High rollers: A look at the billion-dollar bidding strategies for 5G spectrum
During the waning weeks of 2020, the nation's top 5G executives played what might have been the most expensive game of chance ever. They weren't at the Caesars sportsbook or the Bellagio blackjack tables. No, these business titans placed multimillion-dollar bids on thousands of spectrum licenses around the country, some in the nine-figure range.
These executives didn't know who they were bidding against. They only knew that, if they lost, their company might forever fall by the 5G wayside.
Some executives decided to go all in – no matter how high the price, they would pay it. Others played aggressively in early rounds of bidding, only to pull back as prices surpassed even the most aggressive predictions. And a few executives in the cable industry decided to conduct a bidding head fake that cost them $100 million dollars. They did not place a single bid during the entire auction.
This is the story of how bidding unfolded in the FCC's C-band auction for 5G spectrum.
Sifting through the results
"Generally, AT&T, Verizon (bidding as Cellco Partnership), Dish (Little Bear Wireless) and T-Mobile bid for the five available A Blocks in the early bidding rounds. UScellular also bid for A Blocks in New York and Los Angeles," wrote Rick Engelman, an engineering consultant with telecom-focused law firm Wiley Rein, in response to questions from Light Reading.
The FCC on Wednesday released the results of its C-band auction, which included not only a list of winning bidders but also the details of exactly which company bid for which license, and when. That information was not available to the public during the auction, nor was it available to participants in the auction.
Engelman spent Wednesday night reviewing the FCC's C-band bidding records in order to provide Light Reading with a clear look at exactly how the bidding went down in the most expensive spectrum auction in history.
"I have reviewed the round-by-round bidding for the A Blocks in the five largest markets (New York, Los Angeles, Chicago, San Francisco and Philadelphia)," Engelman explained.
A Block spectrum licenses across the biggest cities in the US garnered by far the highest bids. After all, 5G services in New York City (home to around 2% of the US population, with some of the most expensive real estate in the world) will undoubtedly generate far more revenues than 5G in Socorro, New Mexico (home to around 8,000 people, a Walmart and seven stoplights).
Further, the 100MHz of C-band spectrum that comprises the A Block generated much more interest among bidders overall than the B and C Blocks. That's because A Block licenses will be available for commercial 5G operations by the end of 2021, whereas the B and C Block licenses won't be available for winning bidders to use until 2023. Satellite companies like SES and Intelsat currently use the C-band for the transmission of radio and video content, but will move those operations off the band in the coming years. Under a contentious agreement with the FCC, they agreed to vacate the A Block more quickly than the other blocks.
So how did bidding play out?
Killing each other
Perhaps the most surprising bidding strategy came from Comcast and Charter, which jointly participated in the auction under the "C&C Wireless Holding Company" bidding entity.
"Even though the Comcast/Charter JV put up a $100 million deposit, giving it the ability to be a significant player in the auction, it didn't make a single bid in the auction," explained the financial analysts at Evercore in their analysis of the auction. "Our best guess is that the cable operators were satisfied with their investments in CBRS spectrum, but thought that indicating interest in C-band might drive up prices, burdening the balance sheets of their wireless competitors."
Meaning, Comcast and Charter made a $100 million bluff in order to freak out their wireless competitors.
"Just like it's easier to rent a cable modem vs. buying one on your own, they saw they were going to get access to the spectrum under the [Verizon] MVNO for the same price, so why buy something they get for free?" added the financial analysts at Raymond James. Both Comcast and Charter inked fresh MVNO agreements with Verizon – deals that allow them to piggyback on Verizon's 5G network – shortly before the start of the C-band auction.
Others, however, didn't sit on the auction's sidelines.
Engelman, the Wiley Rein attorney, said that UScellular generally dropped out of A Block bidding during round 18, when prices in New York reached $76 million. Dish Network dropped out after round 29, when prices in New York hit $218 million. And, finally, T-Mobile tapped out after round 30, when prices hit $240 million.
That left Verizon and AT&T to duke it out over the A Block until round 50, when bidding began to slow dramatically. By then, the price for a single A Block license covering New York City cost $515 million. The auction ended on January 15 after 97 rounds of bidding. Verizon and AT&T ended up mostly splitting the A Block across the country, with Verizon walking away with around 60% of those licenses nationwide.
Ultimately, the executives at Verizon decided that no price was too high. The company ended up spending a total of $45.5 billion for around 3,500 total C-band spectrum licenses for 5G.
Incredibly, that's not the final price tag for Verizon. It will ultimately spend $53.4 billion because it will also need to pay incumbent satellite operators to clear out their existing operations from the C-band
Verizon announced a $25 billion loan from JPMorgan Chase Bank late Wednesday. The company's stock price fell from around $57.35 to $56.28 per share on the news.
"I think AT&T and Verizon will absolutely kill each other over C-band," predicted T-Mobile CEO Mike Sievert during an investor event last year, prior to the start of the auction. "I think they're going to spend tens of billions of dollars they don't have to stress out their balance sheets and put at risk their share buyback and dividend plans in order to not be left out of the party on 5G. Because they're stuck. They got themselves stuck. And they're way behind [in spectrum ownership] and they can't stand it. So they're going to have to do things that are probably going to be uneconomical."
Some financial analysts believe that T-Mobile's executives played the C-band game the right way. The company walked away from the auction with an industry-leading spectrum position and B and C Block C-band licenses it can put to use after it builds a midband 5G network with the 2.5GHz spectrum it acquired from Sprint.
"T-Mobile is sitting back and smiling in the corner," argued the financial analysts with Sanford C. Bernstein & Co. "CEO Mike Sievert appears to have predicted the outcome of this auction perfectly. Both Verizon and AT&T have stretched their balance sheets, weakening their competitive position – neither can afford to be overly promotional. Meanwhile, T-Mobile can continue to take share and stay ahead in the 5G era."
The analysts rated T-Mobile's stock as "outperform."
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