What to expect from America's next (last?) 5G spectrum auction

The FCC is scheduled to start auctioning 2.5GHz spectrum licenses around the country later today (Friday, July 29). However, analysts don't expect much interest beyond bids from T-Mobile.

Perhaps more importantly, the FCC does not have any other 5G spectrum auctions scheduled. That positions today's – dubbed Auction 108 by the FCC – as perhaps the last auction of 5G spectrum for the foreseeable future.

Spectrum auctions are crucial events in the US wireless marketplace. Not only do they release airwaves that are critical to the operation of wireless networks, but they also help serve as a gauge for network operators' overall ambition in the sector.

Indeed, the results of last year's $81 billion C-band spectrum auction – which far exceeded even the most ambitious forecasts – helped shed new light on what's at stake in the 5G industry.

Figure 1: (Source: Philipp Dimitri / Westend61 GmbH / Alamy Stock Photo)

But most analysts are moderating their expectations for Auction 108, to put it mildly. For example, the financial analysts at New Street Research warned investors that the auction might end with just $1.4 billion in total bids. The high end of the firm's forecasts reaches just $5 billion in total bids.

With that as context, here's what to expect from the FCC's Auction 108, which is scheduled for a first round of bidding later today:

Who is bidding?

Earlier this month, the FCC unveiled its final lineup of the 82 qualified bidders for Auction 108, which will release roughly 8,000 spectrum licenses all around the country in the 2.5GHz band. However, most of those licenses are scattered haphazardly in primarily rural areas.

As noted by RCR Wireless News, AT&T, Verizon, T-Mobile and Dish Network all registered to bid in the auction. So did a number of smaller telecom operators like Carolina West Wireless, Cellular South Wireless, Copper Valley Wireless, Granite Wireless, Nex-Tech Wireless, Nsight and Union Telephone Company.

However, two important groups are missing from the lineup of potential 2.5GHz bidders: cable companies and investment firms.

Cable operators like Comcast and Charter Communications have participated in some 5G spectrum auctions, but none of the recent ones. That likely means they have no interest in building their own widespread 5G networks.

Investment companies like Columbia Capital and Grain Management – which have participated in other recent spectrum auctions – are also missing from the lineup of Auction 108 bidders.

"We would guess they are sitting out of the auction because the only national carrier who would buy the spectrum in the secondary market is T-Mobile, limiting the likelihood that the investors can extract a significant premium in the resale," speculated the New Street analysts.

Who will win licenses?

Virtually every analyst in the industry agrees that T-Mobile will walk away from Auction 108 as the big winner. There is evidence to support that theory.

First, T-Mobile is the only major operator building a 5G network in 2.5GHz licenses. All other operators – from Dish to Verizon – are investing in other spectrum bands.

That means a company that wins 2.5GHz licenses would have to deploy entirely new networking equipment to take advantage of 2.5GHz spectrum licenses, which is a costly endeavor. Further, Verizon, AT&T and Dish have already spent heavily in other auctions, which will likely dampen their interest in Auction 108.

While some observers believe companies like Verizon and Dish might bid in Auction 108 just to raise final prices for T-Mobile, that strategy would be risky if T-Mobile doesn't rise to the challenge. That would leave 2.5GHz winners with licenses that they would then have to build out or sell.

T-Mobile has already shown interest in buying additional 2.5GHz licenses. And, as noted by FierceWireless, it successfully petitioned the FCC to craft the Auction 108 rules that it wanted.

"T-Mobile's hottest competition for these licenses could actually come from small WISPs [wireless Internet service providers] who could use a specific license," wrote the New Street analysts. However, "few of those operators have the resources to compete with T-Mobile."

When will the auction end?

The analysts at New Street expect the auction to end in September, or possibly October. The event will end when bidders stop placing new bids.

What happens next?

After the conclusion of Auction 108, a few things could happen. First, T-Mobile might engage in a significant round of stock buybacks, as it is expected to do starting next year. The conclusion of Auction 108 would remove one of the final obstacles to that effort.

However, another outstanding item is the FCC's legal authority to auction spectrum. Rules formalizing that authority are expiring in September.

If federal lawmakers don't take steps to change the situation, the FCC's authority to hold spectrum auctions will be called into question. Lawmakers in the US House of Representatives have introduced legislation that would extend the FCC's auction authority, but it's still wending its way through Congress.

Finally, there's the question of what the FCC might do after Auction 108. During the Trump administration, the FCC worked quickly to find and release new spectrum bands for 5G. But the FCC has remained stuck with a 2-2 deadlock between Republican and Democratic commissioners during the first two years of President Biden's term.

Some in the industry have speculated that the FCC might next turn to spectrum between 3.1GHz and 3.4GHz to auction for 5G. But that spectrum is currently controlled by the US military, which has shown little interest in freeing it up for 5G.

Washington, DC, insiders are mostly waiting to see what happens during the upcoming midterm elections in November. The results could either free lawmakers to move forward with 5G priorities or create further political deadlock.

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— Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano