9 March 2021

The large amount of spectrum available in the FCC’s Auction 107 (280MHz from 3.7-3.98GHz) addresses a key shortage in the spectrum portfolios of US mobile carriers – mid-band capacity spectrum. This spectrum will play a key role in delivering 5G services to US citizens in the coming years. Through our auction tracker we provide analysis of the daily developments as well as the auction results.

9 March 2021

Auction analysis

Bidding behaviour

Today, as part of our series of articles on the US 3.7GHz auction, we will look into how much spectrum the largest bidders acquired across the country and how this affected prices across (Partial Economic Areas) PEAs.

C-band spectrum acquisitions per bidder

As mentioned in our previous article (see Tab “Auction results”), Verizon and AT&T were the operators that acquired the most spectrum in the auction. AT&T was the most consistent in the amount of spectrum it acquired – it settled for 80MHz in practically all PEAs as shown in Figure 1 below.

Figure 1: AT&T spectrum depth [Source: FCC, Aetha]

It is interesting to observe AT&T’s bidding behaviour over the course of the auction. In the first round, it placed a bid for 160MHz in most of the top 20 PEAs, 140MHz for PEAs 20-100 and 60-80MHz for PEAs 100+. As the auction progressed, it gradually decreased its demand in the largest 100 PEAs, while increasing its demand in some of the smaller PEAs (mostly those with initial demand of 60MHz) to reach a nationwide portfolio of 80MHz.

T-Mobile followed a different pattern to AT&T– it only acquired spectrum in about 70 PEAs. While it started the auction by placing bids only in larger PEAs (usually for 160MHz), it gradually reduced this demand while starting to bid in smaller PEAs around Rounds 14 to 24 and eventually settling for 40MHz in 68 of the 72 PEAs where it acquired spectrum. Of particular note in this context was Round 44, when T-Mobile reduced its demand from 40MHz to 0MHz in about 170 PEAs. The lower demand compared to AT&T and Verizon can be explained by T-Mobile’s existing spectrum holdings – it already holds a large portfolio of 2.5GHz spectrum which will provide substitute 5G capacity. The acquired 3.7GHz spectrum is likely to fill localised capacity gaps and will future-proof the capacity of the 5G network, especially in dense urban areas.

Figure 2: T-Mobile spectrum depth [Source: FCC, Aetha]

US Cellular focused its acquisition on its home markets. It typically acquired 60MHz in these markets to expand its 5G coverage (and offer 5G carriers of comparable bandwidths to the ones of other mobile operators). Its bidding strategy was particularly interesting, because it kept its demand ‘hidden’ for the first 15 rounds by keeping all its bidding units on bids for spectrum in PEAs 1 and 2 (New York and Los Angeles) – markets where it does not operate its own network and eventually did not win any spectrum. Only in Rounds 16 to 18 did it start bidding on its home markets, by moving all its bidding units away from PEAs 1 and 2. From then onwards, it began to gradually decrease its demand across its home markets, yet, in later rounds, US Cellular often switched demand between PEAs (moving out of its home markets and ‘returning’ in later rounds), possibly in an attempt to moderate price increases whilst the auction was settling.

Figure 3: US Cellular spectrum depth [Source: FCC, Aetha]

Finally, we have a look at Verizon – the company that acquired the most spectrum in the auction. Verizon bought spectrum in all PEAs, with an average of 161MHz nationwide (i.e. 49 billion MHz-Pop).

As can be clearly seen from Figure 4, Verizon’s acquisition pattern differs substantially from AT&T’s pattern – rather than acquiring a fixed amount, it acquired between 140 to 200MHz per PEA. In the first round of the auction, Verizon placed bids for 280MHz in PEAs 1-34 and 200MHz in all other PEAs, highlighting that, from the beginning, it aimed to acquire a significant amount of spectrum. Verizon gradually reduced its demand across PEAs over time. A comparison of Figure 4 with Figures 2 and 3 above shows that the markets in which Verizon settled for less than 200MHz were those where US Cellular and T-Mobile acquired spectrum (usually the two companies acquired either 40MHz or 60MHz, explaining why Verizon mostly acquired 140MHz or 160MHz if it did not acquire 200MHz).

Figure 4: Verizon spectrum depth [Source: FCC, Aetha]

Lastly, private equity company Grain Management acquired 10 licences of 20MHz across several larger PEAs (incl. Los Angeles and San Francisco – the second and third largest PEAs). We expect that these acquisitions reflect an expectation that the spectrum can be traded to the existing operators at a profit in the future.

Figure 5: Grain Management spectrum depth [Source: FCC, Aetha]

It is worth noting that, whilst T-Mobile and AT&T ultimately settled for amounts smaller than 100MHz, both operators initially bid for (much) larger quantities. Figure 6 below illustrates the bidding dynamics over the first 50 rounds of the auction, using PEA001 (New York) as an example. The figure shows how several bidders initially placed bids for much more than 100MHz, but – with prices rising – the bidders progressively reduced demand. For Verizon, AT&T and T-Mobile, we believe that the step-wise decrease is an indication of value-based bidding. All three could have made use of more spectrum, but gradually reduced demand as prices increased. The intentions underlying Dish’s bidding are less clear to determine – it either valued spectrum only in very large blocks (as illustrated by its very drastic reductions in demand in Rounds 20 and 29) or it bid speculatively on very large quantities of spectrum.

Figure 6: Bidding patterns and price per block in New York [Source: FCC, Aetha]

Prices across the US

The dynamics of the above-described bidding are reflected in the final auction prices. In Figure 7, we provide a heatmap of these prices (USD/MHz/Pop, including (payments to satellite operators) PSOs) for each PEA, with darker colours indicating higher prices.

Figure 7: Spectrum price heatmap [Source: FCC, Aetha]

The 3.7GHz band is a vital capacity band for 5G but has limited propagation as it is a mid-frequency band. It is thus primarily suited to address traffic in densely populated areas. Prices for the spectrum are generally high in the densely populated coastal areas as well as selected PEAs in the remainder of the country – with these tending to be PEAs including large cities (e.g. Chicago, Houston). When further exploring this trend, we were able to identify a correlation between population density and spectrum prices, as illustrated in Figure 8 below – this reflects the primary value source of this band as an urban capacity band.

