Bidding rounds reveal clues in C-band auction: Kellogg

auction bidding
Clearly, the level of interest in the C-band auction is very robust. (Getty Images)
Don Kellogg

A week into the C-band auction, bidding is off to a strong start, reaching more than $10.5 billion. With 5G deployments in full-swing, the 280 MHz of mid-band licenses being offered sit directly in the “goldilocks zone” that straddles attractive propagation characteristics and reasonably sized 20 MHz licenses large enough for a meaningful difference in capacity and speed for 5G, especially if a winner gets more than one license in a block.

Due to twists in the spectrum clearing of the incumbent satellite providers, the 100 MHz that makes up A block for the auction is scheduled to be cleared as early as 2021 while B and C block licenses may not be available until 2023. As such, A block licenses for 46 of the top 50 markets can be bid on separately and will likely come at a premium compared to B and C block licenses in the same market. The other markets are being bid on together.

While we will not know who bid on which markets until the auction is over, for each round the FCC reports the demand for licenses versus those available via the public reporting system. For each round, in every market where demand exceeds supply, the price increases by 10% for the next round. Ten percent may not sound like much initially, but exponential growth soon catches up and markets with intense bidding quickly get expensive. For example, after 10 rounds where demand exceeds supply the price more than doubles, after 20 rounds it increases by six-fold and after 50 rounds the price has increased to 100x the original cost.

Price escalation invariably forces decisions on even the most well-heeled bidders, but we have not yet reached that point with the C-Band auction. So far the volume of markets with bids over supply has INCREASED, not decreased, resulting in over $10.5B gross proceeds across the 411 markets offered through round 20.

Auction 107 chart 2

What is interesting about the C-band auction so far is that the bidding volume for smaller markets that typically happens later in the auction has heated up early. During the first 10 rounds, demand for roughly 2/3rds of markets exceeded supply and therefore increased in price by 10% every round. Starting in round 12 bidding volume increased. This increased volume catapulted markets with price increases from 68% of all markets to 81% of all markets and continued to build to over 90% of all markets by round 17.

Auction 107 chart 1

Digging a bit deeper, the jump in markets with more demand than supply that began in round 11 was driven by an increase in interest in smaller population markets while prices for larger markets were still not settled. Through round 10 only about half of lower population tier markets ranked 100-400 had more bids than supply, but by round 15 over 86% of markets ranked 100-400 by population had more bids than supply.  

Auction 107 chart 3

But what about those A sub block licenses that could help the winner race to deploying mid-band 5G? There are only five licenses available per market, but bidding for many of the top markets through 20 rounds still shows bids in the double digits in excess of supply. In fact, demand for A block markets is still so strong that in the first 20 rounds, every A block license in the 46 markets increased in price every round. That adds up to a 612% increase over 20 rounds and over $3.5B of the total gross proceeds of $10.5B across the entire auction.

Bidders seem to be slowly adjusting to the expectation that they may not win the entire A block. In round 18 demand for the top 39 markets dropped by two to three units across all markets, possibly an indication of one bidder dropping out. While demand has fallen across the top markets, none of the A block markets have reached bidding equilibrium where supply equals demand and price increases cease. At current pace the licenses in A sub block markets would be collectively worth over $5 billion in just five more rounds and over $10 billion by round 32.

Within the A block, which markets are most popular among bidders? As always, the top 10 markets have among the highest demand, but the market with the most demand in excess of supply so far is Salt Lake City, the 27th largest market in the auction, with four bidders for every available licenses (five licenses available, 15 in excess of supply).  A cluster of markets follow Salt Lake City for second most activity: Chicago, Dallas, Miami, Houston, Orlando, Las Vegas, Kansas City, Austin and Milwaukee all have 12 bids over supply (total bids of 17 each).

So what can we learn from the first week of the C-Band auction? At $10.5 billion through round 20, the level of interest in mid-band 5G spectrum is very robust. Verizon and AT&T’s well understood need for mid-band 5G spectrum is surely playing a role in the amount of activity we are seeing, but bidding volumes indicates that there are also other players, like Dish Network and Comcast/Charter, willing to throw their hat in the ring. Regardless of who wins, it’s likely we’ll see consumers enjoying the benefits of C-band 5G sooner rather than later.

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, Don 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.