Telecom operators seeking 600 MHz spectrum licenses, like Verizon, AT&T and T-Mobile, will have to generate north of $54B in total bids for 90 megahertz
The value of wireless spectrum is often a difficult number to nail down but, at least for television broadcasters, 12 megahertz of spectrum in the 600 MHz band is worth around $32 billion.
Or at least that is what can be surmised from the close this week on the second phase of the Federal Communications Commission’s reverse auction proceedings tied to its 600 MHz incentive auction program. With a clearing target reduced from 126 megahertz of spectrum down to 114 megahertz of spectrum, television broadcasters lowered their total asking price from around $86 billion to around $54 billion.
For the telecom industry, the new target will see bidders throw money at 90 megahertz of cleared spectrum, with total bids needing to hit the clearing amount – plus a couple of billion dollars for incidentals – as part of the upcoming forward auction in order to call the proceedings a success.
That could be a tall order as the first phase of the forward auction only managed to hit $23 billion for the 100 megahertz of spectrum then up for bid before activity ceased.
One possible incentive for bidders is that the phase two spectrum is “cleaner” in that it will contain 3,688 “category one” license blocks with up to 15% impairment, and five “category two” license blocks with between 15% and 50% impairment. The FCC did note 99.8% of the category one licenses will have no impairment. The first phase spectrum included 4,030 licenses with less than 15% impairment and 18 licenses with between 15% and 50% impairment.
The FCC is now set to repackage the latest round of spectrum offered up by broadcasters, with the intent to begin the forward auction process early next week.
Analysts have been predicting that it’s likely the FCC will need to move to a third auction stage, which would further reduce total spectrum available for commercial services down to 80 megahertz, or even to a fourth stage with just 70 megahertz of spectrum made available before there is alignment on what broadcasters want in terms of compensation for the spectrum and what telecom operators are willing to offer.
“The significant reduction in the targeted net proceeds of the reverse auction shows just how effective the auction mechanisms can be in bringing together supply and demand,” explained Dan Hays, principal at PwC’s Strategy& division, following the close of the latest reverse auction round. “However, at over $54.5 billion to broadcasters, or roughly $56.5 billion in total, we believe that the clearing cost is still well beyond striking distance for the budgets of mobile network operators. A third stage of the auction, and perhaps even a fourth, is now all but a certainty. For broadcasters, this is a clear indication of a rapid decline in interest at lower prices, effectively calling the bluff of the wireless industry and demanding that they come to the table ready to pay up.”
The current high-water mark for a commercial spectrum auction was the $41.3 billon in net proceeds generated in last year’s AWS-3 auction, which included 65 megahertz of total spectrum in the 1.7/2.1 GHz band, including 15 megahertz set aside for unlicensed use.
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