Incentive Auction a "Massive Disappointment?"

Among the conclusions one might draw from the Federal Communications Commission’s 600 MHz two-stage “incentive auction” are that low-band mobile spectrum, in the U.S. market, is deemed to be worth less than always has been argued.

In terms of revenue raised by the new way of auctioning spectrum, some might call the outcome a massive disappointment.

In January 2016, FCC Chairman Tom Wheeler claimed the auction would be the “world's largest spectrum auction that has ever taken place.” Not so, as it turns out. In fact, the auction likely will clear far less (less than half) of the $44.9 billion raised by auctioning AWS-3 spectrum.

By way of comparison, the AWS-3 spectrum (in the 1.7 GHz and 2.1 GHz ranges) raised $44.9 billion for 65 MHz of total spectrum.

The 600-MHz spectrum will raise perhaps $18 billion for 84 MHz of spectrum. The FCC originally had expected to raise as much as $60 billion in proceeds.

This was in sharp contrast to the FCC’s initial expectation of collecting at least $60 billion from Incentive Auction. Spectrum owners had expected as much as $86 billion in sales.

Arguably, AT&T and Verizon believe they have other ways to satisfy any “coverage” capacity they might require in the future, while the “reserve spectrum” conditions that barred both from bidding on much of the spectrum (about a third) might have contributed to the lack of enthusiasm as well.

Some argued that the "reserve spectrum" feature, as always, produces distortions in spectrum markets. Among those distortions are price and demand impacts.

On the other hand, some bidders such as T-Mobile US will pay less for their spectrum, and likely will get some spectrum, simply because competitors were forbidden to do so.

There are a huge number of ways mobile operators will be increasing capacity in coming years. There is an astounding amount of new millimeter wave spectrum coming that dwarfs all current authorizations of communications spectrum.

Offload of demand to Wi-Fi also will help. So will small cell networks operators will build to deploy the new millimeter wave assets. As much as seven gigaHertz of new unlicensed spectrum also will be released by the FCC, allowing use without payment of license fees.

At the same time, better radios also will help boost capacity, using any specific set of frequencies. And some potential bidders, such as cable companies, also can buy existing companies and thereby acquire their spectrum assets.

We will have to wait to see whether other large auctions of new spectrum (India and Egypt  also have found far less demand than anticipated) continue to show lower prices.

But it seems markets are rational. With vast increases in supply now possible, and more supply coming, prices should fall.
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