Latest High-Band Auction Brings in Biggest Totals, Lower Prices Than Past Sales
The FCC auction of 3,400 MHz in the 37, 39 and 47 GHz bands brought in the highest bids of any high-band auction, at just more than $7.5 billion. But prices per MHz/POP for the 37 and 39 GHz bands are lower than the previous auctions, which offered much less spectrum, and much lower for the 47 GHz band. Auction watchers told us Friday more will be known about how industry views high-band for 5G when it’s revealed what AT&T and Verizon did in the auction. The auction closed for the day Friday at $7.5 billion after 86 rounds.
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Commissioner Mike O’Rielly told us he's excited generally about the high band auctions. The 37 and 39 GHz bands “have been the most anticipated and desired bands,” he said. “I worked with [then-Chairman] Tom Wheeler to make them available. … The amount of money and the amount of spectrum we’re making available highlights how much interest there is in high bands.” The auction don’t take away from making more mid-band spectrum available, but is “complementary” to those efforts, he said. The agency didn't comment.
“It’s gone a lot higher than I would have expected,” said MoffettNathanson analyst Craig Moffett. “The big question is, who bid it up so high? Verizon would seem to have all the millimeter-wave spectrum they need. AT&T probably does, too. But it’s hard to imagine the numbers would have gone so high if neither Verizon nor AT&T was heavily involved.”
“The advantage of this auction is the sheer amount of spectrum available for sale,” said Anna-Maria Kovacs, Georgetown Center for Business and Public Policy visiting senior policy scholar. “Normally, large supply would lead to lower prices,” she said: Here, “it may be increasing demand enough to sustain prices because the quantity should make it possible to acquire large, contiguous swaths of spectrum, which is always helpful but especially so at the higher frequencies.” The low price of high-band spectrum “reflects the high cost of infrastructure required to use high-band spectrum” including “the much larger number of cellsites, and the difficulty and delays in getting the necessary local approvals to place those sites,” Kovacs said.
Analysts said the average price is in line with, but slightly lower than, previous auctions for the 37 and 39 GHz bands, and one-tenth as much at 47 GHz. New Street’s Vivek Stalam noted $3 billion in incentive payments are being made to incumbents in the 39 GHz band, primarily Verizon and AT&T, so the net price is closer to $4.5 billion. “Even ignoring the incentive payments, it is still about 25 percent” lower than past auctions, he said.
“The absolute amount raised is more than the other high-band auctions, but that is because more spectrum is being sold,” said consultant Tim Farrar. The FCC offered 850 MHz in the 28 GHz auction and 700 MHz in the 24 GHz auction. “This suggests bidders expect to use the 37-39 GHz spectrum for the same purposes as 24 GHz and 28 GHz, mobile and fixed high capacity deployments in urban areas,” the analyst noted. Farrar noted Verizon earlier bought 28 and 39 GHz spectrum from Straight Path, “so equipment for both is likely to be available,” while the outlook for the 47 GHz band is “less certain.”
“Overall, millimeter-wave is getting cheaper,” Stalam said. “Bidders are still willing to put up $4.5 billion in net cash for spectrum of questionable and declining value,” he said: “We would have expected most bidders to be preserving financial capacity for the more valuable spectrum that will be auctioned in the next 12 months.” The FCC is scheduled to start the citizens broadband service auction in June and a C-band auction by year-end.
The 37 and 39 GHz proceeds show “the huge longer-term potential of these bands,” emailed Peter Rysavy, president of Rysavy Research: “Despite the propagation and penetration challenges of mmWave, innovations such as massive MIMO, integrated access and backhaul, radio commoditization, [radio access network] virtualization, and small-cell densification will create widespread ultra-high-capacity zones, complemented by broader 5G coverage in lower bands.”
Stephen Wilkus of Spectrum Financial Consulting wrote that the 47 GHz P band has underperformed the rest of the auction, with $310 million in provisionally winning bids. “We've seen how most of the early bids were placed on the 24 MN blocks in the 37 and 39 GHz band, leaving the P blocks at 47 GHz largely without bids ... until round 6 (when bids in P blocks jumped from $257K to $99 million) and again in round 21 with a $4.7 million bump, then again, most recently around round 69 with a $3.4 million injection,” he said: “With few of these P blocks having excess demand there has been little increase in prices. In fact, there are still 426 properties that are selling at their minimum opening bid value.”
"The FCC's most recent high-band spectrum auction has generated the highest return so far, but that isn't too surprising given the amount of spectrum on offer,” said Tom Struble, tech policy manager at the R Street Institute. The spectrum “is at slightly higher frequencies so it won't propagate quite as far as the spectrum sold in the prior two auctions, which is why the dollars-per-MHz-pop may be slightly lower, but that's still an impressive return,” he said. “While the coming mid-band auctions will probably generate even more returns given the strong demand for that spectrum in the near-term … many of the most innovative and valuable use-cases for 5G will be the new services that are designed to take advantage of the vast swaths of high-band spectrum the FCC has auctioned off in the last year or so.”