Forward bidding in the 600 MHz incentive auction process topped out at just $23B, well short of the $88B target; stage two on deck
The first stage of the Federal Communications Commission’s 600 MHz incentive auction proceedings came to an abrupt halt Tuesday afternoon as forward-bidding activity dropped below the level needed to continue the proceedings.
The auction did manage to hit more than $23 billion in total “winning” bids, but at a slowing pace of less than $1 billion in new winning bids per round was not expected to come near the more than $88 billion in total auction proceeds to pay television broadcasters the $86 billion they wanted for the spectrum assets being offered up or the fees needed to clear and repackage license holders.
The FCC has so far been fairly quiet on the auction’s current status, only noting the process would move to stage two with a lower clearing target.
“The FCC will release a public notice announcing details about the next stage, including the clearing target for stage two, and the time and date at which bidding in stage two of the reverse auction will begin,” the government agency noted.
Stage one of the proceedings had cleared a total of 126 megahertz of spectrum, with up to 100 megahertz of spectrum available for bid. Stage two is expected to see the FCC go back to a reverse auction process targeting broadcasters, with the intent of seeing how much they are looking for in terms of compensation for 114 megahertz of total cleared spectrum, with up to 90 megahertz of spectrum made available for a second stage of forward bidding.
Walter Piecyk from BTIG previously noted in a recent report he expects the auction proceedings won’t end until a fourth stage, which will see a total of 84 megahertz of spectrum up for bid and just 70 megahertz set aside for licensed use.
FCC Chairman Tom Wheeler had previously acknowledged the government agency may need to conduct further reverse auction stages should forward auction bidding not meet the current clearing target.
“The auction is a market-based mechanism for matching supply with demand,” Wheeler explained. “Until the forward bidding concludes, we will not know whether the demand meets the large supply offered by broadcasters. Depending upon that response, it’s possible that we would need to move to additional stages to find the level where demand meets supply. The commission intentionally designed the auction to account for the possibility that supply and demand might not match at the initial clearing target. It’s something we planned for, and we’re fully prepared to implement if the need arises.”
The National Association of Broadcasters was quick to jump on the lack of bidding activity.
“NAB is surprised by the modest participation by wireless carriers in the first stage of the TV auction,” said Dennis Wharton, EVP of communications for NAB, in a statement. “Perhaps the notion of a ‘spectrum crisis’ pedaled in Washington for the last seven years is not as acute as policymakers were led to believe. We look forward to the second round of the auction where wireless carriers will be afforded another bidding opportunity.”
While most did not expect the first stage of forward bidding to reach a successful conclusion, most at least thought bidding activity would last at least a few more weeks.
“Today’s auction results are unsurprising, albeit disappointing to some,” noted Dan Hays, principal at PwC’s Strategy& consulting group. “At just over $23 [billion] in total forward auction proceeds, the first stage results are on the low end of pre-auction estimates and in line with the spending commitments put forward by the United States’ existing mobile network operators.”
Among the 62 qualified bidders, established mobile carriers Verizon Communications, AT&T and T-Mobile US were expected to be the most aggressive auction participants. Verizon was predicted to bid up to $10 billion for spectrum, while AT&T was forecast to bid up to $15 billion having committed to at least $9 billion in bids as part of gaining approval of its DirecTV acquisition.
The FCC had previously said it would set aside 30 megahertz of the repackaged spectrum for carriers that do not already control a significant amount of sub-1 GHz spectrum holdings, which is predominately made up of AT&T and Verizon. T-Mobile US is expected to be the most aggressive bidder for the set-aside spectrum, with some predicting the carrier could spend up to $10 billion on licenses.
Sprint, which has sat out all of the FCC’s recent spectrum auctions, announced last year it would again sit out the competitive bidding process. The carrier noted a need to focus on improving its network and that it already had sufficient spectrum due to its vast portfolio in the 2.5 GHz spectrum band.
Hays did note television broadcasters will now need to reevaluate the valuation of their spectrum holdings in light of the lower than expected response from mobile telecom industry bidders, which could increase competition.
“The ball is now back in the court of TV broadcasters, who will need to decide whether to accept lower prices for their spectrum or bet on future opportunities to cash in on their airwaves,” Hays noted. “We anticipate that many will choose the certainty of the auction and roll the dice in the second stage starting in the coming weeks. … A halving of the total spectrum clearing cost in a second stage of the reverse auction, due to increased competition among broadcasters participating, would not be at all out of the question.”
Berge Ayvazian, senior analyst at Wireless 20/20, indicated it would take some extraordinary diplomacy on behalf of the FCC to find some way to bridge the gap between what it appears mobile telecom operators are willing to spend and what it appears television broadcasters want for their spectrum holdings. Ayvazian noted telecom operators might not be as gung-ho for low-band spectrum in light of the future focus of “5G” services to use higher-band spectrum to support increased capacity needs and not broader coverage.
In fact, just prior to the FCC conducting the forward auction process, it released details on it’s Spectrum Frontiers proposal that is to include opening up nearly 11 gigahertz of spectrum above the 24 GHz band in support of mobile telecom services.
One potential benefit from the quick close of stage one activity is that the auction could see an expedited conclusion. Many had expected the auction at its stage one pace to last well into next year as the FCC moved through various stage proceedings. Piecyk said it was possible for the auction to wrap up by year-end.
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