The next U.S. mid-band spectrum auction is slated to start Tuesday, October 5, offering licenses in the 3.45-3.55 GHz range.
The top three mobile carriers, along with Dish Network and UScellular, are on the roster of 33 qualified bidders (PDF) for the FCC Auction 110.
Analysts at LightShed Partners expect the Federal Communications Commission’s spectrum auction will generate $31 billion, with reasonable odds of up to $40 billion as AT&T and Verizon compete to close the narrowing gap with T-Mobile for key mid-band frequencies.
In a Thursday research note, LightShed’s Walter Piecyk and Joe Galone estimate AT&T and Verizon will spend about $12 billion each to scoop up respective 40-megahertz (the most any single bidder is allowed to acquire under auction rules). There’s a total of 100-megahertz available and T-Mobile and other participants are pegged by the firm to nab the remaining 20-megahertz.
Some investor analysts, like those at New Street Research and Cowen, have put T-Mobile as potentially a bigger spender than Verizon, in part to maintain its shrinking spectrum lead. New Street’s base case projects AT&T winning 40 MHz, T-Mobile 31 MHz, Dish around 20 MHz and other bidders taking the remaining 10 MHz. Cowen has put AT&T and T-Mobile each at around $9 billion spend to pick up a full 40 MHz.
T-Mobile is armed with a trove 2.5 GHz spectrum and LightShed believes Verizon has every reason to bolster mid-band assets while it can (even after the carrier’s major showing at the 3.7 GHz C-band auction, where its mid-band spectrum standing doubled).
In addition to eliminating the spectrum gap with T-Mobile (which shrunk from a 127 MHz lead after closing the Sprint deal to currently 45 MHz after the C-band and CBRS auction), the firm’s list of reasons for Verizon include: adds a quarter turn of leverage, which can be repaid in six quarters; keeping relatively cheap spectrum out of competitors’ hands; and 3.45 GHz spectrum will be available to use before most of Verizon’s C-band winnings (which are still on clearing timelines for satellite operators exiting the band – the latter which don’t come until 2023).
Finally, LightShed wrote that: “The $10 billion Verizon spent in the AWS-3 auction was for 20 MHz of spectrum depth in 60% of the country. This auction offers 40 MHz over more areas for close to the same price.”
Still, Verizon could spend even more depending how the auction shakes out – noting the carrier could dole out more per MHz-POP in dense markets and not pay anything in rural markets where it doesn’t need 40 MHz of spectrum.
“We believe their budget for this auction is well above $12 billion if bidding dynamics take it higher,” wrote LightShed’s Piecyk and Galone.
While Verizon has an appetite for mid-band spectrum, the analysts think AT&T has even more reasons to be hungry for 3.45 GHz as it trails T-Mobile’s depth by 77 MHz.
“To be fair, AT&T’s superior low-band spectrum depth offers advantages over both competitors,” said Piecyk and Galone. “But next week’s auction could enable AT&T to cut its overall spectrum deficit to T-Mobile in half.”
LightShed expects T-Mobile to spend $6 billion to secure spectrum in the top 50 markets, but said Dish could drive prices higher while spectrum investors might push T-Mobile out of winning that remaining 20 MHz.
Not a ton more mid-band opportunity near-term
Another aspect to consider ahead of the 3.45 GHz auction is that in the U.S., it’s the last major near-term opportunity for auctioned mid-band spectrum (there is a 2.5 GHz auction planned, but no date set yet).
The 3.45-3.55 GHz band sits below the shared CBRS and C-band (3.7 GHz) and carries attractive qualities like capacity and propagation characteristics for reach and penetration indoors. There’s not as much up for grabs as the C-band auction and coordinated sharing with federal users is required in some areas. But it has more favorable signal traits than the higher mid-band spectrum and also isn’t restricted by lower power levels or smaller license sizes of auctioned CBRS PALs.
The government is exploring ways to share spectrum in the 3.1-3.45 GHz range, but as New Street pointed out in a September 22 to investors, the steps to get it ready for commercial use aren’t expected to be easy.
Citing comments from the director of the Department of Defense’s spectrum policy office at NTIA’s recent Spectrum Policy Symposium, analysts led by Jonathan Chaplin, quoted the official on preparing the band as a “huge lift” with NTIA, FCC, DoD and private sector involved.
“The uncertainty around the timing of bringing 3.1-3.45 GHz to market highlights the importance of the 3.45-3.55 GHz auction to the carriers,” wrote the New Street team.
Part of that lift has to do with more federal users operating in the 3.1-3.45 GHz range. Clearing 350 MHz of the spectrum should be significantly higher than the $13 billion it costs to ready the more lightly occupied 100 MHz up for auction next week, according to the firm.
“In any case, it will likely take at least three years (if not more) to prepare and then auction even a portion of the remaining lower 3GHz band, underscoring the need for carriers to pick up 3.45GHz spectrum at auction if they can,” wrote New Street.