The FCC has concluded the first phase of Auction 107, the highest-grossing spectrum auction ever, with gross proceeds exceeding $80.9 billion. The result almost doubles the prior FCC auction record of $44.9 billion.
The auction made available licenses for 280 megahertz of spectrum in the 3.7-3.98 GHz band—a portion of the so-called C band.
The C band spectrum is encumbered, which adds $9.7 billion in accelerated clearing costs and an estimated $3.3 billion in relocation costs, according to BitPath, pushing the total investment by bidders to $93.9 billion. This, no doubt, will add a big load to the carriers’ debt loads.
“Nevertheless, $93.9 billion in capex spend is a large number that could result in slower buildout, high prices for consumers, less stock buybacks and missed targets for debt reduction,” Sasha Javid, chief operating officer at BitPath, wrote.
Andrew Semenak, managing director, Pinpoint Capital Advisors, agreed that the added debt could be a drag on towers in 2021.
“AT&T, in particular, may have issues with the debt. Verizon is also going to be a very big acquirer of C band,” Semenak said. “It’s definitely a risk. While spectrum is the lifeblood for continued 5G build out, the amounts that were paid in this auction are extraordinary and will definitely have an impact on debt and capital structure of the carriers. We’ll have to wait and see.”
The auction was a sweet swan song for outgoing FCC Chairman Ajit Pai, who had his doubters that he could put together the mid-band auction by the stated goal of December 2020. Against the odds and amid a pandemic, the spectrum auction came off right on time.
“The FCC confronted a host of technical, legal, practical and political challenges in structuring this auction,” Pai said. “It would have been easy to delay. But we rightly pushed ahead and overcame every one of those obstacles. As a result, we significantly advanced United States leadership in 5G and have enabled America’s wireless consumers to more quickly benefit from 5G services.”
Winning bidders now will have the opportunity to bid for frequency-specific licenses in the assignment phase of Auction 107. The FCC soon will release a public notice announcing further details regarding the assignment phase, including the date and time when bidding in the assignment phase will commence.
The bidding totals left analysts who predicted much lower numbers questioning their abacuses. Javid lamented that his prediction of $25 billion to $30 billion would have made him a big loser on “The Price is Right” game show; however, he said the bids might actually be a bargain.
“The nationwide average price per MHz-POP across all categories in the C-band auction was $0.942,” according to Bitpath, which “certainly pales in comparison to the prices we saw in the AWS-3 auction (another mid-band spectrum auction). In that auction, the nationwide average price per MHz-POP was roughly $2.20, and the most expensive market, Chicago, went for an astounding $5.73,” compared with San Diego, which closed at $1.773 in the C band auction.
To be clear, C band versus AWS-3 is not an apples-to-apples comparison. The C band auction offered 280 megahertz for sale; the AWS-3 auction sold 65 megahertz.
Rush for Spectrum Leads to Trip to the Bank
The record-breaking bids for spectrum have forced the wireless carriers to raise more capital. The Bloomberg Intelligence research division reported that AT&T, for one, is looking to raise $14 billion. After two years of lowering debt following the purchase of Time Warner, the wireless carrier still carried $159 billion in debt in the third quarter 2020.
T-Mobile raised $3 billion through a bond sale managed by Deutsche Bank AG, Citigroup, Credit Suisse Group, Goldman Sachs Group, Barclays, JPMorgan Chase and Morgan Stanley, according to Bloomberg Intelligence. By comparison, the wireless carrier sold $19 billion in high-grade bonds last April to fund the purchase of Sprint. T-Mobile had net debt of $61.5 billion as of June 30, according to Simply Wall St.
For more information on Auction 107, please visit https://www.fcc.gov/auction/107
Bids in the C-Band spectrum auction, which makes available 280 megahertz of prime mid-band spectrum in the 3.7-3.98 GHz band, have surged far beyond what anyone expected. New Street Research, for one, estimated bids would total between $46 billion and $52 billion.
“The C-Band auction has obliterated records for funds raised in a spectrum auction,” wrote Jonathan Chaplin, New Street communications services: U.S. team head. “It has humiliated analysts’ estimates. It has exceeded what we thought the major participants had in available resources.”
The C-Band auction is now forecast to bring in eye-popping proceeds between $73 billion and $80 billion, according to New Street. What’s more is T-Mobile is projected to maintain its lead in spectrum, even though Verizon will purchase more frequencies.
