It’s the FCC’s auction, to be sure. But it wouldn’t be too far of a stretch to call it “T-Mobile’s 2.5 GHz auction.” After all, the “un-carrier” is all about 2.5 GHz in the 5G era and it stands to gain the most from this event.
After the first round on Friday, gross proceeds totaled $103,467,300. Rounds 2 and 3 are underway today.
In total, the FCC is selling 8,017 county-sized licenses of Educational Broadband Service (EBS) spectrum in Auction 108.
Ultimately, T-Mobile is expected to be the big winner, so there isn’t a lot of mystery here, but anything could happen between now and the auction’s end, which is expected in early to mid-September at the earliest.
Sasha Javid, the COO at BitPath who consistently posts updates and analysis of auctions, described demand at the start of this auction as “very tepid” and at the low end of prior auction starts.
One reason for the sluggishness is T-Mobile’s “information asymmetry advantage” over other auction participants, the former chief data officer with the FCC said in a LinkedIn update.
T-Mobile already holds long-term leases with the large majority of the incumbent EBS licensees, and because it succeeded in keeping the leases confidential, other bidders don’t know how long they may be precluded from accessing or re-leasing parts of their licenses currently encumbered by T-Mobile’s leases, he said.
Cleaning up spectrum
If it’s not going to be a big money generator for the U.S. Treasury, then what’s the FCC’s goal?
“I think the FCC was realistic that this auction would not be a huge money earner for the Treasury,” Javid told Fierce. “I think its goal has always been about making the band more efficient by giving large and small carriers an opportunity to provide coverage to those legacy ‘white spaces’ in the band. Of course, this will also help T-Mobile cover more of the country with its foundational mid-band 5G spectrum.”
Analysts at New Street Research cited another reason other carriers might not be so wild about obtaining this spectrum – other than to mess with T-Mobile.
“From a networking perspective, none of the national operators besides T-Mobile are deploying radios compatible with 2.5 GHz spectrum, meaning they would have to spend significant capex after buying the spectrum to put it to use,” New Street analysts Jonathan Chaplin and Philip Burnett wrote in a report for investors last week.
“Given the unique shape of the underlying licenses being offered and the need to protect the incumbent operator in any license area (usually T-Mobile), the deployment would also be complicated” they said. “And, since these other operators would need to deploy other bands of spectrum alongside the 2.5 GHz deployment to fill in coverage gaps, they would have to navigate new interference concerns in their own network.”
Challenges to deploying spectrum haven’t stopped carriers before – just look at the C-band. Before successful bidders like Verizon and AT&T could use the spectrum, incumbent satellite players had to be moved to the upper part of the band. Then, they had to contend with way-past-11th-hour concerns with airlines and the Federal Aviation Administration (FAA). Still, Verizon spent over $45 billion and AT&T spent $23 billion, not including accelerated clearing costs, and they're feverishly deploying networks using the spectrum.
In fact, it’s all that money spent on the C-band – and for AT&T, another $9 billion in the 3.45 GHz auction – that led Javid, in part, to conclude Verizon and AT&T won’t be major players in this 2.5 GHz auction. “At most, they will participate to ensure T-Mobile has to pay a little more to fill in gaps in major metro areas,” he said.
Underwhelming on price
New Street suggests T-Mobile could spend $5.3 billion on this auction, acknowledging that’s at the high end but it's the amount it could spend without changing plans for share repurchases. If T-Mobile only spends $3.4 billion, as the analysts suspect, the operator will have an additional $1.9 billion for share repurchases.
“While we are bullish on spectrum values generally, and on the value of upper mid-band spectrum from 2.5-4.0GHz in particular, we expect this auction to underwhelm on price,” the New Street analysts wrote.
They noted that T-Mobile is by far the largest operator in the 2.5 GHz today and reports holding 159 MHz on average nationwide, having acquired licenses and leases for the spectrum in its merger with Sprint. New Street estimates T-Mobile owns 67 MHz of Broadband Radio Service (BRS) and leases 92 MHz of EBS spectrum.
Based on how some prior recent auctions have gone, the analysts figure this one could go on through early to mid-September. However, if it ends up resembling more of the AWS-3 auction, it could go into mid-October, they said.