37 billion.

RELATED: FCC sets October start date for 3.45 GHz auction

The C-band auction offered 280-megahertz, without limits, generating over $81 billion – not including billions paid by winners for costs and incentive payments for satellite operators clearing the band.

Mid-band airwaves are seen as a sweet spot for 5G with a mix of coverage and capacity compared to low- or high-band spectrum that’s been deployed. The FCC has already auctioned spectrum in the 3.55 GHz (CBRS) and 3.7 GHz (C-band) ranges.

T-Mobile looking to keep spectrum advantage

For T-Mobile, some see it as one of the last chances to acquire more upper midband, while others have noted a need to keep its grasp on an early 5G spectrum advantage from 2.5 GHz with an FCC auction for EBS licenses in the pipeline.

“T-Mobile’s spectrum lead has shrunk, primarily due to the C-Band and CBRS spectrum auctions,” wrote LightShed’s Walter Piecyk and Joe Galone in a September 9 post. “That gap could close further, following yet another auction of mid-band spectrum this year.”

Eventually T-Mobile won’t be able to offer a differentiated service if it loses that spectrum depth lead, they added.

For 3.45 GHz spectrum, New Street thinks T-Mobile could spend around $8 billion to pick up 31 MHz. while Cowen projects slightly more, with about $9 billion spend for a full 40-megahertz.

RELATED: T-Mobile undeterred by AT&T’s heightened 5G investment

“T-Mobile has a strong lead over the other carriers in both mid-band spectrum and total spectrum holdings. We believe they will want to preserve that lead by buying at least their fair share of new spectrum that comes to market (though we acknowledge this is a weaker impulse than that felt by the carriers trying to close the gap with T-Mobile),” wrote New Street in a September 4 note.

However, this week New Street’s Jonathan Chaplin suggested that T-Mobile might not be extremely aggressive in bidding for 3.45 GHz, in part because of a mid-band spectrum screen AT&T has lobbied the FCC to put in place.

The screen wouldn’t impact the 3.45 GHz auction because rules are already established. If one is put in place before the upcoming 2.5 GHz auction (Auction 108) but not determined ahead of the October auction, it could affect participation in 3.45 GHz, putting T-Mobile in an awkward position as they bid without knowing the outcome, he wrote.

“If T-Mobile prioritizes 2.5 GHz spectrum over 3.45 GHz spectrum, they may need to limit the amount of 3.45 GHz they buy so as not to be limited with 2.5 GHz,” Chaplin said in a September 15 research note.

Purchasing only 15 MHz at Auction 110 would mean T-Mobile then couldn’t buy any 2.5 GHz spectrum if a mid-band screen were put in place, according to Chaplin.

On the other hand, Goemmer said that the 2.5 GHz Auction 108 is not going to dramatically change T-Mobile’s spectrum position in congested markets.

RELATED: FCC starts moving on unique 2.5 GHz auction, license areas

“The EBS auction is really about rural markets and there’s really very little spectrum to acquire in the urban markets via the auction,” he explained. 

When it comes to 3.45 GHz, Goemmer expects T-Mobile to be opportunistic but questioned if acquiring 10 to 20-megahertz channels would be enough or if the carrier will make a play for 40-meghertz or nothing.

“My sense would be that acquisitions of less than the entire bandwidth [in 3.45 GHz] would kind of be noise in the channel and not very important,” Goemmer said.

Another concern raised by analysts is that if T-Mobile does drop out and Verizon doesn’t participate to win, the 40-megahertz limit could then put the auction in jeopardy as bidders other than AT&T won’t be able to commit the roughly $9 billion remaining that’s needed to meet the minimum auction revenue threshold of $14.7 billion.

“This would actually be a bad outcome for AT&T – they want the 3.45 GHz auction to succeed more than anyone,” wrote Chaplin.

Verizon no-show?

Views that Verizon isn’t likely to participate make sense in Goemmer’s eyes, given the operator’s trove of spectrum. Verizon already scooped up 160-megahertz of C-band spectrum nationwide, with initial deployments starting later this year.

“When you look across spectrum bands, Verizon tends to be very strategic about their investments,” he said, noting the choice to focus on 28 GHz and 37 GHz for mmWave while largely staying out of 24 GHz and 47 GHz bands.

New Street analysts assume Verizon will sit Auction 110 out, in part because the carrier has suggested it will.

“They are more resource constrained than AT&T and T-Mobile following a $53BN investment in C-Band, but only because they set stricter leverage limits for themselves,” the firm noted, adding that Verizon would have the biggest impact on auction proceeds and price.  

RELATED: Verizon, Dish: What’s in their CBRS playbooks?

If Verizon does bid to win, Goemmer posited whether it would change the desire to hold onto CBRS spectrum the carrier picked up in the first mid-band auction.

“If Verizon did participate in the auction and got 40 megahertz, I think that 40 megahertz is a much better block of spectrum for them to deploy alongside their C-band than CBRS,” Goemmer said.

CBRS has a unique sharing set up with three tiers of users and is subject to smaller license sizes and lower power limits. And if 3.45 GHz comes into play, Verizon could look to sell CBRS or choose to hold onto the spectrum for enterprise-focused deployments or partnerships, he suggested.

Dish shows up, but for how much?

Dish is building out its own new 5G network and the operator has amassed a large amount of spectrum, but doesn’t hold much in the upper mid-band range.

“Dish could be a meaningful participant, but perhaps more value conscious given its ongoing $10B 5G network build and balance sheet,” wrote Cowen analysts, who think the company could spend $4.5 billion to acquire 20-megahertz of 3.45 GHz.

RELATED: Marek’s Take: Dish's Mayo says company is committed to 5G

Similarly, New Street projects Dish to win 19-megahertz for $4.9 billion. They could spend more than that if they find a strategic partner to help fund the 5G network and would also want additional spectrum, the firm noted.

“Dish’s unit cost advantage and their ability to disrupt fell sharply when they sat out the C-band auction; 3.45 GHz ought to be important to them,” the analysts wrote. “19 MHz will improve their capacity share modestly.”