Trio of participants account for 93% of total proceeds
As expected, AT&T and Verizon Wireless were the big spenders in the Federal Communications Commission’s record-setting Auction 97 proceedings. Both operators combined to account for two-thirds of the FCC spectrum auction’s total potential winning bids. That total came to $44.9 billion in gross proceeds, but when factoring in bidding credits tied to some designated entities, the auction’s net haul was at $41.3 billion.
AT&T came out the biggest spender, hitting nearly $18.2 billion in total potential winning bids. Verizon Wireless, which was bidding under its Cellco Partnership entity, came in with $10.4 billion in total winning bids.
Dish Network, which participated in the auction through a pair of bidding entities, almost matched Verizon Wireless, totaling nearly $10 billion in potential winning bids. Combined, the auction’s three biggest spenders accounted for 93% of the total haul. Dish had been seen as a wildcard in the proceedings as it has been aggressive in past spectrum auctions, though it has yet to launch services using those assets.
Overall, 31 of the auction’s initial 70 qualified bidders walked away with at least one license. Three of the auction’s 1,614 total licenses up for bid did not receive an offer matching their respective reserve price and remain in the hands of the FCC.
The licenses up for bid were spread across the 1.7/2.1 GHz spectrum bands known as AWS-3. The licenses included three 5×5 megahertz licenses (G-, H- and I-Blocks) and a single 10×10 megahertz license (J-Block). The G-Block licenses are carved into commercial market area-sized licenses, which total 734 licenses covering the country. The remaining blocks are economic area-sized that will total 176 licenses covering the country. The 15 megahertz of unpaired spectrum is split into two licenses, one with 5 megahertz of total spectrum parsed out on an EA basis, and the other with 10 megahertz of spectrum also in an EA configuration.
It’s expected to be at least a year before the licenses are available for use as many are still being utilized by the Department of Defense. AT&T said it expects to begin tapping into the new licenses beginning in 2017.
In addition to fattening the government’s coffers, the auction results allow for full funding of the FirstNet public safety initiative, which was set to receive $7 billion from auction proceeds. The FirstNet organization has spent the past few years working through the logistics of its planned nationwide LTE network.
Big spenders
AT&T’s significant investment was not a surprise as analysts noted the carrier was in need of the midrange spectrum up for bid in order to bolster capacity across its network. AT&T Mobility has initially launched LTE services using a scattering of 700 MHz licenses, but was seen as being a bit thin in the 1.7/2.1 GHz band that has become the standard for adding capacity. AT&T had previously controlled a strong amount of spectrum in the AWS-1 band, but was forced to hand over most of it as part of its failed attempt to acquire T-Mobile US.
AT&T said its latest haul provided 20 megahertz of spectrum in the 1.7/2.1 GHz band covering 96% of the country’s population. The carrier noted it planned to begin using the 2.1 GHz portion of the spectrum to support downlink services, while working with current spectrum users in the 1.7 GHz uplink channel to bring on additional capacity “as soon as possible.”
“This spectrum investment will be critical to AT&T staying ahead of customer demand and facilitate the next generation of mobile video entertainment,” said John Stankey, chief strategy officer at AT&T, in a statement.
Despite the significant investment in Auction 97, AT&T has also said it would spend at least $9 billion in the 600 MHz incentive auction tied to its pending $48.5 billion acquisition of DirecTV if there is sufficient spectrum made available for a nationwide 20 megahertz footprint. The incentive auction is reliant on a reverse-auction process that will see television broadcasters turn in spectrum holdings in exchange for cash, though the total amount of spectrum made available for the telecommunications industry won’t be known until the reverse-auction process is complete.
Verizon Wireless’ haul came in around expectations as the carrier currently controls roughly 20 megahertz of spectrum in the AWS-1 band covering most of the country. Those assets came from the FCC’s previous auction (Auction 66 in 2006) as well as through secondary transactions, including its deal with a handful of cable companies. Verizon Wireless has already tapped its AWS-1 holdings to bolster capacity through its XLTE network initiative.
In the latest action, Verizon Wireless parent company Verizon Communications said the operator picked up new licenses covering 192 million potential customers.
Not all appeared happy with Dish Network’s haul, as FCC Commissioner Ajit Pai is reportedly set to ask FCC Chairman Tom Wheeler to review the bidding credit discount provided to Dish that cut more than $3 billion from the total amount of money it owes for the licenses. Dish Network’s true total in bids was more than $13 billion, but due to bidding credits its participating auction entities SNR Wireless LicenseCo and Northstar Wireless were granted, Dish is only on the hook for less than $10 billion. Those bidding credits, which are part of the FCC’s DE program, allow smaller companies to receive more bang for their bidding buck. SNR and Northstar, though publicly acknowledged to be backed by Dish, which reported more than $14 billion in revenues in 2013, each reported less than $15 million in annual revenues.
“As part of the auction process, we publicly filed an application to participate as a potential bidder, and Dish invested in two entities that also publicly applied to participate in the auction as designated entities,” Dish noted in a statement following close of the auction. “The auction’s success is a win for the FCC, the American taxpayer, the public safety community and small business. Because of the FCC’s anti-collusion rules, however, we are not able to discuss further at this time.”
Dish picked up all 176 licenses tied to the government’s Auction 96 process last year for $1.5 billion, participating in that auction through its non-DE American H Block Wireless.
T-Mobile US was a surprising “victor” as it spent just under $1.78 billion on winning licenses. There were expectations that T-Mobile US could spend to a certain level of its larger rivals, but ended up on the lower end of expectations. The carrier currently relies on the 1.7/2.1 GHz spectrum band the licenses up for bid are adjacent to in support of its LTE network, with many feeling the carrier would continue to bolster those holdings. However, the relatively small amount T-Mobile US spent on licenses could mean the carrier is saving some of its cash for the FCC’s planned 600 MHz incentive auction currently scheduled for next year.
T-Mobile US has been a vocal participant in rulemaking tied to the FCC’s planned 600 MHz incentive auction. The carrier has a dearth of spectrum below the 1 GHz band, which many note is needed for broad coverage. T-Mobile US has bolstered its position below the 1 GHz level through numerous deals, but still lacks the depth and breadth in those bands relative to its larger rivals.
Sprint had previously disclosed it would not participate in the AWS-3 auction, choosing instead to conserve cash for a potential run at the 600 MHz incentive auction proceedings. The news was not surprising as Sprint had not shown much public support for the AWS-3 auction and does not currently control any spectrum in the advanced wireless services band. Sprint’s current holdings are focused in the 800 MHz, 1.9 GHz and 2.5 GHz bands. Most analysts noted it made little sense for Sprint to partake in the AWS-3 auction seeing as it would need to integrate a fourth band into its operations and the carrier has recently announced plans to conserve cash where it can.
The FCC has yet to release winners of individual licenses, so we will have to wait to see who spent $2.7 billion for the 20-megahertz, J-Block license centered on New York City. (My guess: AT&T.)
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