C-Band Auction Nears $80B After Another Day of Aggressive Bidding
The C-band auction, the biggest in history, was at $76.5 billion after five rounds Monday. Analysts at New Street told investors it could climb to $80 billion before it ends, which, with clearing costs tacked on, would mean a $93 billion auction. One question is who will come away with the most Category A licenses, the spectrum that will be the first cleared and available for 5G, experts said. Analysts are concerned some could overpay. The Category A licenses are selling at more than $1.50 MHz/POP.
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The auction appears likely to hit $80 billion early this week “as bidders were not only reducing demand more slowly than just prior to the holiday break, but indeed, were picking up licenses” in places like Los Angeles, BitPath Chief Operating Officer Sasha Javid told us. He expects a close in the $80 billion range. “Carriers are still likely to face difficult choices such as slowing" capital expenditures "on buildout or raising prices for consumers, as they are on the hook for roughly $13 billion in additional accelerated clearing payments on top of the large payments resulting from this auction,” he said.
Payments to C-band incumbent satellite operators, whether the relocation costs or the incentives for accelerated relocation, will be by the winning bidders once they're granted licenses, and that money isn’t coming out of the gross winning bids, the FCC said.
New Street projected Monday that Verizon is likely to come away with 100 MHz for $32 billion. T-Mobile is expected to win 65 MHz, AT&T 50, Dish Network 20 and cable operators 20, “with the balance going to regional carriers and financial buyers.” Verizon would be "narrowing their gap with T-Mobile and buying valuable time (particularly if they get Category A licenses); however, T-Mobile will likely maintain a powerful near and long-term advantage.”
MoffettNathanson’s Craig Moffett told investors the auction will have “more losers than winners” based on the high bids. “There can be no other conclusion after an auction that will have cost the industry twice what had been expected for precisely the same asset,” he said. Moffett’s projection was a $45 billion auction. “Will revenue forecasts for 5G be raised accordingly?” he asked: “Of course not.”
Summit Ridge Group President Armand Musey told us bidding probably won’t increase more than another 10%. The auction “certainly shows how much the carriers value midband spectrum for upcoming 5G services and for competing with the new T-Mobile success in the 2.5 GHz band,” he said. If the bidding is mostly by AT&T and Verizon, “it is likely to be stretching their balance sheets,” Musey said: “The other possibility is that Dish or another new entrant is taking an outsized role.”
Verizon and AT&T know T-Mobile has a spectrum advantage, and “they need to close that gap,” said Recon Analytics’ Roger Entner. “You can’t position yourself as premium carrier with a third-rate network against T-Mobile,” which “positions itself as a budget carrier with a premium network,” he said. Entner isn’t that concerned about spending.
Bids have slowed but are still climbing, emailed LightShed’s Walter Piecyk. “The cost of capital remains quite cheap and the interest on the debt used to finance spectrum purchases can be capitalized so it won’t pinch earnings.”