Figure 8: Population density and spectrum price correlation [Source: FCC, Aetha]

The second key factor that influenced final prices were regional differences in the degree of competition inherent to different PEAs – as apparent from our above description of the spectrum acquisition patterns of the largest bidders. In regions where Verizon and AT&T faced significant competition from other bidders (e.g. T-Mobile / US Cellular bidding strongly for additional spectrum, or regional operators and PE companies showing an interest), prices tended to be higher, and sometimes rose to above 2 USD/MHz/Pop. As seen in Figure 9, there is a generally positive correlation between the amount of spectrum bought by bidders other than Verizon and AT&T and the final price level.

Figure 9: Relationship between spectrum acquired by non-Verizon/AT&T bidders and the spectrum’s price [Source: FCC, Aetha]

Conclusions

The degree of urbanisation and the level of regional competition were the key factors for determining prices in the 3.7GHz auction. When looking at spectrum acquisition patterns, we notice significant differences between the largest bidders – whilst AT&T followed a very consistent pattern of acquiring 80MHz nationwide, T-Mobile and US Cellular focused their acquisitions (40-60MHz) on a subset of PEAs that were relevant to them. In contrast, Verizon tried to acquire as much as 200MHz of spectrum, moderating demand down to 140MHz in PEAs where it faced significant competition.

In the coming week, we will further assess differences in prices between recent spectrum auctions in the US, so keep watching this space!

25 February 2021

Auction analysis

The results

The results are out! After conducting the assignment phase relatively quickly, the FCC has now also published the highly anticipated results from its C-band auction (Auction 107; 3.7-3.98GHz).

The bidders’ bills

Verizon emerged as the largest spender in the auction, accounting for more than half of the auction proceeds. Together with the estimated payments to satellite operators (PSOs), the operator’s total auction bill amounts to USD53 billion.

The two other major spenders were AT&T and T-Mobile, with total bills (incl. PSOs) of USD27 billion and USD11 billion respectively. The round-up of the top five bidders is completed by the local mobile operator US Cellular and the private equity company Grain Management, each with an auction bill of USD1.5 billion (incl. PSO).

Figure 1: Auction spending per operator (incl. PSO)  [Source: FCC, Aetha]

Surprisingly, the duo of cable operators – Charter Communications and Comcast, which entered the auction through a joint venture, did not win any spectrum and did not even place a single bid. Dish, on the other hand, won only one licence – 20MHz of 3.7GHz spectrum in PEA257 (Cheyenne, WY) – that costs just USD3 million (incl. PSO).

Bidders are required to make their payments in two instalments, with the first one (20% minus their upfront payment) due by 10 March and the second (80%) one due by 24 March 2021.

Spectrum acquired

As seen from Figure 2 below, Verizon won about 160MHz (on an equivalent nationwide basis; weighted by population per PEA), followed by AT&T with about half as much. Together they bought around 240MHz of the total 280MHz available. The two operators were the only ones to win Product A spectrum2, which is due to become available in December 2021 (two years before the remaining spectrum). Verizon won 60MHz and AT&T 40MHz in each of the PEAs with Product A.

This was an expected outcome given their relatively limited mid-band spectrum holdings prior to the auction. With its 2.5GHz spectrum holdings (from the acquisition of Sprint), T-Mobile did not have as large an appetite for 3.7GHz spectrum and therefore was happy to leave the auction with around 30MHz spectrum on a nationwide basis.

Figure 2: Equivalent nationwide spectrum won per bidder [Source: FCC, Aetha]

Blended price comparison

The blended prices (in USD/MHz/Pop) paid by each of the main bidders were largely similar, with T-Mobile and Grain Management spending on MHz-Pop basis about 20% more than the average (see Figure 3). When comparing these prices to international benchmarks, with the notable exception of Taiwan, the blended price significantly exceeds the price of similar C-Band spectrum in other advanced economies, as can be seen in Figure 4. While the FCC is expected to auction additional mid-band spectrum (3.45-3.55GHz) by the end of the year, the spectrum will probably come with restrictions similar to the ones of the CBRS spectrum (3.55-3.65GHz) auctioned in 2020, making it less valuable to the mobile operators.

Figure 3: The blended auction price (red line) and the blended price paid by each bidder (incl. PSO) [Source: FCC, Aetha]

Figure 4: International benchmarks for C-Band spectrum auctions [Source: Aetha Spectrum Fee Database]

Summary

The results of Auction 107 confirm what many analysts expected before the auction – Verizon and AT&T acquired the lion’s share of the spectrum to get their hands on much-needed mid-band capacity. However, the price paid for this spectrum is high – which does not come as a surprise any more, given the FCC’s transparency about the auction. Over the coming week, we will follow up on this first overview with more in-depth analysis of the implications of this auction – keep an eye out for updates!

5 February 2021

Daily Auction Report

The assignment phase

With the assignment phase around the corner, we provide an overview of what to expect over the coming weeks

Starting on Monday (8 February), the winners from the clock phase will be able to bid in the second and final phase of the auction – the assignment phase. While the proceeds raised during this phase are not expected to be large, they will add to the already record breaking USD81 billion achieved in the clock phase (or USD95 billion once the estimated band clearing costs are included).

Interim and final positioning

In the assignment phase, bidders will be able to bid for specific band positioning of the spectrum they have won in the clock phase. In the PEAs with two products, bidders that have won Product A spectrum (3.7-3.8GHz) will bid for both interim and final positioning. The interim positioning will be valid until the satellite operators relocate from the Product BC spectrum (3.8-3.98GHz). Winners of Product BC spectrum and of spectrum in PEAs with only one product (i.e. Product ABC) will bid just for a final assignment position.

