C-Band Auction Was Largest in History but a Bargain for Bidders, FCBA Told
The biggest surprise in the $94 billion C-band auction was that the A block, the first to clear, didn’t end up being much more expensive than the other two blocks, said Lawrence Ausubel, co-founder of Power Auctions, who worked on the FCC’s C-band auction design, during an FCBA webinar Tuesday. The auction (see 2102250046) was likely the biggest of any kind, ever, worldwide, Ausubel said. Experts said even the record prices reached were likely a bargain for bidders.
Sign up for a free preview to unlock the rest of this article
Communications Daily is required reading for senior executives at top telecom corporations, law firms, lobbying organizations, associations and government agencies (including the FCC). Join them today!
The scarcity of midband in the U.S. drove up prices, relative to similar auctions in other countries, Ausubel said. The auction had only 21 bidders, but that’s 17 more than the average auction internationally, he said. License terms are also effectively longer in the U.S. because of the expectation of renewal, he said. Historically low interest rates have also meant “high asset prices for everything,” he said. Clock auctions have been successful and are more likely to be used in future auctions than simultaneous multiple round format, which is “falling out of favor,” he said.
New Street assumed each carrier would bid up to the amount of funds it had available, and the surprise was “the extent to which the carriers were willing to stretch their balance sheets,” said analyst Jonathan Chaplin. He also expected the pending 3.45 GHz auction to depress prices. It’s not the amount of spectrum a carrier has that matters the most but the amount relative to its competitors, Chaplin said. The spectrum's frequency, positioning and number of cellsites, engineering of the network, and pricing and marketing all “matter,” he said.
Chaplin predicted Dish Network and T-Mobile will be major bidders in the 3.45 GHz auction, which starts in October. Both appeared to pull back demand in the C-band auction based on the view “they would be able to get comparable spectrum” at 3.45 “at much cheaper prices,” he said. “Even at these prices we think” the C band “sold at less than intrinsic value,” he said.
T-Mobile has the biggest share of spectrum now, and the lowest costs, which puts it in a strong competitive position even after the auction, Chaplin said. AT&T and Verizon have been deploying 5G on lower-frequency spectrum, with speeds of 40-60 Mbps, which is a “barely noticeable improvement” over 4G, he said. High-band spectrum will “be completely insignificant to the experience of consumers” and will have “no impact on competitive dynamics in the consumer market,” he said.
The prices in the C-band auction largely were “rational,” looked at on a per MHz/POP basis, at 94 cents vs. $2.20/MHz/POP in the AWS-3 auction, said Sasha Javid, BitPath chief operating officer. With transition costs, the $1.09 made the spectrum half as expensive as AWS-3, he said. That Verizon got 62% of the licenses was no surprise due to its need for midband, and AT&T also “showed up in a big way,” he said. In the biggest markets where five early clearing licenses were available, Verizon typically got three and Verizon two, he said.
T-Mobile maxed out demand in round 42 at $10.5 billion in bids, then started to reduce demand, Javid said. Dish maxed out demand in round 25 at $3 billion but ended up spending only $2.5 million and is likely to be “a big player” in the 3.45 GHz auction, he said. The lack of bids by Comcast and Charter was the biggest surprise, he said.
Canopy Spectrum, the sixth-biggest bidder in the auction, got what it was looking for, said Jennifer Fritzsche, chief financial officer. Looking at the auction as a whole, the former analyst knew Verizon would go big but was surprised by “how guns blazing they came out.” Verizon narrowed but didn’t eliminate a spectrum gap with T-Mobile, she said. AT&T was also more aggressive than she expected, especially in the A block, given its balance sheet, she said. “AT&T has a lot of other priorities, namely fiber and pushing fiber out,” she said. She expected T-Mobile to bid more aggressively: “This shows the benefit, and the brilliance, behind the Sprint purchase. … They got tremendous spectrum in the 2.5 range.”
It’s “remarkable” the FCC “even got to an auction,” given the complications of the C band, said Giulia McHenry, chief of the FCC Office of Economics and Analytics. The band was probably the most difficult to clear in FCC history, she said. The auction shows the “pent-up” demand for midband for 5G, but also offered lessons for the agency, she said.
“Cooperation, creative think and flexibility are essential to identify and free up additional spectrum for 5G and beyond,” McHenry said: Every spectrum band “comes with unique challenges, often requiring novel approaches to transition and auction design. The auction solutions to the next spectrum challenge will be unique as well.” Each time the FCC conducts an auction it “adds new tools to the toolbox,” she said.