Bids for the 5G spectrum auction total $ 80.9 billion; the winners unveiled soon

Every time someone accesses the internet via their smartphone, their wireless operator transmits that data via frequency waves that only they are licensed to use.

In the coming weeks, licenses to use some of the most valuable frequencies will be awarded to the largest bidder. Whoever wins will definitely use them to build a faster and more powerful 5G network, changing the competitive dynamics of the telecommunications industry.

Earlier this month, the Federal Communications Commission announced that bidders had bid $ 80.9 billion for 280 MHz of airwave, or spectrum, licenses in what is called a bid.

After 97 rounds of bidding, the total was significantly higher than the range of 20 to 30 billion dollars, which most external observers predicted last summer and highlights how critical this auction is for telecommunications companies.

“Once these 5G networks deployed on this mid-range spectrum are launched, the leap in performance will be so dramatic that if operators are not in that game, they will lag behind,” said Doug Brake, broadband director at the Foundation for Information Technology and Innovation, a think tank.

The winners of the auction are not yet public. Verizon, AT&T, T-Mobile and other parties involved in the auction are in a quiet period where they cannot comment until final payments and advances have been paid. A notice issued by the FCC on January 26 reminded applicants that they could not legally speak about any non-public information, such as who won or lost.

The FCC also said that the auction enters a second phase in which the winners will be able to choose the exact regions and the desired spectrum blocks. Bidders have won licenses, but the specific tasks are not yet final. The results are expected to be published in a few weeks.

The auction is a major deal for Verizon, T-Mobile and AT&T, the three largest US wireless companies. All three are in the process of building 5G networks.

The FCC is involved in spectrum allocation to prevent interference or when two groups use the same wavelengths at the same time, making it less efficient. That’s why the FCC is conducting this auction, which is meant to ensure that the winning groups have the capital to actually use the spectrum. Most of the proceeds go to the US Treasury.

Not all wavelengths are created equal. The highest frequencies travel only short distances, but can transmit huge amounts of data with recent advances in antennas and modems. The lower frequencies can travel long distances, but are less suitable for pumping large amounts of data.

The C-band wavelengths that are auctioned are in the middle. In fact, it’s called the middle band spectrum. Some call it the “goldilocks spectrum” – as in, it’s perfect for 5G.

Verizon, the current US leader in mobile subscribers, does not have much of a mid-range spectrum. He tried to compensate with 5G “ultra wideband”, which promises to download 4K movies in seconds, but those waves do not travel far. It’s like a wi-fi hotspot. But if Verizon wins this auction, it could build a faster network than current 4G networks and won’t ask the company to build towers on every block.

“If you’re Verizon, now you have the opportunity to get the spectrum you need, because you don’t want to lose sight of the beach being perceived as the leading company. They kind of dominated the LTE world or the 4G world,” said Walt Piecyk, co-founder of LightShed Partners, which closely monitors spectrum auctions. “Are you going to let T-Mobile or even AT&T take over as the 5G network of your choice?”

T-Mobile acquired licenses for another mid-band spectrum block through its merger with Sprint. So you don’t need to win this auction as much as Verizon. But it is still expected to be a bidder for several reasons. If he wins, that means his rivals have failed. Even if he doesn’t win, the auction could raise the price.

AT&T must win, too. But he has spent a lot in recent years. In 2018, he paid over $ 85 billion for Time Warner, which included HBO.

This spectrum would also be a big acquisition, but at the same time, AT&T also needs a medium bandwidth spectrum to build the wireless network that feeds its cash flow. Raymond James analyst Frank Louthan said in a note earlier this month that if AT&T spends $ 23 billion on spectrum, its balance sheet could “scare investors.”

Cable companies such as Comcast, Charter and Cox are also registered to bid. Charter and Comcast formed a joint venture called C&C Wireless Holding Company to bid on frequencies. But the spectrum is less strategic for broadband companies and less likely to pay staggering prices for it.

A wildcard is Dish, whose president Charlie Ergen has shown a tendency to reduce spectrum and bid prices in the past.

This is not every possible winner of the 74 entities that have registered for the auction, but they are the largest. There are no large publicly registered technology companies to bid. There is an external possibility that a technology giant will quietly participate in the auction through one of the entities, but it is very unlikely, Piecyk said.

The bid spectrum is between 3.7 GHz and 3.98 GHz. But not everything is sold at once. It is divided into blocks smaller than 20 MHz and divided into 406 geographical regions. Together, there are 5,684 licenses to take over.

In the second phase of the auction, starting with February 8, the parties that won bids during the first part will participate in a process of allocating these blocks.

It is a complicated process. A tutorial slide pack for the parties participating in the so-called “award phase” has 44 slides and is in addition to a 58-page user guide for the software needed to submit bids.

A key aspect is that there is a range of spectrum in the auction, “One Block”, which is more valuable than others, as the winner can start building a network on those radio waves immediately after the end of this year. Other parts of the C-band will not be ready for networking until 2023 and time is of the essence.

The spectrum launched at auction was initially assigned to satellite operators, which range in the range of 4.0 to 4.2 GHz. Satellite companies that were initially allocated the spectrum will receive billions of dollars in incentive payments and relocation costs to help them get rid of their spectrum faster.

Once the award phase is completed in the coming weeks, the winners will be announced.

Then begins the hard work: actually building the network, which includes finding cell sites, installing equipment, and marketing the new network to potential customers.

All this costs a lot of money, in addition to the winners who have already committed to pay for the spectrum. Investors will need to keep a close eye on whether the winners are issuing debt or raising money in other ways to finance the construction of the network.

5G networks in the C band spectrum will not go online overnight. The earliest of the blocks will be ready for implementation is at the end of this year. But when they are built, the phones will be ready for them – Apple’s iPhone 12 supports specific frequencies that can be picked up in this auction, for example.

But this spectrum acquisition is not a short-term commitment for winners. Licensing is a key strategic asset in the wireless industry, which could shape the competitive landscape for years to come.

“We are all fighting to get a considerable stake to compete in the next 10 years,” Brake said.