Assignment phase format

The assignment phase will follow a second-price sealed-bid format. A key rule is that all winners from the clock phase are to receive contiguous positioning, even if they do not place bids in the assignment phase. For each PEA (or group of PEAs – see below) participants will have the opportunity to submit a bid for each of the possible contiguous positions that they can have in the band. Once the bids for the particular PEA (or group of PEAs) are submitted, the positioning of each bidder is determined by an algorithm that maximises the sum of bid amounts, while ensuring that each bidder gains contiguous spectrum.

Assignment phase proceeds

In a second-price sealed-bid format, a winner only pays the opportunity cost of preventing competitors from winning that position – or in other words, the lowest bid that would have led to the same outcome. Consequently, a bidder is incentivised to bid its value for each position, because if its valuation is high enough it will win its preferred position and pay the minimum amount necessary to secure this outcome. If it loses its preferred position, the winner will need to pay at least the bidder’s valuation, therefore, the bidder has no reason to regret losing.

Second-price sealed bid auctions do not necessarily raise less revenue than those with first-price mechanisms. In first-price sealed-bid auctions, a bidder is incentivised to ‘shade’ its bids (i.e. to bid less than its valuation) in order to minimise its payment if it does win. Yet, the more a bidder shades, the higher becomes the risk of it losing to a competitor. This leads to first-price sealed-bid auctions becoming a ‘game of chance’ as bidders are second guessing each other’s bids. Therefore, it is widely accepted that a second-price sealed bid format for an assignment phase is more likely to produce an efficient outcome than a first-price sealed bid format.

Rounds and sequencing

The bidding in the assignment phase will happen over several rounds. In each of the largest 20 PEAs, the bidding will happen in separate rounds starting from the largest PEA (New York, NY). From Round 21 onwards, in each round, the positioning in the largest PEA in each of the six (Regional Economic Area Groupings) REAGs will be determined simultaneously. In case there are other PEAs in the same REAG with the same clock phase winners and winnings for each product, the positioning in them will be determined together. Figure 1 below illustrates this process.

Figure 1: Assignment rounds sequence [Source: FCC, Aetha]

What’s next?

While the FCC has not yet indicated how many rounds it plans to schedule per day, we can expect that it would take a few weeks for the phase to be completed. The results will be published in due course thereafter. As the assignment phase unveils itself, we will provide updates on any significant developments.

15 January 2021

Daily Auction Report

The end of the clock phase

Key takeaway (Day 22): After 97 rounds of bidding, the clock phase is now completed

  • In the last 2 rounds of the clock phase, excess demand in PEA346 (Franklin, NC) – the only PEA with excess demand as of Round 94, reduced quickly (we saw 2 big drops of demand of 6 and 7 lots in the final rounds in this PEA), ultimately concluding the clock phase.
  • The auction proceeds now stand at USD80.9 billion (see Figure 2). Together with the estimated payments to satellite operators (PSOs3), total payments by winning bidders currently amount to USD94.9 billion. This translates to a blended price across all products1 and PEAs of ~1.10 USD/MHz/Pop (incl. PSOs, see Figure 3). The significant differences between the prices for the available products remained, with Product A being priced at ~1.5, Product BC at ~1.3, and Product ABC at ~0.7 USD/MHz/Pop (see Figure 4).
  • These prices may see further changes in the coming days. First, the FCC will announce the date and time for the assignment phase, where bidders can compete for specific positions within the 3.7GHz band (at present, bidders only know that they have acquired a certain amount of spectrum, but do not yet know the exact frequencies won). Once that phase concludes, the FCC is expected to announce the winning bidders and final prices in due course.
  • As we await the final results, we will continue our analysis – so do continue to watch this space!

Figure 1: Development of demand and supply across all PEAs [Source: FCC, Aetha]

Figure 2: Development of total auction proceeds [Source: FCC, Aetha]

Figure 3: Development of blended auction price3 [Source: FCC, Aetha]

Figure 4: Comparison of prices for different products1,3 [Source: FCC, Aetha]

1 Spectrum in the auction is split into three so-called products. Product A covers 100MHz from 3.7-3.8GHz, available from 2021 through accelerated relocation. Product BC covers 180MHz from 3.8-3.98GHz, available from 2023. Product ABC covers 280MHz, available from 2023. PEAs either have Products A and BC available or Product ABC.

2 Note that there are only 39 PEAs in this tier, as there is no spectrum available in PEA 42 (Honolulu, HI) in this auction.

3 In addition to the final clock prices in the auction, winning bidders will pay the cost of relocation for existing satellite users. This is split into two components – the cost of accelerated relocation and the clearing cost. For spectrum in Product A, the total cost of accelerated relocation has been set at USD2.39 billion. For spectrum in Products BC and ABC, the total cost for accelerated relocation (i.e. by 2023) has been set at USD7.31 billion. In addition, the FCC estimates the clearing cost to be within the range of USD3.3 – 5.2 billion. For the purpose of our analysis, we use the mid-point of this range (USD4.25 billion) as an estimate of the additional cost to winning bidders.

14 January 2021

Daily Auction Report

The last one standing

Key takeaway (Day 21): Franklin, NC is now the only PEA with excess demand but it has 13 blocks of it…

  • Yesterday was another day of significant demand reductions (see Figure 2). As of Round 94, demand equalled supply in all PEAs except for PEA346 (Franklin, NC) where there was an excess demand of 13 blocks spectrum.
  • These 13 blocks of spectrum account for 3 120 excess bidding units. To put this into perspective, with such an amount of bidding units, a bidder can bid for 62 blocks of spectrum in the smallest PEA411 (Van Horn, TX) or 0.004 blocks of spectrum in the largest one – PEA001 (New York, NY). The ability to switch demand, especially to larger PEAs, is thus ever decreasing.
  • As mentioned before, we suspect that these bidding units are placed strategically in the PEA, probably for “parking”, possibly for price-driving.
  • Our outlook that the auction is likely to end soon remains unchanged.

