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September 7, 2021
The FCC's next big 5G spectrum auction – dubbed the "Andromeda auction" by Light Reading – is scheduled to start in October, and financial analysts are offering plenty of guesses as to what will happen.
Some analysts expect another financial blowout, similar to the recent C-band spectrum auction, while others aren't so sure.
"We think the auction will be fiercely contested with prices not far off the C-band," wrote the financial analysts at New Street Research in a recent note to investors. The C-band auction for midband 5G spectrum ended earlier this year with total bids of $81 billion.
But the financial analysts at Raymond James said they expect far lower prices in the upcoming auction. They expect bidding similar to the FCC's CBRS spectrum auction last year, which generated just $4.6 billion in total bids.
Of course, predicting spectrum auction results is a difficult game. For example, the C-band auction generated far more bids than anyone expected, and ended with total bids almost triple some initial estimates.
The final results of the Andromeda auction, of 100MHz of spectrum between 3.45GHz and 3.55GHz, are expected to be released sometime in December.
Apples to apples
Most Andromeda auction forecasts focus on the per MHz-POP value of the licenses up for grabs. The per MHz-POP calculation is applied to most spectrum transactions and reflects the number of people covered compared with the amount of spectrum available, though it can be affected by a wide variety of factors. The calculation is important, as the C-band auction cannot be directly compared with the CBRS auction. That's because the C-band auction released a total of 280MHz of spectrum, whereas the CBRS auction released just 70MHz of spectrum. The Andromeda auction promises to release 100MHz of spectrum.
The CBRS auction drew winning bids of just $0.215 per MHz-POP, whereas the C-band auction generated winning bids of $0.945 per MHz-POP, a figure that does not account for additional clearing costs.
The Raymond James analysts suggested that the upcoming Andromeda auction would perform much like the CBRS auction. They argued that several factors will drag down bids, including the fact that AT&T and Verizon don't have the financial firepower to bid heavily in the event, and that T-Mobile may be more interested in 2.5GHz spectrum.
Indeed, the Raymond James analysts suggested that the wireless industry overall may have difficulties generating enough demand for licenses to meet the Andromeda auction's $14.8 billion reserve price. That is the price set by federal regulators as necessary to fund the move of existing government users off the 3.45GHz to 3.55GHz band.
However, the analysts at New Street expect far more activity in the Andromeda auction. "Balance sheets are stretched; however, carriers have enough to generate $25 billion in proceeds," they wrote, adding that auction participants could collectively bid as much as $37 billion, or $1.22 per MHz-POP), "if they are willing to stretch balance sheets further."
It's worth noting that the financial analysts from Cowen are predicting results somewhere in the middle. "We expect the 100MHz of upper midband spectrum being sold in Auction 110 (3.45 to 3.55GHz) to generate total proceeds of $21-25 billion or $0.70-$0.80 per MHz-POP," they wrote in a recent note to investors.
AT&T expected to go big
While financial analysts are split on how much money the Andromeda auction will raise, they're almost unanimous on which operator will win the most spectrum during the event.
"We expect AT&T to be the most active bidder given its relatively low upper midband spectrum holdings of ~100MHz vs. Verizon with ~177MHz and T-Mobile with ~183MHz," wrote the financial analysts at Cowen in a recent note to investors.
Others agreed, noting that they expect AT&T to walk away with the maximum amount of spectrum it can acquire during the Andromeda auction: 40MHz.
However, there's no clear consensus about what will happen to the remainder of the total 100MHz up for grabs in the auction. Some expect Verizon and T-Mobile to battle each other for the licenses, while others expect Verizon to sit the auction out and for Dish Network and T-Mobile to acquire the remaining licenses.
"We expect AT&T to claim the maximum of 40MHz, followed by T-Mobile at 31MHz, Dish at 19MHz, and financial buyers and small carriers getting 9-10MHz," wrote the analysts at New Street. "We expect Verizon to sit out."
There are plenty of extenuating circumstances though that will affect interest in the Andromeda auction. For example:
Spectrum licenses in the auction will be released soon after the end of the auction, potentially making them more valuable than some of the C-band spectrum licenses that won't be available until 2023.
Some of the licenses in the Andromeda auction will be subject to sharing with the military.
The FCC is expected to auction spectrum in the 2.5GHz band next year, which could reduce interest in the Andromeda auction, particularly by T-Mobile.
Major US cable companies are not planning to participate in the Andromeda auction, which could lower overall bidding intensity.
Editorial Director, 5G & Mobile Strategies, Light Reading
Based in Denver, Mike has covered the wireless industry as a journalist for almost two decades, first at RCR Wireless News and then at FierceWireless and recalls once writing a story about the transition from black and white to color screens on cell phones.
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