What Investors Should Know As 600 MHz Incentive Auction Enters Phase Two

The second part of the FCC’s incentive auction for 600 MHz airwaves is beginning on August 16, enabling a total of 62 bidders, including wireless carriers and other participants, to buy low-band spectrum from TV broadcasters. Below, we take a look at how the auction has progressed thus far and what lies ahead.

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The Auction Process And Current Status 

The auction is being conducted in two phases. The first phase, which is called the reverse auction, initiated the process of reacquiring spectrum from broadcasters by gauging how much spectrum they would be willing to give up and the prices they are expecting for it. In the second phase of the auction, called the forward auction, the FCC will sell this spectrum to wireless carriers and other firms via a competitive bidding process. The reverse auction for 600 MHz spectrum concluded in late June, and participation was significantly stronger than expected, as many TV stations looked to cash out on their spectrum holdings at a time when their businesses face mounting pressure from internet video services. The FCC said that it had garnered a total of 126 MHz of spectrum via the auction, well ahead of the 84 MHz to 100 MHz projected by Barclays. The cost of the spectrum is pegged at a whopping $86.4 billion, implying a rate of roughly $2.76 per MHz-POP (MHz per person covered), which is slightly higher than the $2.72/MHz-POP generated from the AWS-3 auction which ended in early 2015.

Interest From Major Operators Could Be Mixed, Limiting Final Prices

It is unlikely that many carriers will absorb the available spectrum at these prices, as they already have sizable financial obligations to fund in the near term. For instance, wireless players and others spent about $40 billion in the AWS-3 spectrum auction that ended in early 2015. Additionally, Verizon and AT&T – the largest carriers in terms of subscribers – have sizable debt loads stemming from recent acquisitions, and both players already hold a strong portfolio of low-band spectrum. Moreover, winners will not be able to commercially deploy the spectrum until 2020 at the earliest, meaning that the payback period is likely to be fairly long, potentially depressing the prices that players are willing to pay for the spectrum. While the FCC initially expected the auction to conclude by Q3 2016, it is possible that the process could spill over into next year, as it might have to go back to broadcasters to carry out another reverse auction for a smaller amount of spectrum at potentially lower prices.

T-Mobile Stands To Gain Significantly Among Wireless Carriers

T-Mobile stands to benefit the most from the recent developments at the incentive auction. The company’s low-band spectrum position is one of the weakest among nationwide carriers, and winning 600 MHz spectrum should provide it with a proven route to improving its network quality and coverage. Now, the strong supply of spectrum and the potential for lower pricing could help the carrier’s prospects in the auction, while cutting its spending. T-Mobile previously indicated that it might spend as much as $10 billion to buy enough low-band spectrum to cover the entire country.

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