Figure 1: Development of demand and supply across all PEAs [Source: FCC, Aetha]

Figure 2: Development of excess bidding points [Source: FCC, Aetha]

Other key facts

  • The auction proceeds increased to USD80.9 billion after 94 rounds – as shown in Figure 3. Together with the estimated payments to satellite operators (PSOs), total payments by winning bidders amount to USD94.9 billion3.
  • The blended price across all bands, remained at ~1.10 USD/MHz/pop (incl. PSOs3, see Figure 4).
  • There are significant differences between the prices for the available products1,3 – whilst the average prices for Products A & BC are at around 1.3 – 1.5 USD/MHz/pop, the price for Product ABC is at around 0.71 USD/MHz/pop. This is highlighted in Figure 5.

Figure 3: Development of total auction proceeds [Source: FCC, Aetha]

Figure 4: Development of blended auction price3 [Source: FCC, Aetha]

Figure 5: Comparison of prices for different products1,3 [Source: FCC, Aetha]

1 Spectrum in the auction is split into three so-called products. Product A covers 100MHz from 3.7-3.8GHz, available from 2021 through accelerated relocation. Product BC covers 180MHz from 3.8-3.98GHz, available from 2023. Product ABC covers 280MHz, available from 2023. PEAs either have Products A and BC available or Product ABC.

2 Note that there are only 39 PEAs in this tier, as there is no spectrum available in PEA 42 (Honolulu, HI) in this auction.

3 In addition to the final clock prices in the auction, winning bidders will pay the cost of relocation for existing satellite users. This is split into two components – the cost of accelerated relocation and the clearing cost. For spectrum in Product A, the total cost of accelerated relocation has been set at USD2.39 billion. For spectrum in Products BC and ABC, the total cost for accelerated relocation (i.e. by 2023) has been set at USD7.31 billion. In addition, the FCC estimates the clearing cost to be within the range of USD3.3 – 5.2 billion. For the purpose of our analysis, we use the mid-point of this range (USD4.25 billion) as an estimate of the additional cost to winning bidders.

13 January 2021

Daily Auction Report

Excess demand moves on from Bangor

Key takeaway (Day 20): Excess bidding units decreased significantly, while bidders moved the few remaining units to different PEAs

  • At the end of Round 87, the number of PEAs with excess demand further decreased to 10 (see Figure 1) and we witnessed another large drop (~75%) in the total excess bidding units over the course of Day 20 (see Figure 2).
  • The final rounds also brought some relief to the winning bidders in Bangor, ME. As discussed in yesterday’s analysis, PEA107 appeared to have been an area of strategic bidding and saw its price increasing much faster than average prices.
  • This theory was supported by the events of today’s bidding, as in Round 86, once the price in PEA107 reached the average price for PEAs100-150 (see Figure 3), excess demand in the PEA evaporated.
  • Interestingly, most of the demand seems to have been dropped, with some of the units apparently moving to PEA346 (Franklin, NC), which had 13 lots of excess demand at the end of Day 20 and held more than 60% of the excess bidding units.
  • With all these moves going on, we maintain our outlook that the auction is likely to conclude very soon.

Figure 1: Development of demand and supply across all PEAs [Source: FCC, Aetha]

Figure 2: Development of excess bidding points [Source: FCC, Aetha]

Figure 3: Price development comparisson between PEA100-150 and PEA107 [Source: FCC, Aetha]

Other key facts

  • The auction proceeds increased to USD80.9 billion after 87 rounds – as shown in Figure 4. Together with the estimated payments to satellite operators (PSOs), total payments by winning bidders amount to USD94.9 billion3.
  • The blended price across all bands, remained at ~1.10 USD/MHz/pop (incl. PSOs3, see Figure 5).
  • There are significant differences between the prices for the available products1,3 – whilst the average prices for Products A & BC are at around 1.3 – 1.5 USD/MHz/pop, the price for Product ABC is at around 0.71 USD/MHz/pop. This is highlighted in Figure 6.

Figure 4: Development of total auction proceeds [Source: FCC, Aetha]

Figure 5: Development of blended auction price3 [Source: FCC, Aetha]

Figure 6: Comparison of prices for different products1,3 [Source: FCC, Aetha]

1 Spectrum in the auction is split into three so-called products. Product A covers 100MHz from 3.7-3.8GHz, available from 2021 through accelerated relocation. Product BC covers 180MHz from 3.8-3.98GHz, available from 2023. Product ABC covers 280MHz, available from 2023. PEAs either have Products A and BC available or Product ABC.

2 Note that there are only 39 PEAs in this tier, as there is no spectrum available in PEA 42 (Honolulu, HI) in this auction.

3 In addition to the final clock prices in the auction, winning bidders will pay the cost of relocation for existing satellite users. This is split into two components – the cost of accelerated relocation and the clearing cost. For spectrum in Product A, the total cost of accelerated relocation has been set at USD2.39 billion. For spectrum in Products BC and ABC, the total cost for accelerated relocation (i.e. by 2023) has been set at USD7.31 billion. In addition, the FCC estimates the clearing cost to be within the range of USD3.3 – 5.2 billion. For the purpose of our analysis, we use the mid-point of this range (USD4.25 billion) as an estimate of the additional cost to winning bidders.

12 January 2021

Daily Auction Report

Late auction dynamics

Key takeaway (Day 19): Bangor, Maine – Home to Stephen King and most excess bidding units…

  • On Day 19, the auction continued on its recent trajectory. The PEAs with excess demand and excess bidding units reduced by about 50% (see Figures 4 and 5).
  • Of the approx. 40k remaining excess bidding units, more than half remain in PEA107 – Bangor, Maine. It is hard to judge with certainty, but we expect that these bidding units are parked and do not reflect value-based bidding – for more information on the concept of “parking”, please look at our analysis from Day 15.
  • Indications to support our theory can be found when looking at the bidding patterns. Until Round 36, PEA107 had not seen any excess demand. In that round, one (or several) bidders moved demand from other PEAs and created a significant amount of excess demand (enough to make sure it was unlikely that they would accidentally win the lots they bid on).
  • But why was Bangor chosen? As it happens, in Round 36, Bangor was the largest PEA (i.e. the one allowing bidders to keep the largest amount of bidding units) with the lowest clock price (in USD/MHz/Pop) as there had not been excess demand.
  • It appears that other bidders may have joined the ranks in bidding on this PEA (or existing bidders moved further demand to PEA107), as the amount of excess demand increased to 23 lots in later stages.
  • The impact for those already bidding in Bangor was quite significant – prices in the PEA have increased significantly, quickly approaching the average price for “Product ABC”-spectrum. In total, the auction proceeds in the PEA have increased to nearly USD40 million (from USD0.5 million in Round 36).
  • Arguably, a true financial ‘horror show’ for regional bidders (if there are any) – an ironic turn of events given that famous writer Stephen King is a resident of Bangor himself… But with the FCC announcing an increase to 7 bidding rounds per day (a reflection of decreased activity within the auction), the auction is clearly nearing its end, so at least some relief for bidders in Bangor may be in sight!

