Analysts Say 3.45 GHz Auction Could Fail
The FCC 3.45 GHz auction appears to be in some danger of not closing, which would mean a failed auction, though nothing will be certain for some time, experts said Thursday. The auction stood at $4.25 billion Thursday after the last of four rounds. It moves to five rounds Friday. A week in, the C-band auction had hit $10.5 billion on the way to an $81 billion record. The 3.45 GHz auction has to exceed a $14.77 billion reserve price to close.
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Experts told us the aggregation limit of 40 MHz nationwide to any bidder raised the most questions on whether the auction will fail. Bidding in the largest markets could save the auction, they said. The FCC didn’t comment. Participants can't comment under the rules.
“It is becoming increasingly likely that the auction fails,” said MoffettNathanson’s Craig Moffett. “It looks to us as though there are perhaps two large-scale serious bidders, and with an aggregation limit of 40 MHz per bidder, it’s going to take at least three, and, in practice, a fourth, to force the price higher,” he said: “I’m starting to seriously doubt that we’ll get there.”
During round 10 last week, “there was a significant drop in aggregate demand, enough to buy at least two blocks nationwide,” emailed BitPath Chief Operating Officer Sasha Javid. Speculation was Verizon or Dish Network had pulled back significantly or dropped out, he said. “If another major bidder had followed suit, the auction would almost certainly have failed,” he said: “Fortunately for the FCC, demand appears to have stabilized through Round 21 and we continue to have on average at least four bidders in the 20 largest markets.”
The largest markets “will do most of the heavy lifting” toward meeting the reserve price and “will be the markets to watch through Wednesday,” Javid said. In round 22 Thursday, the auction lost another 6% of requested demand, Javid noted.
Failure “has been a concern ... since the beginning, because of the 40 MHz cap and the very high reserve price,” said spectrum consultant Tim Farrar. “If a couple of big players … drop out, then it is hard to achieve high prices.” If the auction fails, the decision to impose caps “would presumably become a real issue in Congress,” he said.
“There is always a chance of the auction failing with a very high minimum bid,” said Recon Analytics’ Roger Entner: Yet “the majority of the value in an auction comes from the top 10 markets. These markets are still going strong.”
New Street’s Philip Burnett told investors Wednesday that questions remain. “While we still expect the auction to close, the big drop in demand last week and the slowdown in price this week certainly has us on our toes,” he said. At the end of bidding Wednesday, the band was selling for an implied price of 10 cents MHz/POP, he said. LightShed’s Walter Piecyk warned against drawing any conclusions this early: “It's not logical for Verizon or AT&T to want this auction to fail.”