This is an update on the FCC C-Band Auction 107 which completed 45 rounds. Bidding resumes after the holiday break on January 4th.
In summary, this is a “monster auction.” It already stands just shy of $70B in proceeds excluding an additional $13B in relocation costs and incentives paid to satellite users. This will be the highest grossing auction ever. For comparison, Auction 97 for 65 MHz in AWS-3 band had raised $45B in 2015 [here].
The auction also set record valuation on MHz-PoP-basis for the prime markets where unloaded valuation – i.e. prior to adding satellite fees – stand at just over $1/MHz-PoP.
Auction Dynamics
Demand for licenses in prime markets has largely stabilized with attention shifting to secondary.
Competition for A blocks, is markedly higher than for B and C blocks as reflected by higher valuation. On average A blocks now stand at 9.6% premium over B and C blocks.
The valuation of this auction reflects the urgency of the spectrum for the incumbent operators. Verizon in particular has put high emphasis on speed targeting the business consumer. This makes the C-band spectrum particularly important for them as their current technology strategy falls short of supporting the marketing campaign. AT&T is in a similar situation although with more financial debt. T-Mobile with large 2.5 GHz holdings could play a disruptive role by raising prices for the other competitors. The stickiness of the auction process would make such a strategy risky. Nevertheless, we’ll have to await the final outcome to understand the competitive landscape and the role of other players such as Dish.
A New Perspective on Spectrum Valuation
This auction clearly indicates a shift in value to mid-band spectrum. We’ve seen this shift in recent C-band auctions in some European markets (Italy, Germany), but not to the same level as in the US.
While there is still value in sub-1 GHz spectrum, operators already have what it takes to meet the coverage objectives. Competition shifted to capacity spectrum represented in this auction. The level of competition is indicative of how important mid-band spectrum is for the future competitive viability of these operators. Their spending on this auction should be viewed from a lens of supporting their marketing strategy. Their technology strategy plays a supportive role in that.
Some Consequences to C-Band Auction 107
The first thought is whether the spending was rational and can be supported by the business case for 5G services. The closest example to this were 3G European auctions around 2000. Massive spending by the standard of that time slowed Europe’s roll out of 3G services cascading into delays in 4G services.
This may not happen in the US 5G role outs. We need to wait the final outcome to see the impact on each operator. But some likely side-effects are:
- Deployments of mmWave would slow significantly or even end altogether. The budgets will be strained to continue with “small cell” architecture for mobility use case which proved not viable to date. For fixed wireless access, 3.5 GHz could provide 1+ Gbps peak speed with better range than mmWave and better user self-install capability. Even as Verizon has 30% truck role rate, they can take that down to 0% with C-band spectrum.
- DSS will become redundant. It was after all a marketing gimmick used to claim 5G service capability. There are some use cases for DSS, but not in the manner used today.
Concluding Remarks
Looking at the auction from a Canadian perspective, C-band Auction 107 will set the stage for higher valuation in the upcoming Canadian 3.4 GHz auction now scheduled for June ’21. In particular, incumbent operators will feel more pressure to pay higher price. The auction is arranged in a way that could lead to high valuation, particularly for the three major urban areas (Toronto, Montreal, Vancouver). The reserve price for these areas is already set at C$0.21 and given the amount of spectrum available, it can quickly get very pricy. These three markets alone could fetch 70% or higher of the entire proceeds! The government, having delayed the auction from last year, would probably feel happy about the decision now. In hindsight, the service providers should have lobbied hard against the postponement.
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