600 MHz Incentive Auction: Beating Disappointment

By | March 27, 2017

600 MHz Spectrum AuctionBidding on the 600 MHz ‘incentive band’ stopped at $19.63 billion. The assignment phase now in progress to decide on specific allotments.  Detailed results will be announced a few weeks after that concludes. Verizon, AT&T, T-Mobile, Dish and Comcast are among the bidders with Sprint a notable absentee. It will be a few short years before this new spectrum enters service.

Incentive Auction Dashboard.

Incentive Auction Dashboard. [Source: FCC]


It took four stages to close the auction that freed 23 broadcast channels for a total of 84 MHz. Wireless service providers will receive 70 MHz, leaving 14 MHz for guard bands that could be used for whitespace [unlicensed with geolocation requirements].

600 MHz Band Plan.

600 MHz Band Plan.

The Financial Perspective

Wireless service providers will pay $19.63 billion for 70 MHz of spectrum, or an average of $0.88/MHz-PoP. The average price for the top 40 PEAs (Partial Economic Area) is $1.25/MHz PoP that is required to close the bidding. Broadcasters will receive $10.05 billion. The US treasury will receive about 7 billion while $2 billion is for auction expenses.

Earlier stages failed to generate bids to meet the FCC requirements. Progressive stages reduced freed spectrum from the initial 126 MHz at $88.4 billion. Carriers bid $23 billion for their allotment of 100 MHz which averages to $0.72/MHz-PoP. Results show support for pricing in the range between $0.7-0.9 /MHz-PoP during successive stages.

600 MHz Incentive Auction Results.

600 MHz Incentive Auction Results.

Inflated expectation that 600 MHz would fetch valuations similar to the AWS-3 band casted a negative light on the outcome – some calling it disappointing. The AWS-3 band fetched $44.9 billion, and average of $2.19/MHz-PoP. However, the 600 MHz results are better aligned with previous auctions in the 700 MHz and other bands. This confirms that the AWS-3 is an outlier, due in part to bidding practices by Dish. Seen from this perspective, the 600 MHz incentive auction pricing results are rational and in alignment with market realities.

Future of Spectrum Pricing

In theory, spectrum is scarce and as demand for data increases, the price of spectrum should rise. This is a simplistic argument that shadows many aspects. In practice, the opposite can happen. Verizon and AT&T have a comfortable business while Sprint is struggling and T-Mobile is holding its own. The market is struggling to support four national carriers. Potential consolidation reduces the number of players in the auction game. The barriers to entry are high for the likes of Dish and others who might consider this option. The demand for data requires wide channel allocations which is available in high frequency bands where the cost of infrastructure is high. These factors combine to steady the price of spectrum if not even depress it over time. From this view point, the results of 600 MHz incentive auction become a success. For the first time a forward and reverse auction has been devised and executed.

Potential Market Consequences?

A key aspect to this auction is the participation of the cable companies such as Comcast. This promises to bring in new dynamics that will affect future auctions. In all respects, 70 MHz, or paired 35 MHz, is a good chunk of spectrum, for wide are coverage, but not enough to support business operations for a carrier. Cable operators will have to consider their capacity planning which would consider small cells. Making this business proposition work from a commercial perspective will be interesting to watch unfold.