Sunday 28 February 2021

USA 5G C-Band Spectrum (3.7 GHz to 4.2 GHz) Auction Results

The US regulator, FCC, announced the final results of the C-Band Auction 107 on the site here, with the details available here.

Mike Dano from Light Reading was one of the first people to tweet the details (see above) and Light Reading have a nice detailed analysis here

The Register has provided a nice simple summary here. Quoting from that:

Radio spectrum doesn’t come cheap. Just ask America's communications regulator, the FCC, which just announced the winning bidders in its long-awaited auction of C-band spectrum, which hauled in a cool $81bn.

The comms body auctioned off 280Mhz of C-band spectrum, originally used by communications satellites, split into fourteen 20Mhz blocks in the 3.7Ghz to 4.2Ghz range.

This territory is highly coveted by telecoms providers transitioning to 5G, as it provides a high level of coverage for each cell site, albeit at the expense of speed. This is crucial if you want to extend coverage to rural areas, or sprawling suburban towns where not-in-my-backyard types may grumble at the sight of a cell tower on every street corner. Compare that to mmWave, which operates in the high gigahertz spectrum, and offers faster speeds but minuscule coverage.

Satellite comms providers who previously used parts of the band were last year promised "incentives" to vacate the spectrum [PDF], with "reasonable relocation costs" amounting to up to $9.7bn to be paid by the licensees. According to the FCC's final C-band order, Intelsat will receive about $4.87bn; SES about $3.97bn; Eutelsat about $507m; Telesat $344m; and Star One $15m.

The FCC allowed 57 providers [PDF] to bid for the spectrum, including all of the large carriers, as well as the smaller rural telecoms providers (like the quaintly named Mark Twain Rural Telephone Company). As expected, it was the big providers that took home the bacon (or, in this case, spectrum).

Verizon Wireless (referred to as Cellco Partnership in the FCC documents [PDF]) easily spent the most, with a total bid of $45.4bn for 3,511 licences. AT&T and T-Mobile also spent generously, forking out $23.4bn and $9.3bn respectively, in return receiving 1,621 and 142 licences. US Cellular, a relatively small-fry player, paid "just" $1.2bn for 254 licences.

Why are the carriers prepared to spend such eye-watering amounts? Basically, if they want to be anywhere in the US 5G landscape, they had to cough up. "Carriers were apparently willing to spend whatever it took to acquire spectrum in this auction because the alternative was worse — becoming an also-ran in the race to 5G," Sasha Javid, a former chief data officer at the FCC, told the FT a few weeks back.

The previous record amount netted for the sale of US airwaves – $45bn – was set six years ago.

Per the terms of the auction, bidding parties must pay 20 per cent upfront, with the remainder sent before the end of March. Verizon, for example, will have to wire the FCC $36.3bn by March 24 of this year – a figure greater than its consolidated operating revenues (at $34.7bn) for the entirety of its final reported quarter for 2020.

Rupert Wood, lead analyst for Fibre Infrastructure and Wireless Infrastructure research programmes at Analysys Mason opens his analysis piece with a very poignant reminder, "The high prices of C-band spectrum have sucked Verizon and AT&T into a spiral of ever-greater dependence on 5G, even as their share of consumer telecoms looks set to decline." The article continues:

The real cost to the operators is even higher than USD80.92 billion: there are relocation costs, estimated to be a further USD3.3 billion, which licence holders will incur to relocate the satellite incumbents, and potentially USD9.7 billion more to accelerate the clearance of those incumbents on the blocks that are not due to be cleared until the end of 2023. Total mobile operator revenue and capex (excluding spectrum) in the USA in 2019 stood at USD179.3 billion and USD29.1 billion respectively, so the sum paid is collectively 2.8 times higher than annual capex.

The 3G auctions in Germany and the UK in 2000 are a point of comparison – operators spent USD82.1 billion on a population base about half of that of the USA. The licence to previous year’s capex ratio for Vodafone UK (which spent the most in the UK) was 7.4 times, but this was when strong revenue growth in mobile was guaranteed. Before the US C-band auction, no established operator had spent more than 1.7 times the previous year’s capex on C-band spectrum.

Sascha Segan from The PC Magazine says:

Comcast, Charter, and Dish each got nothing or almost nothing, which signals that they don't have real ambitions to compete, on a network level, with the three big providers. However, there's another auction coming up for 100MHz of spectrum between 3.45-3.55GHz, this October. They could play there.

The investor groups have played in spectrum before; their general game is to hold onto it for a while and then lease or sell it at a higher rate to wireless carriers who get desperate. With 5G, there's another possible play. 5G allows for "private" or corporate networks, so the investor groups could lease spectrum to companies providing network services to other companies for their own internal use.

The next big task for the operators is now to figure out how to make money.

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