Forget 28GHz, the 24GHz Auction Is the One to Watch
The 28GHz spectrum auction, dubbed Auction 101, continues to limp toward completion with a paltry $700 million in total bids. That's nothing compared with the $44 billion in bids raised during the AWS-3 spectrum auction in 2015, or the roughly $20 billion in bids raised during the 600MHz auction in 2017.
This is all particularly noteworthy considering Auction 101 was loudly trumpeted as the FCC's "first-ever high-band 5G spectrum auction."
If 5G is the biggest thing since sliced bread, why is the nation's first 5G spectrum auction drawing so little interest among bidders?
The answer is simple: location, location, location.
"The 28GHz auction was limited in the markets that were available," explained Brian Goemmer, founder of spectrum-tracking company AllNet Insights & Analytics.
Major metro areas like New York City, Los Angeles, Chicago and Philadelphia are nowhere to be found in the FCC's still-ongoing 28GHz spectrum auction. Instead, the locations that are currently drawing the big bids in Auction 101 include Dane, Wisconsin ($12.5 million); Honolulu, Hawaii ($10.2 million); and Linn County in Iowa ($10 million). While I'm sure these are all fine places, they don't exactly strike me as 5G launch markets.
Indeed, Goemmer describes Auction 101 for 28GHz spectrum licenses as "predominantly a Verizon auction." That's because Verizon already owns roughly 75% the nation's 28GHz spectrum, covering fully 258 million POPs, thanks to its acquisition of XO Communications that closed in 2017. (See Verizon Completes XO Fiber Buy; 5G Stage Set.)
Thus, Auction 101 is basically an auction of the crumbs from Verizon's table, and since Verizon has extensive 5G ambitions, Goemmer said the company is probably working to collect those last few crumbs in order to flesh out its nationwide footprint in 28GHz. Meanwhile, the bidding strategy of T-Mobile, AT&T and others may be simply to make sure Verizon doesn't walk away with a nationwide 28GHz footprint without paying for it.
Into the weeds
At least, that's an insider's best guess. The FCC has released the names of the companies that are qualified to bid in the ongoing 28GHz -- including AT&T, Verizon, T-Mobile, US Cellular, Frontier, Windstream and a host of smaller and rural telcos and others -- but the only public information it is releasing during the auction are the licenses that are receiving bids (companies bidding in the auction also do not know who is placing bids against them). The agency will reveal the identity of the winning bidders when the auction is over, and that will happen when there are no more bids placed during a round of bidding. And we certainly seem to be getting close to the end of the auction, considering each round in recent days is only raising a few hundred thousand dollars in additional provisionally winning bids. (See FCC 28GHz 5G Auction Is at $697.4M, but 5G Trial Problems Emerge.)
Interestingly, Verizon's quest for nationwide 28GHz spectrum is complicated just a bit by T-Mobile's lineage. That's because T-Mobile essentially inherited significant but mostly random portions of the 28GHz band -- covering a total of 100 million POPs in many of the nation's top markets -- via its acquisition of MetroPCS in 2013. MetroPCS likely purchased those licenses initially for wireless backhaul operations, back when such millimeter-wave spectrum was considered unusable for commercial wireless service.
For example, according to AllNet Insights & Analytics, T-Mobile owns roughly 20% of the commercial 28GHz band in New York City, while Verizon owns the remaining 80%.
Why is this important? Stick with me here, because we're going to get into the weeds of wireless spectrum allocation. In Auction 101 of 28GHz spectrum, the FCC is currently offering two spectrum licenses -- L1 and L2 -- in each county-sized geographic location. The L1 and L2 licenses are both the same size: 425MHz. That means that if Verizon purchases both licenses in Dane, Wisconsin, it would own a total of 850MHz worth of spectrum in the 28GHz band. The amount of spectrum a carrier owns in a particular band is critical because the more spectrum a carrier owns, the more capacity it has and the faster speeds it can provide.
And Verizon clearly wants to own that much spectrum: The company has said that it is currently rolling out its 5G Home fixed wireless internet spectrum into 400MHz worth of spectrum in the 28GHz band, but plans to double that to 800MHz in the coming months. That means Verizon will be able to provide faster speeds on its 5G Home service because it's devoting more spectrum to the service. T-Mobile's ownership of parts of the 28GHz band could affect Verizon's efforts to bolster its 5G Home service, which could propel Verizon to spend more in Auction 101 to get 800MHz worth of 28GHz spectrum in as many locations as possible.