Figure 1: Development of excess demand in PEA107 (Bangor,ME) [Source: FCC, Aetha]

Figure 2: Price development comparisson between PEA100-150 and PEA107 [Source: FCC, Aetha]

Figure 3: Development of auction proceeds from PEA107 (Bangor,ME) [Source: FCC, Aetha]

Other key facts

  • The auction proceeds increased to USD80.8 billion after 80 rounds – as shown in Figure 6. Together with the estimated payments to satellite operators (PSOs), total payments by winning bidders amount to USD94.8 billion3.
  • The blended price across all bands, increased to ~1.10 USD/MHz/pop (incl. PSOs3, see Figure 7).
  • There are significant differences between the prices for the available products1,3 – whilst the average prices for Products A & BC are at around 1.3 – 1.5 USD/MHz/pop, the price for Product ABC is at around 0.71 USD/MHz/pop. This is highlighted in Figure 8.

Figure 4: Development of demand and supply across all PEAs [Source: FCC, Aetha]

Figure 5: Development of excess bidding points [Source: FCC, Aetha]

Figure 6: Development of total auction proceeds [Source: FCC, Aetha]

Figure 7: Development of blended auction price3 [Source: FCC, Aetha]

Figure 8: Comparison of prices for different products1,3 [Source: FCC, Aetha]

1 Spectrum in the auction is split into three so-called products. Product A covers 100MHz from 3.7-3.8GHz, available from 2021 through accelerated relocation. Product BC covers 180MHz from 3.8-3.98GHz, available from 2023. Product ABC covers 280MHz, available from 2023. PEAs either have Products A and BC available or Product ABC.

2 Note that there are only 39 PEAs in this tier, as there is no spectrum available in PEA 42 (Honolulu, HI) in this auction.

3 In addition to the final clock prices in the auction, winning bidders will pay the cost of relocation for existing satellite users. This is split into two components – the cost of accelerated relocation and the clearing cost. For spectrum in Product A, the total cost of accelerated relocation has been set at USD2.39 billion. For spectrum in Products BC and ABC, the total cost for accelerated relocation (i.e. by 2023) has been set at USD7.31 billion. In addition, the FCC estimates the clearing cost to be within the range of USD3.3 – 5.2 billion. For the purpose of our analysis, we use the mid-point of this range (USD4.25 billion) as an estimate of the additional cost to winning bidders.

11 January 2021

Daily Auction Report

Higher prices in urbanised areas

Key takeaway (Day 18): A look at regional price differences reveals a big urban premium and highlights some smaller PEAs with outlier prices

  • Monday was a very silent day with minimal decreases in the excess bidding units and PEAs with excess demand (see Figures 4 and 5).
  • While bidders are working on their last moves for the auction, we take a look at the price distribution across PEAs and population.
  • Looking at Figure 1, it becomes clear that the prices in the largest 50 PEAs are, on average, more than twice as high as in the other PEAs.
  • This is partly explained by the fact that in most of those PEAs, there are blocks of spectrum becoming available two years earlier (Product A), increasing the overall value. Furthermore, much of the area of these larger PEAs is urbanised and this is where the mid-band spectrum is of higher value.
  • The spectrum in the mid-sized PEAs is also somewhat more expensive than in the small ones, probably for urbanisation reasons too.
  • The outliers in the analysis with price higher than 2 USD/MHz/Pop are PEA369 (Red Oak, IA), PEA038 (Milwaukee, WI), PEA305 (Altus, OK), and PEA302 (Enid, OK).
  • Taking a look at Figure 3, the price of the spectrum was above 1.5 USD/MHz/Pop for about 25% of the total population and below 0.5 USD/MHz/Pop for about 15% of the population but 50% of the PEAs (see Figure 2).

Figure 1: Spectrum prices across PEAs (ordered by size) [Source: FCC, Aetha]

Figure 2: Spectrum prices across PEAs (ordered by price) [Source: FCC, Aetha]

Figure 3: Spectrum prices across population (ordered by price) [Source: FCC, Aetha]

Other key facts

  • The auction proceeds increased to USD80.8 billion after 75 rounds – as shown in Figure 6. Together with the estimated payments to satellite operators (PSOs), total payments by winning bidders amount to USD94.7 billion3.
  • The blended price across all bands, increased to ~1.10 USD/MHz/pop (incl. PSOs3, see Figure 7).
  • There are significant differences between the prices for the available products1,3 – whilst the average prices for Products A & BC are at around 1.3 – 1.5 USD/MHz/pop, the price for Product ABC is at around 0.70 USD/MHz/pop. This is highlighted in Figure 8.

Figure 4: Development of demand and supply across all PEAs [Source: FCC, Aetha]

Figure 5: Development of excess bidding points [Source: FCC, Aetha]

Figure 6: Development of total auction proceeds [Source: FCC, Aetha]

Figure 7: Development of blended auction price3 [Source: FCC, Aetha]

Figure 8: Comparison of prices for different products1,3 [Source: FCC, Aetha]

1 Spectrum in the auction is split into three so-called products. Product A covers 100MHz from 3.7-3.8GHz, available from 2021 through accelerated relocation. Product BC covers 180MHz from 3.8-3.98GHz, available from 2023. Product ABC covers 280MHz, available from 2023. PEAs either have Products A and BC available or Product ABC.

