A worker climbs a cellular communication tower in Oakland, California.
Justin Sullivan | Getty Images
Every time someone accesses the internet via smartphone, the wireless operator transmits this data over air waves at frequencies that only it has a license to use.
In the coming weeks, licenses to use some of the most valuable frequencies will be awarded to the highest bidder. Whoever wins will almost certainly 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 for $ 80.9 billion on 280 megahertz of airwaves, or spectrum, licenses in what is known as Auction 107.
After 97 bidding rounds, the total was significantly higher than the $ 20 billion to $ 30 billion range that most outside observers predicted last summer, and underscores how critical this auction is for telecommunications companies.
“As soon as these 5G networks deployed in this mid-band spectrum are launched, the performance jump will be so dramatic that, if operators are not in that game, they will be left behind,” said Doug Brake, broadband policy director at the Foundation for Information Technology and Innovation, a think tank.
The auction winners 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 the final payment and down payment is paid. A notice issued by the FCC on January 26 reminded candidates that they cannot legally speak about any non-public information, such as who won or lost.
The FCC also said the auction is entering a second phase, in which the winners will be able to choose the exact regions and spectrum blocks they want. Bidders have won licenses, but specific assignments are not yet final. The results are expected to be released in a few weeks.
Who is buying
The auction is big business for Verizon, T-Mobile and AT&T, the three big wireless companies in the United States. All three are in the process of building 5G networks.
The FCC is involved in allocating spectrum to avoid interference, or when two groups are using the same wavelengths at the same time, making it less effective. That is why the FCC is holding this auction, which aims to ensure that the winning groups have capital to actually use the spectrum. Most of the revenue goes to the United States Treasury.
Not all wavelengths are created equal. Higher frequencies travel only short distances, but can transmit large 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 up for auction are in the middle. In fact, it is called the middle band spectrum. Some call it the “spectrum of goldilocks” – as in, it is ideal for 5G.
Verizon, the current leader in the United States in mobile subscribers, does not have much middle-band spectrum. He tried to make up for it with his “ultra-broadband” 5G that promises to download 4K movies in seconds, but those waves don’t go very far. It’s like a wi-fi hotspot. But if Verizon wins this auction, it can build a network faster than current 4G networks and does not require the company to build towers in each block.
“If you are Verizon, you now have the opportunity to get the spectrum you need, because you don’t want to lose your bridgehead to be seen as the leading company. They kind of dominated the LTE or 4G world,” said Walt Piecyk, co-founder of LightShed Partners, which closely follows spectrum auctions. “Are you going to let T-Mobile, or even AT&T take over as the 5G network of choice?”
T-Mobile acquired licenses for a different block of mid-band spectrum through its merger with Sprint. Therefore, it does not need to win this auction as much as Verizon. But it is still expected to be a bidder for several reasons. If you win, it means that your rivals do not. Even if you don’t win, bidding can increase the price.
AT&T also needs to win. But it has spent a lot in recent years. In 2018, it paid more than $ 85 billion for Time Warner, which included HBO.
That spectrum would also be a big buy, but at the same time, AT&T also needs the mid-band spectrum to build the wireless network that powers 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 like Comcast, Charter and Cox are also registered to bid. Charter and Comcast formed a joint venture called C&C Wireless Holding Company to bid for frequencies. But the spectrum is less strategic for broadband companies and is less likely to pay exorbitant prices for it.
A wildcard is Dish, whose president Charlie Ergen has shown a tendency to snap the spectrum and raise prices in the past.
This is not every possible winner of the 74 entities that signed up to bid in the auction, but these are the big ones. No major technology company has registered publicly to bid. There is an external possibility that a technology giant has quietly participated in the auction through one of the entities, but that is very unlikely, said Piecyk.
What they’re buying and what’s next
The spectrum being auctioned is between 3.7 GHz and 3.98 GHz. But not everything is being sold at once. It is divided into smaller blocks of 20 MHz and later divided into 406 geographic regions. Altogether, there are 5,684 licenses available.
In the second phase of the auction, starting on February 8, the winners of the bids in the first part will participate in a process of dismembering these blocks.
It is a complicated process. A slide show of the tutorial for the parties participating in the so-called “assignment phase” has 44 slides, in addition to a 58-page user guide for the software needed to submit proposals.
An important aspect is that there is a spectrum band in the auction, “block A”, which is more valuable than others because the winner can start building a network on these radio waves later this year. Other parts of band C will not be ready for networks until 2023, and timing is important.
The spectrum at auction was originally assigned to satellite operators, which are moving to the 4.0 to 4.2 GHz band. Satellite companies that originally received the spectrum will receive billions of dollar incentive payments and relocation costs. to help them get out of your spectrum faster.
As soon as the award phase is completed in the coming weeks, the winners will be announced.
Then the hard work begins: really building the network, which includes finding cell phone locations, installing equipment, and marketing the new network to potential customers.
All of this costs a lot of money; in addition to the money, the winner will have already committed to pay for the spectrum. Investors will need to watch closely if the winners issue debt or raise money in other ways to finance the construction of the network.
5G networks in the C band spectrum will not be online overnight. The first that any 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 the specific frequencies at stake in this auction, for example.
But this spectrum purchase is not a short-term commitment for the winners. Licenses are a key strategic asset in the wireless industry that can shape the competitive landscape for years to come.
“They are all struggling to get a considerable stake in competing for the next 10 years,” said Brake.