Friday, December 2, 2016

Are 600-MHz Auction Prices Indicative of Future Trends?

The U.S. Federal Communications, as part of planning for 5G services, is opening up nearly 11 GHz of new spectrum for mobile and fixed wireless broadband, including 3.85 GHz of licensed spectrum and 7 GHz of unlicensed spectrum, and is exploring additional allocations as well.

In addition, there are reasonable expectations that spectrum owned by Sprint, T-Mobile US and Dish Networks also will be available for acquisition (either by purchase of the firms or, in the case of Dish, a possible sale of airwaves).

That should lead potential bidders to adjust their expectations about the amounts they are willing to bid to acquire 600-MHz spectrum in the ongoing incentive auctions. Up to this point, through two rounds of bidding, bids have significantly lagged seller expectations. So it is not an idle spectrum to ask whether the value of spectrum now is changing radically.

In other words, spectrum value has to change, if supply increases so much, and if other methods are available to increase supply by using newer network architectures (small cells), using more-efficient radios and antennae and continuing to rely on unlicensed spectrum that carries no direct spectrum cost.  In fact, such trends suggesting lower spectrum valuation has been underway for a couple of years.

And that might be a thought process affecting spectrum value in other markets, from Egypt to India.

Consider just the expansion of supply in the U.S. market. The FCC already has announced it plans to release 11 gigahertz of new spectrum, including healthy amounts of unlicensed spectrum, and significant amounts of shared spectrum, in a couple of bands.

Licensed use in the 28 GHz, 37 GHz and 39 GHz bands makes available 3.85 GHz of licensed, flexible use spectrum, which is more than four times the amount of flexible use spectrum the FCC has licensed to date, for all mobile purposes.

Unlicensed use in the 64-71 GHz band makes available 7 GHz of unlicensed spectrum which, when combined with the existing high-band unlicensed spectrum (57-64 GHz), doubles the amount of high-band unlicensed spectrum to 14 GHz of contiguous unlicensed spectrum (57-71 GHz). That 14 GHz band will be 15 times as much as all unlicensed Wi-Fi spectrum in lower bands.

Shared access in the 37-37.6 GHz band makes available 600 MHz of spectrum for dynamic shared access between different commercial users, and commercial and federal users, extending shared spectrum access in the 3.5-GHz band.

Prices are based on supply and demand. If supply increases by an order of magnitude, and demand does not keep pace, wholesale and possibly retail prices will fall, as well.

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