“The big surprise on prices lend strong support for our framework for anticipating market share shifts over time,” Chaplin wrote. “If our new forecast is correct, T-Mobile is very well positioned to take share from Verizon and AT&T; they have a powerful network advantage today, and they may extend it.”
New Street Research projects Verizon to win 100 megahertz for $32 billion; AT&T to win 50 megahertz and T-Mobile to win 65 megahertz; Dish Network to win 20 megahertz and cable to win 20 megahertz.
“Carriers can’t overspend in the auction,” Chaplin wrote in a research note. “The more spectrum they win, the better off they are. Verizon ought to win the most spectrum, narrowing their gap with T-Mobile and buying valuable time; however, T-Mobile will likely maintain a powerful near and long-term advantage.”
The FCC released the results of the Rural Digital Opportunity Fund auction, which show that bidders won funding to deploy high-speed broadband to over 5.2 million unserved homes and businesses, almost 99 percent of the locations available in the auction. Moreover, 99.7 percent of these locations will be receiving broadband with speeds of at least 100/20 Mbps, with an overwhelming majority (over 85 percent) getting gigabit-speed broadband. CCO Holdings, LLC (Charter Communications) was assigned the most locations, just over 1.05 million. A total of 180 bidders won auction support, to be distributed over the next 10 years.
A broad range of providers successfully competed in the Phase I auction, including cable operators, electric cooperatives, incumbent telephone companies, satellite companies, and fixed wireless providers. And the FCC’s structuring of the reverse auction yielded significant savings, as competitive bidding among over 300 providers yielded an allocation of $9.2 billion in support out of the $16 billion set aside for Phase I of the auction. Importantly, the $6.8 billion in potential Phase I support that was not allocated will be rolled over into the future Phase II auction, which now can draw upon a budget of up to $11.2 billion in targeting partially-served areas (and the few unserved areas that did not receive funding through Phase I).
FCC Chairman Ajit Pai said, “We structured this innovative and groundbreaking auction to be technologically neutral and to prioritize bids for high-speed, low-latency offerings. We aimed for maximum leverage of taxpayer dollars and for networks that would meet consumers’ increasing broadband needs, and the results show that our strategy worked. This auction was the single largest step ever taken to bridge the digital divide and is another key success for the Commission in its ongoing commitment to universal service. I thank our staff for working so hard and so long to get this auction done on time, particularly during the pandemic.”
The auction used a multi-round, descending clock auction format in which bidders indicated in each round whether they would commit to provide service to an area at a given performance tier and latency at the current round’s support amount. The auction was technologically neutral and open to new providers, and bidding procedures prioritized bids for higher speeds and lower latency.
The auction unleashed robust price competition that resulted in more locations being awarded at less cost to Americans who pay into the Universal Service Fund. The 5,220,833 locations assigned support in the auction had an initial reserve price of over $26 billion over the next decade; through vigorous competition among bidders, the final price tag to cover these locations is now just over $9 billion, with the vast majority of locations receiving gigabit broadband—far above the 25/3 Mbps minimum level of service that providers could bid on in the auction.
Providers must meet periodic buildout requirements that will require them to reach all assigned locations by the end of the sixth year. They are incentivized to build out to all locations as fast as possible.
The Rural Digital Opportunity Fund Phase I auction is part of a broader effort by the FCC to close the digital divide in rural America and focus limited universal service funds on unserved areas that most need support. In October 2020, the Commission adopted rules creating the 5G Fund for Rural America, which will distribute up to $9 billion over the next decade to bring 5G wireless broadband connectivity to unserved areas in rural America.
More information on the Rural Digital Opportunity Fund Phase I auction is available at https://www.fcc.gov/auction/904, including complete auction results and a map of winning bids.
The FCC’s auction of Priority Access Licenses (PAL) in the Citizens Broadband Radio Service (CBRS), which began July 23, ended yesterday raising $4.5 billion in bids. The auction offered 22,631 licenses in the 3550-3650 MHz band, which was the largest number of spectrum licenses ever put on the block in an FCC auction. These 70 megahertz of licensed spectrum may serve a mix of uses, from mid-band capacity for the carriers’ deployment of 5G to private wireless systems used by enterprises and municipalities.
“Ericsson stands ready to support these CBRS networks with its outdoor micro radio, outdoor massive MIMO radio, indoor Radio Dot, and our domain coordinator software fully supporting the PAL frequencies.” Says Paul Challoner VP network product solutions.
