Market Insight

Impending net neutrality regulation fails to impede record spending on spectrum

February 03, 2015  | Subscribers Only


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The Federal Communications Commission (FCC) concluded its latest spectrum auction on the 31st of January. Spectrum in the AWS bands (1700MHz paired with 2100MHz) was auctioned; 15MHz of unpaired spectrum and 2x25MHz of paired spectrum. While AWS is a common 4G abnd, the specific frequencies auctioned are not yet standardised for 4G usage, but are expected to be in the near future.

AT&T spent by far the most of any operator in the auction with over $18bn, and dominated the paired spectrum lots; gaining 96% population coverage. Verizon spent over $10bn on paired spectrum, but was challenged by satellite TV operator Dish and so had to settle for just 60% population coverage. Dish spent heavily in both paired and unpaired spectrum spending $11bn and $2bn for 30% and 100% population coverage respectively. T-Mobile was a distant fourth place, spending only $1.7bn and covering just 30% of the US population. US Cellular spent $356m on spectrum, while America Movil spent $170m to pick up extra bandwidth in Puerto Rico.

Summary results:

  AT&T Verizon T-Mobile Dish US Cellular Terrestar America Movil Others Total
Population coverage (%) 96% 61% 30% 100% 8% 19% 1% 14% 100%
Average bandwidth (MHz) 21.1 19.0 11.5 25.3 13.9 10.0 20.0 11.3 65.0
Total spend ($bn) 18.19 10.43 1.77 13.33 0.45 0.39 0.17 0.17 44.90
Price per head per MHz ($/MHz Pop) 2.80 2.82 1.59 1.64 1.27 0.63 2.30 0.40 2.15

 

Our analysis

This spectrum auction exceeded all manner of expectations. Not only did the total spend far exceed the $19bn spent in the 2008 700MHz auction, but the price paid per MHz per head of population was nearly doubled; from $1.05 in 2008 to $2.15 in this auction. This increase is exacerbated by the difference propagation of the two bands. The 1700MHz/2100MHz band is considered less valuable than the 700MHz band due to the shorter range of transmissions. In European 4G auctions where the 1800MHz and 800MHz band were sold simultaneously, the 800MHz band was between 5 and 20 times more expensive than the 1800MHz band. This comparison underlines the huge increase in the value of spectrum. The high prices are also noteworthy given operators warnings that the FCC’s proposed net neutrality rules would deter investment.

The result also demonstrates the highly competitive nature of the US mobile market. Unlike many European auctions where bidding rarely exceeded the reserve prices by much, in this auction the final price paid was 322% higher than the total reserve price. As spectrum licences in the US are sold on a regional basis, there was a large amount of variation within that. 158 of 525 licences for paired spectrum sold at or below the reserve price. On the other hand, there were a handful of markets where the cost of the licence was nearly 10 times the reserve price. (The reserve price was an aggregate across all bands, so did not apply to each individual licence).

AT&T’s heavy investment represents securing its position for 4G spectrum. While AT&T and Verizon have approximately the same amount of 700MHz spectrum, Verizon has more spectrum in the AWS band which it has repurposed for 4G services. AT&T spent heavily to address this mismatch, securing virtually nationwide coverage in this auction.

While Dish’s involvement was no surprise, the scale of its investment makes it the largest non-active holder of mobile spectrum in the US. This is the clearest indication yet that Dish is planning to build a network of its own in the near future, and this spectrum comes without the restrictions of its satellite spectrum. The FCC has refused to allow terrestrial transmissions in its satellite spectrum, so purchasing spectrum was the only option if Dish intends to build a mobile network in the short term.

It is also noteworthy the lack of participation from Sprint. Despite facing tough competition and finding itself mid-transition under new CEO, Marcelo Claure, it opted not to participate in this auction. Although it holds a large amount of high capacity spectrum in the 2.5GHz band (via Clearwire acquisition), it is likely also planning to allocate greater resources to upcoming low-frequency band, the 600MHz band, in 2016. 

 

Related research:

Geography
USA
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