The FCC has concluded the first phase of Auction 107, the highest-grossing spectrum auction ever, with gross proceeds exceeding $80.9 billion. The result almost doubles the prior FCC auction record of $44.9 billion.
The auction made available licenses for 280 megahertz of spectrum in the 3.7-3.98 GHz band—a portion of the so-called C band.
The C band spectrum is encumbered, which adds $9.7 billion in accelerated clearing costs and an estimated $3.3 billion in relocation costs, according to BitPath, pushing the total investment by bidders to $93.9 billion. This, no doubt, will add a big load to the carriers’ debt loads.
“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,” Sasha Javid, chief operating officer at BitPath, wrote.
Andrew Semenak, managing director, Pinpoint Capital Advisors, agreed that the added debt could be a drag on towers in 2021.
“AT&T, in particular, may have issues with the debt. Verizon is also going to be a very big acquirer of C band,” Semenak said. “It’s definitely a risk. While spectrum is the lifeblood for continued 5G build out, the amounts that were paid in this auction are extraordinary and will definitely have an impact on debt and capital structure of the carriers. We’ll have to wait and see.”
The auction was a sweet swan song for outgoing FCC Chairman Ajit Pai, who had his doubters that he could put together the mid-band auction by the stated goal of December 2020. Against the odds and amid a pandemic, the spectrum auction came off right on time.
“The FCC confronted a host of technical, legal, practical and political challenges in structuring this auction,” Pai said. “It would have been easy to delay. But we rightly pushed ahead and overcame every one of those obstacles. As a result, we significantly advanced United States leadership in 5G and have enabled America’s wireless consumers to more quickly benefit from 5G services.”
Winning bidders now will have the opportunity to bid for frequency-specific licenses in the assignment phase of Auction 107. The FCC soon will release a public notice announcing further details regarding the assignment phase, including the date and time when bidding in the assignment phase will commence.
The bidding totals left analysts who predicted much lower numbers questioning their abacuses. Javid lamented that his prediction of $25 billion to $30 billion would have made him a big loser on “The Price is Right” game show; however, he said the bids might actually be a bargain.
“The nationwide average price per MHz-POP across all categories in the C-band auction was $0.942,” according to Bitpath, which “certainly pales 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,” compared with San Diego, which closed at $1.773 in the C band auction.
To be clear, C band versus AWS-3 is not an apples-to-apples comparison. The C band auction offered 280 megahertz for sale; the AWS-3 auction sold 65 megahertz.
Rush for Spectrum Leads to Trip to the Bank
The record-breaking bids for spectrum have forced the wireless carriers to raise more capital. The Bloomberg Intelligence research division reported that AT&T, for one, is looking to raise $14 billion. After two years of lowering debt following the purchase of Time Warner, the wireless carrier still carried $159 billion in debt in the third quarter 2020.
T-Mobile raised $3 billion through a bond sale managed by Deutsche Bank AG, Citigroup, Credit Suisse Group, Goldman Sachs Group, Barclays, JPMorgan Chase and Morgan Stanley, according to Bloomberg Intelligence. By comparison, the wireless carrier sold $19 billion in high-grade bonds last April to fund the purchase of Sprint. T-Mobile had net debt of $61.5 billion as of June 30, according to Simply Wall St.
For more information on Auction 107, please visit https://www.fcc.gov/auction/107