2 Note that there are only 39 PEAs in this tier, as there is no spectrum available in PEA 42 (Honolulu, HI) in this auction.

3 In addition to the final clock prices in the auction, winning bidders will pay the cost of relocation for existing satellite users. This is split into two components – the cost of accelerated relocation and the clearing cost. For spectrum in Product A, the total cost of accelerated relocation has been set at USD2.39 billion. For spectrum in Products BC and ABC, the total cost for accelerated relocation (i.e. by 2023) has been set at USD7.31 billion. In addition, the FCC estimates the clearing cost to be within the range of USD3.3 – 5.2 billion. For the purpose of our analysis, we use the mid-point of this range (USD4.25 billion) as an estimate of the additional cost to winning bidders.

8 January 2021

Daily Auction Report

Pricy spectrum?

Key takeaway (Day 17): The US 3.7GHz blended price is way above the international average but for good reasons

  • Day 17 saw another day of gradual decreases in the number of PEAs with excess demand and excess bidding units (see Figures 1 & 2) – following the trends observed throughout most of the week.
  • With the auction thus nearing completion, we take a look at how the price in the auction compares to international benchmarks.
  • Looking at Figure 3, it becomes clear that the price for 3.7GHz spectrum is very high in an international context – however, there have actually been other auctions, notably in the Asia-Pacific region, where similar prices levels were reached.
  • So, can the high US prices be explained? We believe that the prices are a reflection of the current shortage of mid-band spectrum in the United States and the regionality of US spectrum licences.
  • Of the Big 3 carriers, only T-Mobile currently holds meaningful spectrum quantities in mid-band (in 2.5GHz, Band 41). In contrast, Verizon and AT&T do not have large carriers available and will have looked at this auction as an one-time opportunity to acquire the carrier sizes suitable for 5G (i.e ideally around 100MHz).
  • However, in addition to the Big 3 carriers, Comcast-Charter and Dish are likely to also have participated in the bidding, as may have regional carriers (looking to improve their Fixed Wireless Access offers) and spectrum investors.
  • With such a long list of bidders, acquiring large blocks of spectrum becomes much more difficult, increasing auction competitiveness and raising prices to the levels observed over the last weeks.
  • It is also worthwhile noting that the 3.7GHz spectrum is much more expensive than the 3.5GHz (CBRS) spectrum that was auctioned a few months earlier. This is due to the fact that much less spectrum with more onerous restrictions was available in the CBRS auction, limiting the spectrum’s value compared to the 3.7 GHz band.

Figure 1: Development of demand and supply across all PEAs [Source: FCC, Aetha]

Figure 2: Development of excess bidding points [Source: FCC, Aetha]

Figure 3: International benchmarks of the blended auction price [Source: Aetha Spectrum Fee Database]

Other key facts

  • The auction proceeds increased to USD80.7 billion after 70 rounds – as shown in Figure 4. Together with the estimated payments to satellite operators (PSOs), total payments by winning bidders amount to USD94.6 billion3.
  • The blended price across all bands, increased to ~1.10 USD/MHz/pop (incl. PSOs3, see Figure 5).
  • There are significant differences between the prices for the available products1,3 – whilst the average prices for Products A & BC are at around 1.3 – 1.5 USD/MHz/pop, the price for Product ABC is at around 0.70 USD/MHz/pop. This is highlighted in Figure 6.

Figure 4: Development of total auction proceeds [Source: FCC, Aetha]

Figure 5: Development of blended auction price3 [Source: FCC, Aetha]

Figure 6: Comparison of prices for different products1,3 [Source: FCC, Aetha]

1 Spectrum in the auction is split into three so-called products. Product A covers 100MHz from 3.7-3.8GHz, available from 2021 through accelerated relocation. Product BC covers 180MHz from 3.8-3.98GHz, available from 2023. Product ABC covers 280MHz, available from 2023. PEAs either have Products A and BC available or Product ABC.

2 Note that there are only 39 PEAs in this tier, as there is no spectrum available in PEA 42 (Honolulu, HI) in this auction.

3 In addition to the final clock prices in the auction, winning bidders will pay the cost of relocation for existing satellite users. This is split into two components – the cost of accelerated relocation and the clearing cost. For spectrum in Product A, the total cost of accelerated relocation has been set at USD2.39 billion. For spectrum in Products BC and ABC, the total cost for accelerated relocation (i.e. by 2023) has been set at USD7.31 billion. In addition, the FCC estimates the clearing cost to be within the range of USD3.3 – 5.2 billion. For the purpose of our analysis, we use the mid-point of this range (USD4.25 billion) as an estimate of the additional cost to winning bidders.

7 January 2021

Daily Auction Report

What was that spike about?

Key takeaway (Day 16): From “parking” to “hiding” – despite a small spike in demand, the actual auction dynamics remain unchanged

  • Overall, the dynamics of the day followed previous days. The number of PEAs with excess demand continued to decrease, from 57 to 35 (see Figures 1 & 2), as did excess bidding units (down another ~20%, see Figure 3). We discussed yesterday that this is likely to reflect the fact that bidders are slowly reducing “parked” bidding units.
  • However, an interesting event occurred in Round 61 as the excess bidding units nearly doubled in comparison to the previous round.
  • How could this happen? The auction rules stipulate so-called activity rules, meaning that bidders have to use 90-100% of their bidding units in order not to lose them (the exact percentage is set by the FCC on a round-by-round basis and not communicated to the public).
  • As the auction draws to a close, the FCC will tend to increase the percentage towards 100% to draw the auction to a close. As the events in Round 61 show, the percentage was not set to 100% prior to that round.
  • What we saw in Round 61 may thus have been a reaction to a increase in the percentage by the FCC, with some bidders coming “out of hiding” and increasing their bidding units in order not to lose them.
  • Such moves can reignite an auction, if other bidders follow suit, thereby leading to increased bidding activity again. However, this was not observed in Rounds 62-65, suggesting that we ultimately saw a further move towards the auction finishing.

