T-Mobile, Comcast, tower firms could benefit from auction's spectrum scope, but challenges remain

The incentive auction of prized 600 MHz spectrum still faces some major challenges, but the FCC is clearly off to a good start.

The Commission set the initial clearing target for the reverse auction at 126 MHz, the maximum amount it could gather from TV broadcasters before selling off airwaves in the forward auction. The amount was surprisingly high, and indicates Verizon, AT&T and T-Mobile likely will be able to walk away with as much spectrum as they want -- if they're willing to pay for it.

The FCC said 97 percent of the blocks are high-value category 1 spectrum, 99 percent of which will have no impairment or interference. In the top 100 markets, BTIG Research noted, only Cleveland and Toledo will have lower-quality category 2 blocks available.

Preston Padden, former executive director of the Expanding Opportunities for Broadcasters Coalition, said the high target indicates the auction may be the "spectrum extravaganza" FCC Chairman Tom Wheeler predicted it would be a few months ago.

"This is indeed a 'spectrum extravaganza' -- 126 MHz far exceeds early estimates of likely broadcaster participation," Padden said in a statement.

CTIA agreed, saying it "is encouraged to see so much interest in the FCC's incentive auction, which will play a critical role in making spectrum available for 4G LTE and 5G technologies. We look forward to a successful conclusion of the auction this summer, a smooth repacking transition and securing access to licensed spectrum as quickly as possible to meet consumers' mobile broadband demands."

But while Friday's announcement prompted giddiness from groups on all sides of the auction, Walter Piecyk at BTIG warned not to read too much into the figure.

"The size of the initial clearing target provides few, if any, clues about the potential value of the auction," Piecyk wrote. "We do not yet know how much the broadcasters want to sell their spectrum for or whether that price will be below what wireless operators are willing to pay for it."

And Piecyk noted that while it was once thought that the FCC would demand upfront payments from bidders in the forward auction within a few weeks of the clearing target announcement, BTIG now believes the Commission could allow bidders to wait until late June to make those payments. That move, coupled with the high clearing target, could encourage participants to bid more aggressively than they otherwise would have.

But the clearing target also sets the bar higher for bidders to offer up enough money to pay TV broadcasters for their airwaves. If that figure is met, the reverse auction is over. If not, the FCC must start over by going back to the broadcasters to reduce the amount of spectrum it hopes to clear in a second reverse auction. And, maybe, a third.

"The clock phase for the reverse auction will start on May 31 and should last approximately two months," UBS analysts wrote in a research note. "The forward auction will immediately follow, and if successful, will likely conclude in the early fall. However, the higher clearing target increases the chances of a protracted auction, requiring a second stage."

UBS added that greater spectrum availability is good news for T-Mobile, which is lacking in low-band airwaves, as well as Comcast, which may be seeking to complement an MVNO offering with its own spectrum. The announcement was also a positive for tower companies, according to UBS, because more spectrum availability will lead to greater carrier investment in the long term.

Related articles:
FCC clears maximum amount of 126 MHz of spectrum for 600 MHz incentive auction
Incentive auction of 600 MHz spectrum kicks off
NAB blasts Wheeler's 'disingenuous' statements on incentive auction repacking schedule
T-Mobile's 600 MHz auction repacking report is 'oversimplified and misleading,' NAB argues
AT&T wants a 'realistic' repacking schedule for FCC's upcoming 600 MHz incentive spectrum auction
CCA, NAB bicker over incentive auction's relocation fund, spectrum repacking timeline

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