A worker climbs a cell communication tower in Oakland, California.
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Every time someone accesses the Internet through their smartphone, their wireless carrier transmits this data over the airwaves at frequencies that only they are licensed to use.
In the coming weeks, licenses to use some of the most valuable frequencies will be assigned to the highest bidder. Whoever wins will almost certainly use them to build a faster and more powerful 5G network, changing the competitive dynamics of the telecommunications industry.
Earlier this month, the Federal Communications Commission announced that bidders have offered $ 80.9 billion for 280 megahertz of airwave, or spectrum, licenses in what is known as the 107 auction.
After 97 rounds of bidding, the total was significantly above the $ 20 billion to $ 30 billion range that most outside observers predicted last summer and underscores the importance of this auction for telecom companies.
“Once these 5G networks deployed in this mid-range spectrum are deployed, the performance jump will be so dramatic that if operators are not in this game they will be left behind,” said Doug Brake, broadband policy director of the Technology Foundation of Information 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 period where they cannot comment until final payments and initial payments have been made. A notice issued by the FCC on January 26 reminded applicants that they cannot legally talk about any non-public information, such as who has won or lost.
The FCC also said the auction is entering a second phase in which winners will be able to choose the exact regions and blocks of spectrum they want. Bidders have won licenses, but specific assignments are not yet final. The results are expected to be published in a few weeks.
Who buys
The auction is a big deal for Verizon, T-Mobile and AT&T, the three largest wireless companies in the United States. All three are in the process of building 5G networks.
The FCC is involved in spectrum allocation to avoid interference or when two groups use the same wavelengths at the same time, making it less effective. That’s why the FCC is doing this auction, which aims to make sure the winning groups have the capital to actually use the spectrum. Most of the revenue goes to the United States Treasury.
Not all wavelengths are created equal. Higher frequencies only travel short distances, but can transmit large amounts of data with recent advances in antennas and modems. Lower frequencies can travel long distances, but are less suitable for pumping large amounts of data.
The C-band wavelengths that are at auction are in the middle. It’s actually called the middle band spectrum. Some call it the “golden lock spectrum,” as it is right now for 5G.
Verizon, the current U.S. leader in mobile subscribers, doesn’t have much of a mid-band spectrum. Attempts have been made to compensate with its “ultra-wideband” 5G that promises to download 4K movies in a matter of seconds, but those waves don’t travel far. It’s like a Wi-Fi hotspot. But if Verizon wins this auction, it could build a network faster than current 4G networks and not require the company to build towers on every block.
“If you’re Verizon, now is your chance to get the spectrum you need because you don’t want to lose your head of the beach from being perceived as the leading company. They dominated the LTE world or the 4G world,” said Walt Piecyk. co-founder of LightShed Partners, which closely follows spectrum auctions. “Do you want to let T-Mobile, or even AT&T, take over the mantle like the 5G network you choose?”
T-Mobile acquired licenses for a different block of mid-band spectrum through its merger with Sprint. So you don’t need to win this auction as much as Verizon does. But he is expected to be a bidder for several reasons. If he wins, that means his rivals don’t. Even if you don’t win, bids could raise the price.
AT&T also has to win. But a lot has been spent 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 mid-band spectrum to build the wireless network that feeds 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 “scare investors.”
Cable companies like Comcast, Charter and Cox are also registered to bid. Charter and Comcast formed a joint venture called C&C Wireless Holding Company to bid for the frequencies. But the spectrum is less strategic for broadband companies and they are less likely to pay the prices.
A wildcard is Dish, whose president, Charlie Ergen, has shown a tendency to increase the spectrum and offer prices in the past.
Not all the possible winners of the 74 entities that registered to bid in the auction are, but these are the big ones. There are no large technology companies publicly registered to bid. There is an external possibility that a technology giant will quietly participate in the auction through one of the entities, but that is very unlikely, Piecyk said.
What they buy and what follows
The spectrum that can be auctioned ranges from 3.7 GHz to 3.98 GHz. But not everything is sold at once. It is divided into blocks smaller than 20 MHz and is divided into 406 geographic regions. In total, there are 5,684 licenses pending.
In the second phase of the auction, starting February 8, the parties that won bids during the first part will participate in a process to distribute these blocks.
It is a complicated process. A slide show tutorial for the parties involved in the so-called “allocation phase” has 44 slides, plus a 58-page user guide for the software needed to submit bids.
A key aspect is that there is a spectrum range at auction, the “block A,” which is more valuable than others, as the winner can start building a network on these waves as early as the end of ‘this year. Other parts of Band C will not be ready for networking until 2023 and time matters.
The auctioned spectrum was originally assigned to satellite operators, moving to the range of 4.0 to 4.2 GHz. Satellite companies that were originally assigned the spectrum will receive incentive payments and relocation costs of $ 1 billion to help them get out of their spectrum faster.
Once the allocation phase is over in the coming weeks, the winners will be announced.
Then begins the hard work: creating the network, which includes finding cell sites, installing equipment, and marketing the new network to potential customers.
All this costs a lot of money, in addition to the winners that the winner will have already promised to pay for the spectrum. Investors will need to keep a close eye on whether the winners are issuing debts or raising money in other ways to finance the construction of the network.
BandG spectrum 5G networks will not go online overnight. The first block that will be ready for deployment is later this year. But when they are built, the phones will be ready, for example, Apple’s iPhone 12 supports the specific frequencies that can be picked up at this auction.
But this spectrum purchase is not a short-term commitment for the winners. Licensing is a key strategic asset in the wireless industry that could shape the competitive landscape for years to come.
“Everyone is struggling to get considerable participation to compete for the next 10 years,” Brake said.