Telecom operators again failed to meet television broadcaster demand for 600 MHz spectrum licenses, with the FCC set to begin crucial next stage Dec. 13.
The Federal Communications Commission’s attempt to infuse low-band spectrum into the “5G” technology path moves onto a new round as telecom providers yet again were “one and done” in the latest forward auction proceedings.
Stage three of the 600 MHz incentive auction process finished up today as the FCC halted bidding in the forward auction portion after one stage, with parties interested in acquiring the 80 megahertz of clean spectrum up for auction posting a cumulative total less than half of the $40.3 billon being requested by television broadcasters. The results were similar to stage two of the proceedings, which also witnessed forward bidding last just one round.
There seemed to be little surprise at the quick end to the latest stage in the complex incentive auction process, with observers noting the 108 megahertz of spectrum being offered up by television broadcasters had a high percentage of spectrum needing to be set aside for guard bands and the channel 37 carve out to gain access to the 80 megahertz of clean spectrum.
“The relatively quick completion of the third stage of the forward auction comes as no surprise given pre-auction indications from potential purchasers and the current state of the mobile industry in the United States,” said Dan Hays, principal at PwC’s Strategy& division.
Others highlighted the financial aspect of the ongoing proceedings, noting the telecom market is not as flush with cash for spectrum as perhaps expected.
“The auction so far is showing between ‘want’ and ‘can,’” said Roger Entner, founder of Recon Analytics. “There was no way wireless operators were going to be able to meet the large amounts initially asked for by broadcasters as they were clearly beyond the ability of operators to raise on the debt markets. In addition, there does not appear to be any of the ‘white knight’ companies that were expected to help drive up the forward auction bids, save the day and usher in a new era in wireless. Now we are seeing the numbers come down to an amount that is more reasonable for what is being offered.”
Television broadcasters, which had initially requested more than $86 billion for 126 megahertz of spectrum, said they were perplexed by the quick ending of stage three.
“The results of the latest round of the TV auction leave us scratching our heads, given the decade-long refrain of a spectrum crunch,” said Gordon Smith, president and CEO of the National Association of Broadcasters. “We look forward to the next round.”
The auction is now set for stage four, which the FCC said will begin with another round of reverse auction bidding on Dec. 13. While not yet set in stone, the stage is expected to have television broadcasters giving up 84 megahertz of total spectrum that the FCC will repackage into 70 megahertz of clean spectrum for telecom operators.
“It is clear that the next stage of the auction will need to continue to peel back the cost of broadcasters’ spectrum,” Hays noted. “With a more dramatic, 24-megahertz drop in demand … a significant reduction in the cost to clear broadcasters is likely, bringing the auction to a close after the start of the new year.”
The 70-megahertz mark also is the magic number for T-Mobile US and other carriers with a dearth of sub-1 GHz spectrum holdings. Pre-auction rules include a set-aside provision that calls for 30 megahertz of at least 70 megahertz of spectrum to be auctioned off outside the reach of companies with a dominate position in sub-1 GHZ spectrum holdings, which among larger operators is limited to Verizon Communications and AT&T.
AT&T and Verizon are expected to be most aggressive for the 40 megahertz of spectrum open to all bidders, with each perhaps going for as much as 20 megahertz each in some markets.
As for the amount of money that could come from the forward auction of stage four, observers note the proceedings look set to match the then record-setting $19 billion garnered by the 700 MHz auction held in 2008, as opposed to the since record-shattering $44.9 billion in gross bids from the AWS-3 auction in early 2015.
“Despite strong commitments to date from buyers in the forward auction, top-line proceeds may struggle to make it north of $20 billion as operators’ capital spending priorities have seemingly shifted away from spectrum at this time,” Hays added.
Auction timing also looks set to drag the proceedings into the new year. With a Dec. 13 start date for stage four, the past reverse auction stages each taking around one month and the impending holidays, the beginning of the forward auction bidding is likely to begin in late January.
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