Last Friday, the FCC’s AWS-3 spectrum auction went somewhere that no auction has gone before. At the end of the day, total provisional winning bids topped $31 Billion dollars. That’s Billions with a “B.” Currently, the auction has gained $12 Billion more dollars than the attractive 700 MHz spectrum auction fetched in 2008.
So what is this auction all about? Essentially it comes down to space. All of our current cellular carriers broadcast their signal via cellular frequencies. However, the amount of wireless space is limited, and in order to deliver faster speeds to more customers, carriers need greater amounts of spectrum. In some circumstances, carriers even share the same frequency spectrum, something that was almost unheard of during the early days of cellular.
This current auction was set in motion a few years ago. The US government recognized the top-tier carrier’s need for more space during the emergence of 4G LTE. However, emergency responders, local air traffic controllers, and intergovernmental communications were utilizing a lot of spectrum space, specifically the AWS-3 band. Way back in 2008, the government began a free digital receiver box program in order to take old rabbit-ear TV sets off the UHF & VHF frequencies. This move was specifically made in order to move emergency responders, local air traffic controllers, and intergovernmental communications off the AWS-3 band and onto the UHF/VHF 800 MHz frequency. Thus, freeing up the AWS-3 band for the current record setting auction.
Through 24 rounds of bidding, the dynamics of the auction have stayed pretty much the same. However, the auction seems to be slowing down, as indicated by a lack of new bids. New Street Research, an analytical firm specialized in the communications market, are assuming that AT&T and Verizon will each acquire 10×10 MHz blocks in the frequency, and then split the remaining 5×5 blocks with T-Mobile. Accordingly, the estimate is that Verizon and AT&T will both spend around $14.5 Billion with T-Mobile spending a little more that $1.4 Billion. The leftover change in the auction will come from smaller Tier 2 and Tier 3 carriers looking to bolster their networks in niche markers.
Most interesting, perhaps, is how this all effects Sprint. They opted to stay out of the auction altogether. The original thinking by most analyst was that this was due to a lack of capital; most likely caused by the disastrous acquisition of the Nextel iDEN network and failure of the LTE’s predecessor, 4G WiMAX. But, as the auction matures, it seems as though the ridiculous high bids may work to Sprint’s benefit. Sprint holds around 120 MHz of the 2.5 GHz spectrum that it is utilizing to deploy its TD-LTE service, and the prices of the AWS-3 auction AWS-3 is generating could also raise the value of Sprint’s airwaves.
Ultimately, this auction is proving that mid-band spectrum is just as valuable as low band. In the end, this is good for everyone involved, specifically cellular tower companies like SBA Communications and American Tower. The high values for the spectrum reflect the carrier’s need for additional capacity. In turn, the carriers need more towers. As one analyst from New Street mentioned “the spectrum has to be deployed and, given the prices paid, the carriers will probably deploy it sooner rather than later.”