Figure 1: Development of demand and supply across all PEAs [Source: FCC, Aetha]

Figure 2: Excess demand in different PEA tiers (Rounds 60 vs 65) [Source: FCC, Aetha]

Figure 3: Development of excess bidding points [Source: FCC, Aetha]

Other key facts

  • The auction proceeds increased to USD80.5 billion after 65 rounds – as shown in Figure 4. Together with the estimated payments to satellite operators (PSOs), total payments by winning bidders amount to USD94.5 billion3.
  • The blended price across all bands, increased to ~1.10 USD/MHz/pop (incl. PSOs3, see Figure 5).
  • There are significant differences between the prices for the available products1,3 – whilst the average prices for Products A & BC are at around 1.3 – 1.5 USD/MHz/pop, the price for Product ABC is at around 0.70 USD/MHz/pop. This is highlighted in Figure 6.

Figure 4: Development of total auction proceeds [Source: FCC, Aetha]

Figure 5: Development of blended auction price3 [Source: FCC, Aetha]

Figure 6: Comparison of prices for different products1,3 [Source: FCC, Aetha]

1 Spectrum in the auction is split into three so-called products. Product A covers 100MHz from 3.7-3.8GHz, available from 2021 through accelerated relocation. Product BC covers 180MHz from 3.8-3.98GHz, available from 2023. Product ABC covers 280MHz, available from 2023. PEAs either have Products A and BC available or Product ABC.

2 Note that there are only 39 PEAs in this tier, as there is no spectrum available in PEA 42 (Honolulu, HI) in this auction.

3 In addition to the final clock prices in the auction, winning bidders will pay the cost of relocation for existing satellite users. This is split into two components – the cost of accelerated relocation and the clearing cost. For spectrum in Product A, the total cost of accelerated relocation has been set at USD2.39 billion. For spectrum in Products BC and ABC, the total cost for accelerated relocation (i.e. by 2023) has been set at USD7.31 billion. In addition, the FCC estimates the clearing cost to be within the range of USD3.3 – 5.2 billion. For the purpose of our analysis, we use the mid-point of this range (USD4.25 billion) as an estimate of the additional cost to winning bidders.

6 January 2021

Daily Auction Report

Done by the end of the week?

Key takeaway (Day 15): With another day of significant demand reductions, could the auction be over before the end of the week?

  • The number of PEAs with excess demand experienced a sharp decline on Day 15, dropping from 147 (Round 55) to just 56 by the end of the day (Round 60, see Figure 1).
  • The focus has now shifted entirely to the smaller PEAs, with excess demand in only one of the Top 100 PEAs (Figure 2) and excess bidding units having reduced by about a further 50% on Day 15 (Figure 3).
  • At the same time, the amount of excess demand within the smaller PEAs has increased, as can be seen in the column “Average Excess Demand” in Figure 2. This may initially suggest that competition may still be intense in these PEAs, but – in light of the trends observed over recent days – it is more likely that this is bidders strategically “parking” their bidding units (at a limited incremental cost) before reducing demand.
  • As a result, it is likely that the trend seen in recent days (a continuous decline in bidding units, combined with a shift to smaller PEAs) will continue. This means that the prices for Products A & BC are effectively locked in and that there is a real chance the auction may be over very soon (even before the end of the week?).

Figure 1: Development of demand and supply across all PEAs [Source: FCC, Aetha]

Figure 2: Excess demand in different PEA tiers (Rounds 55 vs 60) [Source: FCC, Aetha]

Figure 3: Development of excess bidding points [Source: FCC, Aetha]

Other key facts

  • The auction proceeds increased to USD79.9 billion after 60 rounds – as shown in Figure 4. Together with the estimated payments to satellite operators (PSOs), total payments by winning bidders amount to USD93.8 billion3.
  • The blended price across all bands, increased to ~1.09 USD/MHz/pop (incl. PSOs3, see Figure 5).
  • There are significant differences between the prices for the available products1,3 – whilst the average prices for Products A & BC are at around 1.3 – 1.5 USD/MHz/pop, the price for Product ABC is at around 0.68 USD/MHz/pop. This is highlighted in Figure 6.

Figure 4: Development of total auction proceeds [Source: FCC, Aetha]

Figure 5: Development of blended auction price3 [Source: FCC, Aetha]

Figure 6: Comparison of prices for different products1,3 [Source: FCC, Aetha]

1 Spectrum in the auction is split into three so-called products. Product A covers 100MHz from 3.7-3.8GHz, available from 2021 through accelerated relocation. Product BC covers 180MHz from 3.8-3.98GHz, available from 2023. Product ABC covers 280MHz, available from 2023. PEAs either have Products A and BC available or Product ABC.

2 Note that there are only 39 PEAs in this tier, as there is no spectrum available in PEA 42 (Honolulu, HI) in this auction.

3 In addition to the final clock prices in the auction, winning bidders will pay the cost of relocation for existing satellite users. This is split into two components – the cost of accelerated relocation and the clearing cost. For spectrum in Product A, the total cost of accelerated relocation has been set at USD2.39 billion. For spectrum in Products BC and ABC, the total cost for accelerated relocation (i.e. by 2023) has been set at USD7.31 billion. In addition, the FCC estimates the clearing cost to be within the range of USD3.3 – 5.2 billion. For the purpose of our analysis, we use the mid-point of this range (USD4.25 billion) as an estimate of the additional cost to winning bidders.

5 January 2021

Daily Auction Report

A big step towards the finsh line?

