Year in Review: Lethargic bidding in the FCC’s 600 MHz spectrum auction

FierceWireless is wrapping up an eventful 2016 by taking a hard look at five of the most important trends and developments that emerged in the market this year. Today’s installment examines the FCC’s ongoing incentive auction of 600 MHz spectrum.

The news: The incentive auction continues, but action from bidders thus far has been a major disappointment. Stage 3 of the auction fizzled out in early in December after a single round that generated a mere $19.7 billion in bids, less than half of the $40.3 billion that was needed to end the event. The dismal round followed a second stage that also lasted only one round, generating $21.5 billion in bids before sputtering to a halt in October.

The lackluster performance stands in marked contrast to the hype that preceded the event. Multiple analysts speculated a year ago that the auction could generate $60 billion or more as bidders vied for the 600 MHz airwaves often described as “beachfront” property. And FCC Chairman Tom Wheeler said earlier this year he expected to see a “spectrum extravaganza” during the auction.

What it means: Network operators have long complained of a “spectrum crunch,” but they don’t seem very interested in addressing their capacity challenges via the auction. "This is not an auction,” TV consultant Preston Padden said in a prepared response following the latest round. “It is a joke and an abuse of the broadcasters, the FCC and the public, who will be put through a disruptive repacking process that increasingly looks unjustified.”

It’s impossible to know what carriers are thinking as the auction plods on – they can’t discuss the issue due to FCC rules – and the FCC doesn’t disclose bidding details including the identity of active bidders. But four primary factors appear to be at play:

  • Demand for 600 MHz airwaves has weakened in advance of 5G. Low-band spectrum offers impressive propagation characteristics, but carriers are increasingly looking to mid- and high-band spectrum to increase capacity as data usage continues to ramp up. Sprint CFO Tarek Robbiati recently described 600 MHz as “spectrum of the past,” and Sprint may not be the only operator to believe that.
  • Carries simply don’t have the access to cash that they once did. The market has grown more competitive over the last two years as smartphone penetration has plateaued. Capex spending on networks has slid this year as operators plot their strategies and investments in advance of 5G. Operators simply aren’t as flush as they were during the AWS-3 spectrum, which ended in January 2015 after generating $45 billion.
  • AT&T may have been selected to build out FirstNet. AT&T may have been selected to build and maintain the nation’s first broadband wireless network dedicated to public safety, although no official announcement has been made. The winner of the FirstNet contract stands to gain access to a swatch of 20 MHz of spectrum, Jonathan Chaplin of New Street Research recently observed, which could significantly dampen AT&T’s enthusiasm at the 600 MHz auction.
  • Consolidation in telecom is likely on the way. Federal regulators in 2014 stymied Sprint’s effort to merge with T-Mobile, but the incoming Trump administration will probably take a much friendlier view of tie-ups in the telecom market, which would make it easier for Sprint and T-Mobile to combine their spectrum assets. Meanwhile, cable companies such as Comcast and Charter might look to merge with existing carriers to enter the U.S. wireless market rather than investing heavily to buy their own airwaves.

The incentive auction was designed to enable the FCC to go back and forth between TV broadcasters and spectrum bidders in multiple rounds, eventually settling on a price that strikes a balance between supply and demand. The apparent lack of interest thus far may be something of a bidding ploy, and action could pick up in the next round (or two) as strategies play out.

Increasingly, though, it appears operators are more interested in ramping up capacity in urban areas through mid- and high-band spectrum than they are in expanding coverage in rural and suburban regions. That would be bad news for the FCC and TV broadcasters hoping to unload their airwaves, but it would be good news for Sprint, Dish Network and others who sit on higher-band airwaves. And it may signal a flurry of spectrum deals on the horizon once the incentive auction ends.