FCC auction: Verizon and AT&T hand sharp weapon to TMO, Dish and Comcast

The long-drawn out saga of the US’s 600 MHz incentive auction is over at last, and with Verizon and AT&T effectively sitting on their hands, the big winners are T-Mobile, Dish and Comcast. All three are seeking to disrupt the dominance of Verizon and AT&T, which until recently was looking almost like a duopoly. The end of the auction will also free players to pursue acquisitions again, once the FCC’s anti-collusion ‘quiet period’ ends. At that point, we may learn more details of the winners’ plans, but we can also expect to see T-Mobile and perhaps Sprint back in the M&A pool again by the end of the year.

A number of smaller players have also secured licences – 23 of the 50 winning bidders are existing rural MNOs and others are new faces. So it may be that, while the FCC may have fallen well short of revenue targets for the auction, it will achieve another key ambition – to open up the market to new entrants and increase competition. In the past, smaller spectrum buyers have rarely had much impact outside localized areas, and this time around, the larger operators may well snap up some of the minnows.

For now, however, AT&T secured just 23 licences and Verizon none at all, while Sprint did not participate in the auction. This halfhearted approach is justified in pure spectrum terms. These players have sufficient spectrum for their immediate needs, Sprint in particular; and as their focus shifts from coverage to dense capacity, they will prioritize higher bands – even, for fixed wireless, millimeter wave – over the sub-1 GHz frequencies, where AT&T and Verizon already have major positions in 700 MHz. Former Verizon CFO Fran Shammo said in October 2015 that 600 MHz and 700 MHz “don’t play well together” and could cause interference.

But they have, of course, allowed a potentially sharp weapon – spectrum to support affordable LTE-Advanced roll-out – to fall into the hands of would-be disruptors. And unlike in previous auctions, the challengers this time have significant resources. TMO is not a new mobile entrant, of course, but is already stirring up the landscape with its Uncarrier approach. Dish and Comcast have dithered about entering the mobile or multiplay games, but both now have spectrum, and the cableco recently activated its MVNO deal with Verizon, and could now harness its new resources to create a storm similar to that unleashed by Iliad’s Free Mobile in France (see below for more on Comcast).

TMO claimed to have secured as much as 45% of the former broadcast spectrum on offer, paying $7.99bn for 1,525 licences across the country, amounting to 31 MHz nationwide on average. This will quadruple TMO’s sub-1 GHz spectrum holdings, which will greatly help it to extend its LTE coverage, especially in the non-metro areas where it tends to fare less well than it does in cities. T-Mobile says it will use its new assets to improve coverage and range. CEO John Legere said: “We expect to put this new spectrum to use for customers later this year”, claiming a million square miles will be cleared for use by the end of 2017.

Dish was the second highest bidder and has added 486 licences, spread across the US, to its patchwork of spectrum, paying $6.2bn. Its plans for its spectrum remain mysterious – beyond a token NB-IoT build-out (which it bills as ‘pre-5G’) to appease the FCC, it has not followed through on pledges to create an LTE-Advanced network for its own multiplay offerings or for wholesale use; nor offered a 5G roadmap.

Its 600 MHz holdings will complement its assets in former satellite and other midrange bands, but it may – as critics suggest – be amassing an attractive portfolio to sell on to another player. Regulator willing, that could just bolster the armory of an established MNO, but it could also be acquired by a wireless-hungry cableco, or add value for a buyer of the entire Dish business. For instance, there has been speculation for years that Verizon might buy Dish’s spectrum or engage in a sharing deal, and if that happens at last, it could explain Verizon’s decision not to buy in the auction.

“We had expected Dish to spend $2bn or less, vs. an actual $6bn investment,” Deutsche Bank analysts wrote in a client note. “We think the rationale was to build a complete spectrum portfolio, with significant holdings in both mid and low frequency bands. In doing so, Dish becomes a one-stop shop for spectrum for any company looking to enter the wireless market on the back of its own network build-out. This gives Dish more options, at least in theory, to monetize its spectrum in the future.”

In third place was Comcast, which acquired 73 licences in 72 of the 416 geographic areas mapped out for this auction. It paid $1.7bn, but it also received $481.6m as a result of selling broadcast spectrum in New York, Philadelphia, and Chicago, owned by its NBC subsidiary. The 600 MHz holdings mark Comcast’s return to spectrum ownership after six years, and signify its seriousness about building a mobile presence to underpin a quad play offering and strengthen its cable/TV business; but also to weaken the established telcos (see below for more analysis).

Another 14 MHz of spectrum in the 600 MHz band was made available for unlicensed use and wireless microphones,. The former will be “essential to kickstarting greater investment in using TV white spaces for rural broadband, IoT applications and for extending the range of WiFi in mobile devices,” said Michael Calabrese, director of the Wireless Future Program at New America’s Open Technology Institute.

FCC chairman Ajit Pai said in statement: “While we celebrate reaching the official close of the auction, there is still much work ahead of us. It’s now imperative that we move forward with equal zeal to ensure a successful post-auction transition, including a smooth and efficient repacking process.”

Gordon Smith, CEO of the National Association of Broadcasters the timeline for that repacking, 39 months, is a “very tight timeframe”, adding: “NAB also remains concerned about the impact of the auction on hundreds of radio stations colocated on television towers. We look forward to working with the FCC and Congress to develop a balanced approach to repacking that is fair to all stakeholders, most importantly our tens of millions of TV viewers and radio listeners.”

The top 10 winners of 600 MHz spectrum, by amount spent:

Note, there was a significant difference in the amount paid per comparable licence, because of the FCC’s system of credits to help smaller players. AT&T paid as much as 10 times more than smaller bidders, putting it in fourth place in the money league table, but far lower in terms of the amount of spectrum it secured. So US Cellular won 188 licences in 92 areas for $328.7m, while AT&T spent $910m on just 23 licences in 18 areas.

T-Mobile                    $7,993,361,993 Wireless (Dish Network)    $6,211,154,496
CC Wireless Investment (Comcast)        $1,724,877,376
AT&T Spectrum Holdings (AT&T)        $910,202,302
Channel 51 License Co (Channel 51)    $858,704,549
Bluewater Wireless II (Northwood Ventures)$568,323,225
U.S. Cellular                    $328,661,977
NewLevel                    $296,546,456
TStar 600 (Northwood Ventures)        $131,317,432
Omega Wireless                $99,737,940

Overall, 50 winning bidders will pay $19.3bn for 70MHz of spectrum, the FCC said. This sum is well short of initial estimates that the auction could bring in $30bn or more, and also well short of the $45bn generated from the last spectrum sale, in AWS-3. About $7.3bn of the incentive auction proceeds will be used to reduce the federal deficit, while more than $10bn will go to 175 broadcasters that gave up spectrum licenses or agreed to switch to different channels. There will be a channel sharing scheme and a 39-month transition period for moving broadcast stations to new channel assignments.