The Price is Right?  Clock Phase of the C-band Auction Closes with $80.9 Billion In Gross Proceeds
Gross Proceeds by PEA After Round 97 in 3D

The Price is Right? Clock Phase of the C-band Auction Closes with $80.9 Billion In Gross Proceeds

Well, I guess I won't be playing Plinko anytime soon. The clock phase of the FCC's C-band auction just closed after Round 97 with gross proceeds totaling $80.9 billion. My prediction at the start of the auction that the C-band auction would generate between $25 to $30 billion in total gross proceeds was off by a whopping factor of roughly 2.7 times. If the spectrum auction prediction game was like the Price is Right, I certainly would not have been left standing at the podium.

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But was the price right for bidders? The nationwide average price per MHz-POP across all categories in this auction was $0.942. This is roughly 4.3 times the $0.217 price per MHz-POP that spectrum sold for in the CBRS auction. While that may sound like a huge difference, when you consider that analysts at New Street Research stated that expected range of transmissions in the C-band could be 7.5 times the expected range of transmissions in the CBRS band, which is currently subject to tighter power emission limits, this price differential may actually be a relative bargain. This is particularly true when you can consider that CBRS auction winners have to share their spectrum with government incumbents. Moreover, the C-band auction prices certainly pale in comparison to the prices we saw in the AWS-3 auction (another mid-band spectrum auction). In that auction, the nationwide average price per MHz-POP was roughly $2.20, and the most expensive market (Chicago) went for an astounding $5.73. The most expensive market in the C-band auction was tiny Red Oak, IA, which closed at $2.835 per MHz-POP. The most expensive Top 20 market was San Diego, which closed at $1.773 (average across both A and BC categories). Chicago went for just $1.101 (average across both A and BC categories). Interestingly, as the chart below shows, prices in the Top 20 markets in this auction ended up being surpassed by prices in Markets 21-50 in Round 43. I suspect this may be due to the fact that certain bidders did not want to get caught in the largest markets, which still had the highest posted prices, if they really did not need the spectrum. Nevertheless, the bottom line is that on a price per MHz-POP basis, prices in this auction were actually reasonable.

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But total spend also matters. The C-band auction put up 280 MHz for sale, and not just 65 MHz, as was the case in the AWS-3 auction. This is why total gross proceeds in this C-band auction skyrocketed past the $44 billion raised in the AWS-3 auction to become the highest gross auction of all time. When you factor in what I call the "fully-loaded" costs (which includes $9.7 in accelerated clearing costs and an estimated $3.3 billion in relocation costs), the total spend for winning bidders will be an astounding $93.9 billion. My worry about overspending in this auction and the parallels to the European 3G auctions in the early 2000s, is why I wrote a blog post about possible "irrational exuberance" among the bidders after Round 38. Fortunately, the growth in gross proceeds slowed dramatically shortly after this post as shown by the slopes of the lines in the graph below, which tracks gross proceeds by category and round. Nevertheless, $93.9 billion in capex spend is a large number that could result in slower buildout, high prices for consumers, less stock buybacks and missed targets for debt reduction.

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A key question that we will not know until after the assignment phase for this C-band auction is whether Verizon got its desired 100 MHz of A block spectrum, which is supposed to be cleared by December of this year. On a "fully-loaded" basis, the premium for these A blocks over the BC blocks (which should clear in December 2023) is roughly 20%. While 20% is a lot, it is actually less than I would have expected going into this auction. This could mean that T-Mobile (and/or the cable companies) did not pursue as aggressively the "Coach Belichick strategy" of sticking it to your opponents (as I explained in a prior post). Rather the premium may have been driven by competition between Verizon and AT&T, both of which need mid-band spectrum, but also would prefer that the premium for the A blocks did not escalate too high. It will be interesting to see which bidders dropped out in Round 24 (the first big drop in dollars and the largest drop in bidding units) and Round 36 (the biggest drop in dollars) as shown in this graph below.

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Side Note: Could the biggest losers of this auction be those "winning" bidders in the BC blocks in Tampa, which will have to pay more for their BC blocks than the winning bidders of the A blocks even on a "fully-loaded" basis? Not sure what happened here. I flagged a similar situation in San Diego after Round 45 just prior to the Christmas break. Fortunately, bidders for these San Diego blocks immediately corrected this issue in the subsequent rounds. While the delta between the categories in Tampa is only approximately $0.03 (depending on your assumptions about clearing costs) on a fully-loaded basis, it is too bad that bidders were not able to address the price discrepancy.

Of course, the biggest open question is which bidders won big in this auction besides Verizon. We will not have definitive answers to this question until the auction closes after the assignment phase (which typically takes about a month). But given the size of total spend in this auction, it has to be the case that a few bidders bid far more than expected going into the auction. With the A block grossing over $23 billion in gross proceeds, it is probably fair to guess that Verizon will spend north of $30 billion excluding clearing costs, even if it did not win all the A block. I suspect that AT&T also spent significantly more than expected (maybe $20 billion excluding clearing costs). T-Mobile likely did as well (maybe $10 billion excluding clearing costs). Perhaps, as some analysts have said, it is the joint venture between Comcast and Charter that drove proceeds up in a big way. If these companies spent $20 (or even $15) billion in this auction, it will certainly be a show of confidence in their burgeoning wireless offerings. (Side Note #2: If true about the cable companies' spend, my earlier analogy to this year's football season may prove to be very prescient: The actions of companies in Philadelphia and the New York-area make Washington D.C. -- and more specifically, the U.S. Treasury -- the biggest beneficiary.)

Finally, before this post gets too long, I want to conclude with two videos. The first video shows how demand changed across the country round-by-round. Pretty self-explanatory. The second video shows in 3D the growth of auction proceeds by round. This second video may not add that much to the story, but 3D visuals always looks cool!!


Note that in the video above, Category A proceeds are represented by the blue bars, Category BC proceeds are represented by the violet bars and Category C are represented by the green bars.

For an interactive version of the any of the charts above shown in this post, please visit my website. From my website, you can also sign up for a daily email that will bring round-by-round analysis to your inbox for future FCC auctions.

Richard Bernhardt

Vice President, Spectrum and Industry, WISPA; Chair and President, WInnForum; and, CEO, Bernhardt Communications Company

4y

As always Sasha, excellent coverage and commentary the entire auction. You do a great job!

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Eric Burger

Professor and Advisor to Industry and Government

4y

Great analysis! Love the satellite 3D view of the money :-)

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Thank you for tracking and sharing!

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Alex Besen

5G | Private 5G | Private LTE | Digital Transformation | Industry 4.0 | Mobile Wholesale | MVNO | MVNE

4y

Thanks Sasha for providing great auction summary/results.

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