America's Big 5G Millimeter-Wave Spectrum Experiment Comes Up Short
The FCC's ongoing 24GHz millimeter-wave spectrum auction appears to be winding down, having just entered the "assignment phase" that will allow winning bidders to fine-tune their spectrum license winnings. But with just under $2 billion in total provisionally winning bids so far, the auction hasn't been the barn burner that some had expected.
"The 24 GHz auction has been a disappointment," wrote Walter Piecyk, an analyst with Wall Street research firm BTIG, in a recent blog post. Piecyk argued that $2 billion in total bids "is a disappointment relative to what Verizon paid for Straight Path last year and what was spent in the prior 28 GHz auction."
Others agreed: "The utility of this spectrum is very limited," wrote Jonathan Chaplin of Wall Street firm New Street Research. "This should be obvious to anyone following the 24GHz auction which is petering out at around $2BN for 700MHz of spectrum nationwide (less than $0.01/MHz-POP!)."
The MHz-POP calculation is applied to most spectrum transactions and reflects the number of people covered compared with the amount of spectrum available. Based on this calculation, millimeter-wave spectrum is generally valued way below other bands. For example, the FCC's AWS-3 auction in 2015 for paired spectrum clocked in at a whopping $2.72 per MHz/POP, while the 600MHz auction in 2017 reached $0.93 per MHz/POP.
Nonetheless, according to Brian Goemmer of spectrum-tracking company AllNet Insights & Analytics, the 24GHz auction should have raised $5.6 billion in total bids, based on the $3.1 billion Verizon spent on millimeter-wave license holder Straight Path in 2018 ($0.014 per MHz/POP). Or the 24GHz auction should have at least raised around $2.45 billion based on the amount of money spent during the 28GHz auction that immediately preceded it.
What this all means is that the value of millimeter-wave (mmWave) spectrum may be declining as US bidders top off their spectrum coffers. That's doesn't bode well for the FCC's upcoming auction of licenses in the upper 37GHz, 39GHz, and 47GHz bands in December, which will free up a total of 3,400MHz of spectrum in "the largest spectrum auction in American history," according to the FCC.
A history of mmWave in the USA
At issue here is the ultimate value of mmWave spectrum. Such spectrum typically sits above 20GHz and, until recently, was considered largely unusable for commercial mobile services. That's because signals in mmWave bands can't travel very far due to their physical propagation characteristics. In fact, some recent tests of Verizon's new 5G network in 28GHz spectrum show that signals generally aren't traveling more than 500 feet, which is much shorter than the 2,000 feet that Verizon executives promised just last year. (Verizon executives have said improvements are coming.)
The millimeter-wave rush kicked off in earnest in 2017, when Verizon and AT&T entered into a bidding war for Straight Path, a tiny company that held a wide range of 28GHz and 39GHz spectrum licenses. Verizon ultimately won that war with $3.1 billion.
That purchase, coupled with Verizon's acquisition of mmWave licence holder XO and AT&T's purchase of mmWave licence holder FiberTower, appeared to signal the opening of a new front in the wireless wars: millimeter-wave spectrum for 5G.
As a result, operators began clamoring for the FCC to release more mmWave spectrum. And the agency has obliged.
Late last year, the FCC kicked off its first ever millimeter-wave spectrum auction, Auction 101 of 28GHz licenses, which agency officials proudly dubbed as America's "first-ever high-band 5G spectrum auction." In fact, the event was one of the first ever auctions of mmWave spectrum in the world, essentially testing the global wireless market's demand for mmWave spectrum.
But the auction didn't attract any new big-name, deep-pocketed bidders like Comcast, Google or Facebook. Instead, regulars like Verizon, AT&T and T-Mobile, alongside smaller companies, were among the few dozen that registered to bid.
And, after after weeks of bidding, Auction 101 drew just $700 million in total provisionally winning bids, far below the $44 billion in bids raised during the FCC's AWS-3 spectrum auction in 2015, or the roughly $20 billion in bids raised during the 600MHz auction in 2017.
