FutureMobile expects robust participation in the 600 MHz auction, forecasts up to $100 billion in total bids
The reverse-auction phase of the 600 megahertz auction (Auction 1001) begins on May 31, 2016. The Federal Communications Commission seeks to clear 126 megahertz of spectrum so that it may offer 10 blocks of 10-megahertz paired spectrum in the associated forward-auction (Auction 1002). Twenty-six megahertz of spectrum would be allocated for guard bands and duplex spacing. This is about as much paired spectrum as was auctioned for the 700 megahertz (Auction 73) and AWS-3 (Auction 97) auctions combined.
The FCC indicated 99 completed applications were received for Auction 1002. Most of the usual suspects are participating in this auction: AT&T, T-Mobile US and Verizon Communications are clearly registered to bid and are expected to purchase as much as they possibly can. They are expected to take the lion’s share of the new spectrum. As Billie Holiday wrote: “Them that’s got shall have, (t)hem that’s not shall lose … .” Several smaller operators are also participating in this auction, including: U.S. Cellular, Cellular South and Cellcom (NSight).
Dish Network and Comcast are also participating. Dish continues to attempt taking on the role of market disruptor as the owner of significant blocks of AWS-3 and AWS-4 spectrum. However, its primary effect will be to affect spectrum valuation until the spectrum is actually put into service. Comcast’s participation is somewhat surprising at first blush, considering the previous actions of SpectrumCo. Comcast may have to re-evaluate its previous strategy and make adjustments for new market realities in light of AT&T’s purchase of DirecTV.
There are other participants with deep pockets who could affect Auction 1002 significantly. Puerto Rico Telephone Company is backed by America Movil. DoCoMo and the Sinclair Television Group are also participating, but it remains to be seen whether these participants – along with Dish and Comcast – are bidding to acquire spectrum for network launches; to acquire spectrum as bargaining chips; to merely drive prices higher; or just want to play keep away.
Sprint is notable by its absence and its apparent lack of a coherent spectrum strategy. Sprint also was absent from the two most recent auctions: AWS-3 and PCS H-Block. Actually, Sprint has been missing a lot of auctions over the last 10-plus years, including AWS-1 and 700 MHz. A lack of interest in midband spectrum is understandable considering its PCS and 2.5 gigahertz spectrum assets. However, Sprint should have tried to improve its low-band position given its limited holdings below 1 gigahertz. The lack of action on spectrum acquisition calls into question its basic strategy: Can Sprint maintain a competitive spectrum advantage in the long term when it gives competitors a “free pass” in auctions? Perhaps the most surprising aspect of Sprint’s approach is that SoftBank, which is known for long-term planning, did not change the approach. This may suggest SoftBank does not have a real long-term strategy to remain in the U.S. – that they in fact plan to exit the market. Standing still is not a winning strategy – as Will Rogers wrote: “Even if you’re on the right track, you’ll get run over if you just sit there.”
How much money will actually be spent in this auction? If the maximum desired spectrum is cleared, the total of minimum opening bids for all blocks would exceed $10 billion. The price paid for AWS-3 spectrum exceeded all estimates made prior to that auction, with more than $40 billon in total bids. This was a significant premium over the PCS H-Block, the most recent auction prior to AWS-3, resetting expectations for the value of spectrum. It is expected the 600 MHz spectrum will fetch a premium over AWS-3 due to its better radio frequency propagation properties. If the targeted spectrum is obtained, we estimate Auction 1002 will result in bids between $70 billion and $105 billion. To put this in perspective, our low estimate is greater than the combined market capitalization – as of May 19, 2016 – of Dish, Sprint and T-Mobile US.
Outside of the auction spotlight, TV white space offers a low-cost alternative for fixed broadband. Many operators are using LTE today for fixed service, rather than mobile, in underserved markets. The FCC established rules for the unlicensed use of TVWS: unused spectrum in VHF and UHF bands that is available in most underserved markets throughout the country. Operation of TVWS devices also is permissible in the spectrum being auctioned prior to it being put into commercial use by the licensee. Considering the amount of unused licensed spectrum in low-population density markets, it is quite possible some licensed 600 megahertz spectrum will be used sooner and more effectively by TVWS devices than by the licensed operator. TVWS use has been promoted by some large companies, including Microsoft and Google. This has resulted in competitive, low-cost TVWS products coming to market, including the radios from 6Harmonics that are used in various pilots and trials. Unlicensed 2.4 gigahertz spectrum has been used very efficiently for Wi-Fi, supported by a very dynamic ecosystem. One hopes that an equally dynamic market emerges for TVWS broadband.
Madan Jagernauth has more than 23 years of experience in the wireless industry, including leadership roles for internationally recognized companies like Huawei Technologies and Nortel. With a master’s degree in engineering and a MBA in telecommunications management, he has a broad understanding of business and technology strategy, with a focus on innovative solutions to solve real-world problems. Today, he applies this experience, focus and understanding of the evolving wireless industry landscape to provide wireless solutions for clients in the United States, including market analysis and forecasts, business analysis and planning, requirements analysis, and wireless communication applications. He can be reached at madan@futuremobileservices.com. www.futuremobileservices.com.
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