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US telcos unlikely to spend big in latest mid-band spectrum sale

Round one of the latest 5G spectrum auction in the US got underway on Tuesday and early indications are that it will be a more muted process than the recent C-band mega-sale.

33 bidders are taking part in the Federal Communications Commission’s (FCC’s) auction of 100 MHz of frequencies in the 3.45 GHz band. Round one brought in US$609 million worth of bids, rising to $672 million after round two, the most recent to be completed at the time of writing.

The FCC has set a reserve price of $14.77 billion on the spectrum – mostly to cover sharing and relocation costs for federal users currently in the band – and clearly we’re some way off hitting that target yet. Indeed, spectrum specialist and BitPath COO Sasha Javid described it as a “slow start” in his analysis of the first round, although admittedly there is probably plenty more bidding ahead of us.

Analysts have shared fairly conservative predictions for the auction as a whole. Javid has plumped for $22.5 billion – with the caveat that he was some way off predicting the whopping $81 billion (plus relocation costs) the C-band sale generated – and notes that the gentle start to proceedings seems to back up the conservatism.

Incidentally, there was a lot more spectrum up for grabs in the C-band auction and some telcos spent heavily to win it. These are both factors that will likely suppress dollar amounts involved in this 3.45 GHz sale, or auction 110.

Much, of course, depends on how much the auction participants want the spectrum. And naturally, some will be more willing to part with their cash than others. AT&T is the most likely to spend big, or at least biggish.

“AT&T badly needs spectrum in this 3.45 GHz band to remain relevant as it only acquired an average of 80 MHz in the C-band auction and remains at a significant mid-band spectrum deficit to Verizon and T-Mobile,” notes Javid.

“The 40-MHz cap that the FCC imposed in this auction is probably quite annoying to AT&T as it could use more,” he adds. However, he also points out that the cap makes it more difficult for rival bidders to shut out AT&T altogether.

That 40 MHz cap is one reason why the final total in this auction will not approach the C-band result, essentially because telcos prefer big, contiguous spectrum blocks for 5G. On a related note, Javid also highlights the various coordination requirements the authorities have imposed on certain licences in the auction, where the winner will be expected to share the band with military radar operations. The spectrum blocks in question could prove less attractive and draw lower prices than unimpaired blocks.

Returning to the telcos, while AT&T’s major rivals are on the list of auction bidders, they are unlikely to drive up prices. Essentially, Javid predicts that Verizon will participate on a limited basis, if at all – he believes the telco spent $3.5 billion more than it intended at the C-band sale – while T-Mobile US already has the largest amount of mid-band spectrum in the country. However, “I do believe that T-Mobile will bid in this auction, if for no other reason to deny competitors (i.e., AT&T) the ability to get spectrum too cheaply,” Javid predicts. So that could make things interesting.

There’s also Dish to take into consideration – Javid puts it predicted spend at about $3 billion – and smaller and regional operators. So, in summary, there looks to be enough interest to keep the bidding moving, but not so much that we will spend the coming weeks staggered by the running totals published by the FCC.

As you would expect, the regulator is talking up the sale in a pretty big way.

“These airwaves are a critical part of unlocking the 5G promise everywhere in the country,” said acting FCC Chairwoman Jessica Rosenworcel, when she announced the impending start of the auction on Tuesday morning.

We don’t know what course the auction will take, but it’s likely that Rosenworcel’s auction conclusion statement will come with a lot less hype than we saw at the end of the C-band process.

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