Wells Fargo: High-band spectrum 'becoming more of a focus' heading into auction of 600 MHz airwaves

Bidding for the FCC's reverse auction of 600 MHz airwaves is slated to start May 31, kicking off what Chairman Tom Wheeler has predicted will be a "spectrum extravaganza." But Wells Fargo Securities analysts are questioning just how valuable carriers view that low-band spectrum.

"Spectrum residing on the lower end of the RF range has long been preferred by wireless carriers to serve as a base coverage band when building out wireless network infrastructure," Jennifer M. Fritzsche of Wells Fargo wrote in a research note published this morning. "Lower-band spectrum (i.e.: 700 MHz band) propagates better than higher-band spectrum, in that the longer frequency waves can travel farther and penetrate obstructions (i.e.: buildings, residences, etc.) more effectively. Wireless carriers have opted to use mid-band spectrum (1.7 GHz – 2.1 GHz) and high-band spectrum (2.3 GHz – 2.7 GHz) to overlay their base coverage network layer and provide capacity to deliver wireless services."

Indeed, low-band airwaves can provide better coverage over wider geographic areas, requiring fewer cell sites and therefore lowering the costs of network build-outs. But as mobile data consumption continues to ramp up, the value of high-band spectrum that can provide increased capacity has risen. And that will almost surely continue as carriers transition to 5G technologies.

"With the exponential growth in mobile data traffic, capacity has become increasingly important in densely populated areas," according to Wells Fargo. "Mid-band (1.0 GHz to 2.2 GHz) and high-band (above 2.2 GHz) spectrum can deliver more data over shorter ranges, which allows for larger spectrum channels, frequency reuse and faster data speeds. In fact, ultra-high-band spectrum (28 GHz, for example) is playing an increasingly large role in the development of the 5G ecosystem."

The looming question, of course, is how much money the incentive auction will generate. The AWS-3 auction, which ended in early 2015, was expected to generate roughly $25 billion but actually rang up about $45 billion. And while operators may not have access to as much cash this time around, they also don't have many opportunities to acquire airwaves in bulk.

The auction may not raise the $60 billion to $80 billion some have predicted, but three major service providers – Sprint is the lone tier-one carrier sitting it out – are expected to bid aggressively. And the possibility remains that a dark horse such as Comcast, Dish Network or Rama could spend big money to walk away with a substantial amount of spectrum.

"As we have previously written, numerous questions remain about this auction," Fritzsche wrote. "First, some question the carriers' interest here given that high-band spectrum is becoming more of a focus and the two expected highest bidders (AT&T and Verizon) already have a large amount of lowband spectrum. Second, carrier balance sheets are still somewhat stressed following the AWS-3 auction (and other events such as T's acquisition of DTV).

"In order to deliver certain stated leverage targets," she continued, "carriers do not likely have capacity to live up to some of the initial proceeds estimates (with certain analysts predicting $60- 80B in total spending). Third, the incentive auction is the last known spectrum auction for the foreseeable future – might the carriers bid aggressively to prepare for the expected exponential growth in wireless data? As many have said, spectrum is like money (or closets in my case!)…you can never have enough!"

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