The bottom line though is that operators often find a way to use whatever spectrum they have, regardless of the size and configuration.
So what does all this mean for the upcoming 24GHz spectrum auction, dubbed Auction 102, which is scheduled to start immediately after the 28GHz spectrum auction ends? According to Goemmer's AllNet Insights & Analytics, the upcoming 24GHz spectrum auction could generate between $2.4 billion and $5.6 billion in winning bids, or roughly 700% more than the 28GHz auction.
Why? "There's virtually nationwide spectrum" available in the 24GHz auction, said Allnet's Goemmer.
Aside from a few markets like Las Vegas, Phoenix and Albuquerque where a company called Skyriver already owns licenses, the FCC's upcoming Auction 102 of 24 GHz spectrum will offer licenses in key locations like Chicago, New York City, Boston and Los Angeles. And everywhere in between.
And, to venture into the weeds again, the 24GHz auction will make a total of seven licenses available in each location, each totaling 100MHz. Thus, if a bidder were to win all of the licenses in a given location, they would own a total of 700MHz of spectrum in that location in the 24GHz band.
Further, the licenses in the upcoming 24GHz auction, Auction 102, are available in Partial Economic Area geographic sizes, which means they are much larger than the county-size licenses in the 28GHz auction. For example, Goemmer pointed out that New York City covers just one PEA but fully 28 counties. Why is this important? Smaller providers generally prefer smaller geographic licenses that are less expensive, while big operators like Verizon and T-Mobile generally prefer bigger license sizes, like PEA licenses, so they can cover bigger areas.
Therefore, it's no surprise that there appears to be a few more companies interested in participating in the 24GHz spectrum auction as compared with the 28GHz auction. In addition to AT&T, Verizon, T-Mobile and Windstream, cable company Cox and fixed wireless startup Starry are among the companies registering interest in the 24GHz auction. (See Cable Nearly a No-Show in mmWave Auction.)
So how much money might the 24GHz auction raise? Goemmer noted that Auction 101 proceeds indicate a price of $0.011/MHz-POP (MHz-POP is a standard calculation for the value of spectrum in terms of how many people it covers). "Using that $/MHz-POP figure with the 225 billion MHz-POPs available in the 24GHz auction (102) would indicate Auction 102 proceeds of $2.45 billion," Goemmer noted.
However, Goemmer said that Auction 101 mostly covers rural areas, and therefore a MHz-POP calculation may not be applicable to spectrum values for Auction 102, which covers large urban areas. "I think it is more reasonable to use the Straight Path price of $0.025/MHz-POP because it represents a better mix of urban and rural than the 101 auction. At this price, I would expect auction proceeds of $5.6 billion," Goemmer said. (Verizon closed on its $3.1 billion purchase of Straight Path's mostly 39GHz licenses at the beginning of 2018.) (See Verizon Buys Straight Path for $3.1B, Beating AT&T to 5G Spectrum.)
So which company will be the big bidder in the upcoming 24GHz Auction 102? "That's one that T-Mobile has to be a significant player in," Goemmer said, explaining that the auction affords T-Mobile the ability to obtain nationwide millimeter-wave spectrum. And it's true: T-Mobile has made little secret of its desire for more millimeter-wave spectrum (however, if T-Mobile is successful in acquiring Sprint, that desire could wane).
Why is all of this important? Spectrum auctions are an effective way of gauging which way the wind is blowing in wireless. For example, Verizon's initial LTE network was mostly built on the $10 billion it spent on 700 MHz spectrum it purchased during the FCC's auction in 2008. And T-Mobile is building its initial 5G network on the 600MHz licenses it spend roughly $8 billion to obtain during the FCC's 2017 auction of those airwaves.
That said, spectrum auctions are just one piece of a much bigger puzzle. After all, AT&T is rolling out its initial mobile 5G services on the mostly nationwide 39GHz licenses it paid $207 million to acquire from FiberTower in a transaction that closed early last year (some FiberTower investors have balked at that seemingly low price tag). Will that mean that AT&T might sit out the FCC's upcoming 39GHz spectrum auction? Only time will tell. (See AT&T's FiberTower Gives Up Many '5G' Spectrum Licenses.)
Perhaps the conclusion to draw from all of this is that spectrum auctions -- and the bids placed in those auctions -- will undoubtedly play a role in the 5G story, but perhaps not a central one.