But hopes were high for the FCC's next mmWave auction, Auction 102, for 24GHz spectrum licenses. That's because the auction includes spectrum licenses in major metro areas like New York City and Los Angeles, unlike the 28GHz auction. However, based on the current trajectory of the ongoing Auction 102, for 24GHz spectrum, demand among bidders can be described as tepid at best. Based on estimates from telecom-focused law firm Wiley Rein, the "assignment phase" of the 24GHz auction likely won't increase overall bids more than 1%.
The relatively paltry results of the FCC's recent 28GHz and 24GHz auctions -- which should end with total combined provisionally winning bids of $2.7 billion -- can be contrasted against Germany's ongoing auction of 2GHz and 3.5GHz spectrum licenses. Total bids there are nearing the $6 billion mark for a country that's a quarter of the size of the United States. The staggering sum -- a reflection of desperate operators clamoring for 5G spectrum -- is even beginning to worry suppliers like Ericsson because winners might not have any money left over to spend on actual 5G equipment. (Incidentally, 2GHz and 3.5GHz is the kind of mid-band spectrum that the US wireless industry is now urging the FCC to release at auction.)
While some, like BTIG's Piecyk, haven't been impressed with the results of the FCC's Auction 101 and ongoing 102 for mmWave, others offer a different perspective.
"We think it was unrealistic to expect the MHz-POP prices in a millimeter wave auction to approach anywhere near the pricing in recent auctions of low band spectrum," wrote Ari Meltzer and Rick Engelman, both with law firm Wiley Rein, in response to questions from Light Reading. "Anyone purchasing millimeter wave licenses must account for the substantial infrastructure costs associated with building out a millimeter wave network and the unproven business case for millimeter wave spectrum. With that in mind, $2.7 billion in revenues for the first two auctions is not insubstantial. The overwhelming majority of licenses in Auctions 101 and 102 not only sold, but were the subject of competitive bidding. That is a success."
Indeed, the FCC pointed out that bidders in the 24GHz auction won 2,904 of the 2,909 total licenses available, or 99.8% available spectrum licenses.
The Wiley Rein representatives added that, in some markets, bidding in the 24GHz auction exceeded the MHz/POP price that Verizon paid for Straight Path. For example, bidding in Chicago clocked in at $0.0242 per MHz/POP and bidding in Phoenix clocked in at $0.0218 per MHz/POP.
But Meltzer and Engelman added: "At the same time, the wireless industry understands that millimeter wave spectrum is only one part of a successful 5G rollout and is allocating resources across spectrum bands to bring the benefits of 5G to reality as quickly as possible."
The US wireless industry's trade group, the CTIA, also largely cheered the results of Auctions 101 and 102. "We're excited to see the successful conclusion of this stage of our nation’s second 5G high-band spectrum auction," wrote CTIA's Scott Bergmann in a statement. "We look forward to the final results of this auction, as well as making progress on mid-band spectrum availability, which will also be critical to maintaining our global wireless leadership."
The association wouldn't comment beyond that statement. However, it did reference a post Bergmann released in November, prior to the start of the auctions, where he did point out that "a small cell using 28GHz might serve less than three percent of the area of an urban macro cell using 600MHz spectrum," and said that prices in the auction would likely reflect that fact.
But FCC Commissioner Jessica Rosenworcel took issue with the situation in comments at the agency's recent open meeting. "The reality is that as we forge ahead the United States is increasingly alone in its mission to make millimeter wave the core of its domestic 5G approach," she said, arguing the FCC needs to move more quickly to release mid-band spectrum.
Now all that really remains in Auction 101 and 102 is for the FCC to identify the winning bidders. The agency should do that shortly after the close of Auction 102, which is expected to end in the coming weeks. Many expect AT&T and T-Mobile to walk away with the majority of the licenses.