AWS-3 spectrum auction bids soar to nearly $25.8B, and are likely to keep climbing

Bids in the FCC's AWS-3 spectrum auction keep climbing: After 20 rounds the auction has raised a total of $25.77 billion in provisionally winning bids.

Although the bidding is confidential, analysts think that Verizon Wireless (NYSE: VZ) and AT&T Mobility (NYSE: T) are spending heavily, with Dish Network (NASDAQ: DISH) likely bidding up prices.

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 running from 1695-1710 MHz have received only a fraction of bids the paired spectrum has attracted.

According to the FCC's data, the highest provisional winning bid through 20 rounds was around $1.71 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 $1.26 billion provisional winning bid in round 20. Both bids highlight the desire of carriers--likely Verizon and AT&T--to secure 10x10 MHz channels in major markets.

After round 19, New Street Research analyst Jonathan Chaplin noted that the most contested blocks have been the J Block and the I Block (a 5x5 MHz block), both of which were bidding at $1.57 per MHz-POP at that point, while the nearby H Block (a 5x5 MHz block) was at $1.56 per MHz-POP. The G Block (another paired 5x5 MHz block) was at $1.32 per MHz-POP. The 15 MHz of unpaired spectrum saw increased bidding today, but only reached 10 cents per MHz-POP in round 19.

Additionally, Chaplin noted, the bidding rules have changed such that a new bidder on a license will only have to bid $50 million more than the previous winning bidder. Chaplin wrote that "previously this minimum amount had been much larger for the key licenses, potentially deterring new bids." For example, bidders were required to increase their bids by $343 million in round 19 for the New York City J Block, and no bids were made.

Chaplin is assuming that AT&T and Verizon will win about 47 percent of the spectrum in the auction. Based on the bids made in round 19, that would mean AT&T and Verizon would spend $11 billion each and T-Mobile US would spend $1.5 billion.

However, he noted those prices could go higher. "If bidding gets to $2 per MHz-POP ($31 billion in aggregate), AT&T and Verizon will be spending $14.5 billion each and TMUS will be spending $1.9 billion, again assuming the same ratio."

Meanwhile, Macquarie Capital analyst Kevin Smith wrote in a research note that Verizon "is largely spending on AWS-3 to improve service quality and add capacity for existing subs, with limited incremental revenue and EBITDA but for this analysis we are assuming that the new spectrum is entirely used for incremental EBITDA."

For more:
- see this FCC page
- see this Re/code article
- see this WSJ article (sub. req.)

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

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