Bidders won 20,625 of the 22,631 available licenses, or more than 91.1percent. The auction was a success, according FCC Chairman Ajit Pai, who said the demand for the licenses resulted from reforms made to the rules for the 3.5 GHz band, which were spearheaded by FCC Commissioner Mike O’Rielly. Dave Wright, head of the CBRS Alliance also applauded the results of the auction.
“Whether judged by traditional metrics such as total auction proceeds and price/MHz/Pop, or by non-traditional metrics such as the number and diversity of bidders, the demand for rural as well as metro licenses, and the overall number of licenses awarded – one has to conclude that Auction 105 far exceeded expectations,” Wright said. “This is further confirmation of the value of this shared band and is the last component to be put into service, enabling the full realization and potential of the 3-Tier spectrum sharing model.”
Spectrum Will Enable Smaller, Rural Operators
Although it is too early to know the winners, the auction will most likely enable new market entrants, including smaller and rural operators, to build low-cost carrier-grade networks, which will lead to hundreds of new networks, according to a new report from Colorado-based cooperative CoBank’s Knowledge Exchange, which examines how the CBRS band could change the broadband industry.
“We think that operators can build a high-quality network by acquiring a small amount of licensed spectrum,” according to the report. “Having the ability to toggle between licensed and unlicensed channels allows operators to maintain high throughput speeds. For example, when data traffic levels are high, operators can use their licensed spectrum as an overflow channel and when data traffic is light, they can use the lower-cost unlicensed channel.”
The owners of PALs in the CBRS band will mix with the users of the general authorized access (GAA) licenses to create to create new business models with new market players. Some of the possible bidders in the auction were Chevron, Occidental Petroleum, fiber supplier Corning, John Deere and universities, according to Cobank.
“For rural America, John Deere stands out for its investments in agricultural technologies,” the report said. “Deere’s interest in buying spectrum may signal its intent to become a network operator where it bundles high-speed data connectivity with farming equipment. After all, the company’s investments in precision agriculture, etc. won’t be fully realized until access to high speed data networks broadens in rural America.”
The most likely purchasers of the PALs were mobile network operators looking to supplement their other spectrum holdings, cable multiple-system operators (MSOs), existing CBRS-based wireless internet service providers (WISPs), enterprises, local governments, telcos and investors who see the opportunity to obtain CBRS spectrum and then subdivide it into smaller parcels for use by smaller enterprises and entities, according to Iain Gillott, founder and president of iGR, a market strategy consultancy, in an article published by AGL eDigest.
“It is this last group that is particularly interesting,” Gillott wrote. “Because PALs are at the county level, the chances of an enterprise being able to afford a PAL is unlikely, unless it has significant spectrum needs across the entire area. But a larger enterprise/investor could buy one or more PALs in a given area and then make the spectrum available to a single commercial building owner or single warehouse.
“For example, imagine one of the major public cloud providers obtaining PALs across the United State and then making the spectrum available to their cloud customers for internet of things (IoT) applications,” he added.
Detailed auction results, including the names of Auction 105 winning bidders, will be released in a few days. For more information, visit: www.fcc.gov/auction/105.
The FCC today took the final actions required to launch its innovative Connect America Fund Phase II auction, which will provide up to nearly $2 billion over the next decade to expand fixed, high-speed Internet service in unserved rural areas.
In a Public Notice adopted today, the FCC scheduled the auction to begin on July 24, set a March 30 deadline for applications to participate, and set out detailed procedures for the auction. The FCC also adopted an Order on Reconsideration resolving all pending challenges to earlier FCC auction implementation decisions.
Nearly 1 million homes and businesses nationwide are in unserved rural areas where providers are eligible for support from the auction. Qualified providers will compete for support of up to $1.98 billion over the next decade to offer voice and broadband service in unserved areas where, absent subsidies, there is no business case for expanding or providing service.
By harnessing market forces, the auction is designed to provide consumers with high-quality, broadband service in an efficient, cost-effective way. The auction is the first reverse multiple-round auction to provide ongoing Connect America Fund support for fixed broadband and voice service in high-cost rural areas.
The auction will also provide opportunities for new entrants, regardless of technology, including rural telco, fixed wireless, satellite, cable, price cap, and electric utility broadband providers. To ensure successful participation by new entrants, the Public Notice details the FCC’s outreach and education plans for potential bidders, including online tutorials, workshops, webinars, and a mock auction.