A worker climbs a cell tower in Oakland, California.
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Every time someone accesses the Internet via their smartphone, their wireless service provider transmits this data via the radio waves on frequencies for which only they have the license.
In the coming weeks, licenses to use some of the most valuable frequencies will be awarded to the highest bidder. Whoever wins will almost certainly use it to build a faster, more powerful 5G network and change the competitive dynamics of the telecommunications industry.
Earlier this month, the Federal Communications Commission announced that bidders had offered $ 80.9 billion for 280 megahertz Airwave licenses or frequencies in what is known as Auction 107.
After 97 rounds of tenders, the grand total was well above the $ 20 billion to $ 30 billion range forecast by most outside observers last summer, underscoring how critical this auction is for telecommunications companies.
“Once these 5G networks, deployed in this mid-band spectrum, are in place, the leap in performance will be so dramatic that carriers who are not in the game will be left behind,” said Doug Brake, Broadband Policy Director, Foundation for 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 phase where they cannot comment until the final and down payments have been made. A January 26 notice from the FCC reminded petitioners that they cannot legally speak about non-public information, such as who won or lost.
The FCC also said the auction is entering a second phase in which the winners can choose exactly the regions and frequency blocks they want. The bidders have won licenses, but the specific contracts are not yet final. The results are expected to be published in a few weeks.
The auction is a big deal for Verizon, T-Mobile, and AT&T, the top three US wireless companies. All three are in the process of building 5G networks.
The FCC is involved in frequency allocation to prevent interference or when two groups are using the same wavelengths at the same time, which makes it less effective. It is for this reason that the FCC is running this auction to ensure that the groups that win have the capital to actually take advantage of the spectrum. Most of the proceeds go to the US Treasury Department.
Not all wavelengths are the same. The highest frequencies travel short distances, but with recent advances in antennas and modems, they can carry large amounts of data. The lowest frequencies can travel long distances, but are less suitable for pumping large amounts of data.
The C-band wavelengths up for auction are in the middle. It’s actually called mid-band spectrum. Some call it “Goldilocks Spectrum” – as in, it’s spot on for 5G.
Verizon, the current US market leader for cellular subscribers, does not have a large mid-band spectrum. An attempt has been made to offset this with its “ultra-broadband” 5G, which promises to download 4K movies in seconds, but those waves don’t travel far. It’s like a Wi-Fi hotspot. If Verizon wins this auction, it could build a network that is faster than current 4G networks and doesn’t require the company to build towers on every block.
“If you are Verizon, now is your chance to get the spectrum you need because you don’t want to lose your bridgehead of being perceived as a leader. You have dominated the LTE or 4G world,” said Walt Piecyk, co-founder of LightShed Partners, who is closely following the spectrum auctions. “Are you letting T-Mobile or even AT&T take over as the 5G network of choice?”
Through the merger with Sprint, T-Mobile has acquired licenses for another block of the medium-band spectrum. So it doesn’t have to win as much as Verizon does. However, it is expected to be a bidder for various reasons. If it wins, it means its rivals didn’t. Even if it doesn’t win, a bid could raise the price.
AT&T has to win too. But it has spent a lot in recent years. In 2018, the company paid over $ 85 billion for Time Warner, including HBO.
That spectrum would be a big buy too, but at the same time AT&T also needs mid-band spectrum to build the wireless network that powers its cash flow. Raymond James analyst Frank Louthan said in a statement earlier this month that AT & T’s balance sheet could “scare investors” if AT&T spends $ 23 billion on frequencies.
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 on the frequencies. However, for broadband companies, the spectrum is less strategic and less likely to pay staggering prices for it.
A wild card is Dish, whose chairman Charlie Ergen has shown a propensity in the past to expand the spectrum and raise prices.
That’s not every possible winner among the 74 companies that signed up for the auction, but these are the big ones. No major tech companies have publicly registered to bid. There is an outside possibility that a tech giant was tacitly participating in the auction through one of the units, but that is very unlikely, Piecyk said.
What to buy and what’s next
The spectrum up for auction is between 3.7 GHz and 3.98 GHz. But it is not all sold at once. It is divided into smaller 20 MHz blocks and further divided into 406 geographic regions. A total of 5,684 licenses are available.
In the second phase of the auction, which begins on February 8th, parties who won bids in the first part will participate in a process to split these blocks.
It’s a complicated process. A tutorial slide deck for parties taking part in what is known as the “assignment phase” is 44 slides in length and includes a 58-page user guide for the software required to submit bids.
An essential aspect is that there is a spectrum area in the auction, the “A-Block”, which is more valuable than others as the winner can start building a network on these radio waves as early as the end of this year. Other parts of the C-band won’t be network ready until 2023, and time matters.
The spectrum up for auction was originally assigned to satellite operators operating in the 4.0 to 4.2 GHz range. The satellite companies originally assigned the spectrum will receive billions of dollars in incentive payments and moving costs to help them get out of their spectrum faster.
Once the allocation phase is completed in the coming weeks, the winners will be announced.
Then the hard work begins: building the network, including finding cellular locations, installing equipment, and marketing the new network to prospects.
All of this costs a lot of money, on top of what the winner has already pledged to pay for the spectrum. Investors need to watch carefully to see if the winners put out debt or otherwise raise money to fund network building.
The 5G networks in the C-band spectrum will not go online overnight. The earliest use of any of the blocks is at the end of this year. But when they’re built, the phones are ready for them – Apple’s iPhone 12, for example, supports the specific frequencies up for grabs in this auction.
However, this frequency purchase is not a short-term commitment for the winners. Licenses are a key strategic element in the wireless communications industry that could shape the competitive landscape for years to come.
“They are all struggling to get a sizable stake for the next 10 years,” said Brake.