More Evidence that Spectrum Options Remain Top of Mind

The ongoing auction of 600-MHz spectrum in the United States still looks to generating bids that are below seller and government expectations. After accounting for the costs of the auction, TV broadcasters moving off sold spectrum and funds to allow repacking of smaller spectrum blocks into larger bands, the auction has to reach $88.4 billion.

Stage one of the forward auction generated total bids of $23 billion after the 27th round of bidding.

In stage two of the auction, the Federal Communications Commission reduced amount of spectrum expected to “clear” (sell) from 126 MHz to 114 MHz.

The FCC also reduced the “option clearing spectrum size” to 90 MHz and $54.6 billion. But the stage two auction ended after bids of just $21.5 billion were placed.

In stage three, a target of $40.3 billion has been set, for 108 MHz of spectrum. Just $19.7 billion was bid.

You see the trend: buyers simply do not value the spectrum as highly as the sellers, suggesting bidders are well aware there are other capacity options, ranging from coming 5G spectrum in millimeter bands, smaller cell architectures, use of unlicensed spectrum, shared spectrum and, for some new contestants, acquisitions.
Recent major spectrum auctions seem to be indicating a change in spectrum valuation. The big spectrum auction in India raised about 11 percent of the amount the government expected. To be sure, spectrum remains a relatively scarce commodity, whether licensed or unlicensed.

But as 5G draws near, those assumptions will be challenged. Traditionally, mobile operators, for example, have had two primary tools for increasing the effective amount of capacity: acquire and deploy more spectrum, or reduce the size of cells.

Both smaller cells and new spectrum (vast amounts of spectrum, in fact) will be key features of 5G networks. But there will be new tools, including, in some markets, shared spectrum. Better radio technologies and better bonding of licensed and Wi-Fi spectrum also are coming.

In some markets, contestant consolidation (buying whole firms, with their spectrum licenses) also is becoming a viable alternative to buying new spectrum. That is the case in India now, and likely will happen in the U.S. market within a relatively short amount of time, as both Sprint and T-Mobile US are likely to be acquired, while Dish Network also has a trove of spectrum to be put to use.

Ultimately, the biggest bidders are likely to include smaller telcos and cable TV companies able to buy spectrum reserved for firms with little spectrum in the lower bands.

The larger point is that spectrum prices are under pressure because potential bidders know vast new amounts of spectrum are going to be made available, plus small cell architectures and use of shared and unlicensed spectrum resources.
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