An employee focuses on a cell communication tower in Oakland, California.
Justin Sullivan | Getty Images
Every time someone accesses the internet through their smartphone, their wireless carrier transmits that data through the airwaves on frequencies that only its user is allowed to use.
In the coming weeks, licenses for the use of some of the most valuable frequencies will be issued to the highest bidder. Anyone who wins will definitely use them to build a faster and more powerful 5G network, changing the competitive dynamics of the telecom industry.
Earlier this month, the Federal Communications Commission announced that bidders have applied for $ 80.9 billion for 280 megahertz of airwaves, or spectrum, licenses in what is known as Rop 107.
After 97 bidding rounds, the number was well above the $ 20 billion to $ 30 billion range expected by most outside viewers last summer, and it is confirm the importance of this auction to telecom companies.
“As soon as those 5G networks deployed on this mid-band spectrum are rolled out, the performance jump is going to be so dramatic, if there are no carriers in that game they are ‘going to leave behind, “said Doug Brake, broadband policy director at the Institute of Information Technology and Innovation, a think tank.
The winners of the auction are not yet public. Verizon, AT&T, T-Mobile and other parties involved in the auction are in a quiet time where they cannot comment until the final and down payments are made. A notice issued by the FCC on 26 January reminded applicants that they cannot legally discuss any non-public information such as who won or lost.
The FCC also said the auction enters the second stage where the winners get to choose the exact categories and blocks of spectrum they want. Applicants have won licenses, but the specific specifications have not yet been finalized. The results are expected to be released in a few weeks.
Who is buying
The auction is largely for Verizon, T-Mobile, and AT&T, the three major U.S. wireless companies. All three are currently building 5G networks.
The FCC is involved in the allocation of spectrum to prevent surges, or when two groups use the same waves at the same time, making it just as effective. That is why the FCC is running this auction, which wants to ensure that the winning organizations have the capital to use the spectrum. Most of the money goes to the U.S. Treasury.
Not all wavelengths are created equal. The highest frequencies travel only short distances but can carry large amounts of data with recent advances in antennas and modems. The lowest frequencies can travel long distances but are less suitable for pumping large amounts of data.
The C-Band waves that are up for auction are in the middle. It’s called a mid-band spectrum. Some say it’s a “goldilocks spectrum” – as it is, it’s fine for 5G.
Verizon, the current U.S. leader in mobile subscribers, has little mid-band spectrum. It’s trying to make up for it with its 5G “ultra wideband” which promises to download 4K movies in seconds, but those waves won’t travel far. It’s like a wi-fi hotspot. But if Verizon wins this auction, it could build a network that is faster than conventional 4G networks and the company doesn’t have to build towers on every block.
“If you’re Verizon, you now have the opportunity to get the spectrum you need because you don’t want to lose the beachfront as being seen as the premier company. They were very much under the control of the LTE or the 4G world, ”said Walt Piecyk, co – founder of LightShed Partners, which closely follows spectrum ropes. “Are you going to let T-Mobile, or even AT&T take over the flagship as the 5G network of choice?”
T-Mobile obtained licenses for a different block of mid-band spectrum through its merger with Sprint. So he doesn’t have to win this auction as much as Verizon. But he is still expected to be a bidder for a number of reasons. If he wins, that means his competitors didn’t. Even if it doesn’t win, bids could raise the price.
AT&T must win too. But it has been spending a lot in recent years. In 2018, he paid more than $ 85 billion for Time Warner, which included HBO.
This spectrum would also be a big buy, but at the same time, AT&T also needs a mid-band spectrum to build the wireless network that powers its cash flow. Raymond James analyst Frank Louthan said in a note earlier this month that if AT&T spends $ 23 billion on spectrum, its balance sheet could “spit out investors.”
Cable companies such as Comcast, Charter and Cox are also registered to apply. Charter and Comcast set up a joint venture called C&C Wireless Holding Company to claim the frequencies. But the spectrum is less strategic for broadband companies and they are less likely to pay eye prices for it.
Dish is one wild card, and chairman Charlie Ergen has unveiled a call for spectrum sculpting and price bidding in the past.
That’s not all the potential winners out of the 74 organizations that entered to bid in the auction, but those are the big ones. Major tech companies were not publicly registered to claim. There is a chance outside that a tech giant has been quietly participating in the auction through one of the groups, but that is very unlikely, Piecyk said.
What they are buying and what now
The up spectrum for auction is between 3.7 GHz and 3.98 GHz. But not all of it sells at once. It is divided into smaller 20 MHz blocks, and later divided into 406 geographical areas. In total, 5,684 licenses are up for grabs.
In the second phase of the auction, starting on February 8, parties that have won bids in the first part will take part in a process to split those blocks.
It is a complex process. There is a tutorial slide deck for parties participating in the “assignment level” called 44 slide lengths, which is in addition to a 58-page user guide for the software needed to submit applications.
One key aspect is that there is one area of spectrum in the auction, the “A block,” that is more valuable than others because the winner can start building a network on these airwaves as early as the end of this year. . Other parts of the C-band will not be ready for networking until 2023, and time is of the essence.
The up spectrum for auction was initially assigned to satellite operators, which is moving to the 4.0 to 4.2 GHz range. The satellite companies that were initially given the spectrum will receive multi-billion dollar incentive payments and transition costs to help them get off their spectrum faster.
When the entry stage is completed in the coming weeks, the winners will be announced.
Then the hard work begins: of course building the network, which involves locating cell sites, installing equipment, and marketing the new network to customers. which is possible.
That all costs a lot of money, in addition to the money that the winner has promised to pay for the spectrum. Investors need to keep a close eye on whether the winners take out debt or raise money in other ways to finance the construction of the network.
The 5G networks on the C-band spectrum will not come online overnight. The earliest phase of the blocks will be ready for use by the end of this year. But once built, phones will be ready for them – Apple’s iPhone 12 supports the special frequencies available for auction at this auction, for example.
But buying this spectrum is not a short-term guarantee for the winners. The licenses are a key strategic asset in the wireless industry that could shape the competitive landscape for years to come.
“They’re all fighting to get a big bet to compete for the next 10 years,” Brake said.