AWS-3 auction tops $31B in bids as activity starts to slow down

The FCC's AWS-3 spectrum auction surged into uncharted territory on Friday, with total provisional winning bids topping $31 billion, $12 billion more than the 700 MHz auction attracted in 2008.

After 24 rounds of bidding, the dynamics of the auction have not changed much. However, though the total amount bid keeps rising, the number of new bids is slowing down, indicating that the auction likely is winding down. After round 24, the total amount of provisional winning bids stood at $31.023 billion, which is billions of dollars more than most analysts had predicted the event would generate.

According to the FCC's data, the highest provisional winning bid through 24 rounds was around $1.86 billion for a 10x10 MHz license of paired AWS-3 spectrum in the J Block covering the New York City area, which has consistently been the most attractive license. A license covering the Los Angeles area in the same block of spectrum attracted a $1.51 billion provisional winning bid in round 20. Both bids highlight the desire of carriers--likely Verizon Wireless (NYSE: VZ) and AT&T Mobility (NYSE: T)--to secure 10x10 MHz channels in major metropolitan areas. Many analysts think Dish Network (NASDAQ: DISH) has been bidding up prices, in part to enhance the value of its own spectrum holdings, which are largely adjacent to the AWS-3 licenses up for auction.

While the auction is still ongoing, the intensity in the bidding is starting to slow, according to analysts. As such, it's possible to start assessing how much each carrier might wind up spending in the auction and what the implications of the auction will be.

Analysts at New Street Research indicated in a research note that they now are setting a target of $2 per MHz-POP for the paired spectrum being auctioned, 50 cents higher than their initial projection.

According to New Street, after round 23 the 50 MHz of paired spectrum had raised $29 billion, or $1.86 per MHz-POP. The aforementioned J-Block was the highest at $1.97 per MHz-POP while nearby paired spectrum blocks went for lesser amounts, though all above $1.50 per MHz-POP, according to the analysts. New Street found that after round 23, the 15 MHz of unpaired spectrum reached 18 cents per MHz-POP and met its reserve price of $580 million.

The paired spectrum in the AWS-3 auction runs from 1755-1780 MHz for uplink operations and 2155-2180 MHz for downlink, and those bands have drawn the vast majority of the bids. The unpaired uplink spectrum licenses run from 1695-1710 MHz.

In terms of the paired spectrum, the analysts at New Street are assuming AT&T and Verizon will each acquire 10x10 MHz blocks in the auction and they will split the remaining 5x5 MHz blocks with T-Mobile US (NYSE:TMUS). Assuming the paired spectrum winds up going for around $2 per MHz-POP, New Street thinks AT&T and Verizon will each spend around $14.5 billion in total on AWS-3 licenses, and T-Mobile will spend $1.4 billion.

Interestingly, all of this could redound to Sprint's (NYSE: S) benefit, according to New Street, which may seem odd since Sprint chose to sit the auction out. Sprint holds around 120 MHz of 2.5 GHz spectrum that it is using to deploy TD-LTE service, and the prices AWS-3 auction is generating could also raise the value of Sprint's airwaves.

"This auction demonstrates two things: 1) the value of marginal spectrum is higher than everyone thought, and; 2) mid-band no longer trades at a discount to low-band," the New Street analysts wrote. "We think 2.5 GHz should probably still trade at a discount to mid-band, but perhaps not as much as before."

New Street also thinks tower companies will benefit as a result of the auction because high values for spectrum "reflect the carriers' need for additional capacity which reinforces their need for towers and cements tower companies' pricing power," and because "the spectrum has to be deployed and, given the prices paid, the carriers will probably deploy it sooner rather than later."

For more:
- see this FCC page

Special Report: AWS-3 spectrum auction primer: What you need to know

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