Key takeaway (Day 14): As competition has also calmed down in the mid-sized PEAs, the auction may have taken a big step towards finishing

  • At first, it may look like not much happened today, as Figure 1 shows that there is still excess demand in 147 PEAs (Partial Economic Areas – the geographical areas within which spectrum in this auction is assigned).
  • However, excess demand has drastically reduced in mid-sized PEAs, with only 8 PEAs in the Top 100 still having excess demand after Round 55 (down from 29 at the end of Round 50). This is summarised in Figure 2.
  • In particular, the number of excess bidding points (which allow bidders to switch between lots / PEAs) has reduced by about two thirds, down to less than 0.5 million (from a starting point of ~1.4 million at the start of the day, see Figure 3).
  • This basically means that the largest PEAs are very unlikely to see any further bidding for the remainder of the auction (as bidding on just a single lot requires several hundred thousand bidding points). Any remaining bidding will focus on the smallest PEAs, where significant price differences to the larger PEAs remain.
  • However, as these prices differences may very well be reflective of value differences (mid-band spectrum can be more effectviely deployed in urban areas, i.e. in the city centres of the larger PEAs), demand may continue to reduce quickly in the coming days. The auction may thus have taken another big step towards closing today.

Figure 1: Development of demand and supply across all PEAs [Source: FCC, Aetha]

Figure 2: Excess demand in different PEA tiers (Rounds 50 vs 55) [Source: FCC, Aetha]

Figure 3: Development of excess bidding points [Source: FCC, Aetha]

Other key facts

  • The auction proceeds increased to USD78.5 billion after 55 rounds – as shown in Figure 4. Together with the estimated payments to satellite operators (PSOs), total payments by winning bidders amount to USD92.4 billion3.
  • The blended price across all bands, increased to ~1.08 USD/MHz/pop (incl. PSOs3, see Figure 5).
  • There are significant differences between the prices for the available products1,3 – whilst the average prices for Products A & BC are at around 1.3 – 1.5 USD/MHz/pop, the price for Product ABC is at around 0.65 USD/MHz/pop. This is highlighted in Figure 6.

Figure 4: Development of total auction proceeds [Source: FCC, Aetha]

Figure 5: Development of blended auction price3 [Source: FCC, Aetha]

Figure 6: Comparison of prices for different products1,3 [Source: FCC, Aetha]

1 Spectrum in the auction is split into three so-called products. Product A covers 100MHz from 3.7-3.8GHz, available from 2021 through accelerated relocation. Product BC covers 180MHz from 3.8-3.98GHz, available from 2023. Product ABC covers 280MHz, available from 2023. PEAs either have Products A and BC available or Product ABC.

2 Note that there are only 39 PEAs in this tier, as there is no spectrum available in PEA 42 (Honolulu, HI) in this auction.

3 In addition to the final clock prices in the auction, winning bidders will pay the cost of relocation for existing satellite users. This is split into two components – the cost of accelerated relocation and the clearing cost. For spectrum in Product A, the total cost of accelerated relocation has been set at USD2.39 billion. For spectrum in Products BC and ABC, the total cost for accelerated relocation (i.e. by 2023) has been set at USD7.31 billion. In addition, the FCC estimates the clearing cost to be within the range of USD3.3 – 5.2 billion. For the purpose of our analysis, we use the mid-point of this range (USD4.25 billion) as an estimate of the additional cost to winning bidders.

4 January 2021

Daily Auction Report

The action is now happening in mid-sized and small PEAs …

Key takeaway (Day 13): Competition has calmed down in the largest PEAs, but auction could still go on for a while due to mid-sized / small PEAs

  • Excess demand has reduced significantly over recent days – as shown in Figure 1 below. However, the reductions were focused on the Top 50 PEAs (Partial Economic Areas – the geographical areas within which spectrum in this auction is assigned).
  • In contrast, there is still significant excess demand in mid-sized / small PEAs, some of which still have more than 10 lots of excess demand (for reference, in each PEA, 14 lots of 20MHz are available in total). This is summarised in Figure 2.
  • This implies that bidding may well continue for a while, with a focus on those mid-size / small PEAs, especially as prices in these PEAs are significantly below those in the Top 50 PEAs (see Figure 3).

Figure 1: Development of demand and supply across all PEAs [Source: FCC, Aetha]

Figure 2: Overview of excess demand in different PEA tiers after Round 50 [Source: FCC, Aetha]

Figure 3: Comparison of current prices in different PEA tiers1,2,3 after Round 50 [Source: FCC, Aetha]

Other key facts

  • The auction proceeds increased to USD76.5 billion after 50 rounds – as shown in Figure 4. Together with the estimated payments to satellite operators (PSOs), total payments by winning bidders amount to USD90.45 billion3.
  • The blended price across all bands, increased to ~1.05 USD/MHz/pop (incl. PSOs3, see Figure 5).
  • There are significant differences between the prices for the available products1,3 – whilst the average prices for Products A & BC are at around 1.3 – 1.5 USD/MHz/pop, the price for Product ABC is at around 0.6 USD/MHz/pop. This is highlighted in Figure 6.

Figure 4: Development of total auction proceeds [Source: FCC, Aetha]

Figure 5: Development of blended auction price3 [Source: FCC, Aetha]

Figure 6: Comparison of prices for different products1,3 [Source: FCC, Aetha]

1 Spectrum in the auction is split into three so-called products. Product A covers 100MHz from 3.7-3.8GHz, available from 2021 through accelerated relocation. Product BC covers 180MHz from 3.8-3.98GHz, available from 2023. Product ABC covers 280MHz, available from 2023. PEAs either have Products A and BC available or Product ABC.

2 Note that there are only 39 PEAs in this tier, as there is no spectrum available in PEA 42 (Honolulu, HI) in this auction.

3 In addition to the final clock prices in the auction, winning bidders will pay the cost of relocation for existing satellite users. This is split into two components – the cost of accelerated relocation and the clearing cost. For spectrum in Product A, the total cost of accelerated relocation has been set at USD2.39 billion. For spectrum in Products BC and ABC, the total cost for accelerated relocation (i.e. by 2023) has been set at USD7.31 billion. In addition, the FCC estimates the clearing cost to be within the range of USD3.3 – 5.2 billion. For the purpose of our analysis, we use the mid-point of this range (USD4.25 billion) as an estimate of the additional cost to winning bidders.

Authors

Lee Sanders
Lee SandersManaging Partner
Marc Eschenburg
Marc EschenburgPartner