FCC Auction 110 for 100 MHz in the 3.45 GHz band is set to start tomorrow (October 5): the third auction for 3 GHz band spectrum in less than two years for a combined 450 MHz. This is a huge amount of spectrum considering previous auctions and holdings. Here, I wanted to share an outline of this auction and what to expect over the coming few weeks.
Auction basics
Some baseline characteristics to consider:
- 100 MHz in 3.45-3.55 MHz divided into 10 x 10 MHz TDD blocks (designated A-J).
- 4,060 licenses available in 406 Partial Economic Areas (PEAs) in the contiguous US.
- 15-year license term similar to the C-band auction. [See here for a complete analysis of the C-band auction.]
- 40 MHz spectrum cap similar to the CBRS PAL auction. This requirement will hold for the first 4 years post auction.
- No restrictions on antenna placement or low-power limits. The limit is similar to the C-Band at EiRP 1640 W/MHz in non-rural areas and double that in rural areas. This is unlike the CBRS band which restricted RF output power and antenna placements and limit range. [See here on the power limits in CBRS; and here on CBRS auction outcome.]
Sharing and coordination
Certain blocks are subject to cooperative sharing requirements with existing government users. This similar, in principle, to the CBRS PAL auction. In this case, licensees can expect interference from government users in certain areas at certain times which requires coordination to avoid such interference.
To account for the coordination requirements, licenses are divided into two categories:
- Cat 1: All blocks are unrestricted or subject to the same restrictions. This covers 331 PEAs, of which 284 have no restrictions, and the remaining 47 have the same restrictions for all blocks.
- Cat 2: Restrictions differ among the ten blocks in a PEA. There are 72 such PEAs. In this case, blocks A – D would be considered Cat 1 with cooperative sharing requirements, while the blocks E-J would be considered Cat 2 with sharing requirements. [If you’re doing the math, and note a shortfall of 3 PEAs, it’s because there is some variance in these 3 PEAs that I will not detail here!]
Factors driving auction valuation
A few issues impact the valuation of this auction, some of the key ones include:
- The wireless service providers will dominate the bidding, since no other large companies are participating. Specifically, the cable service providers opted to stay out of this auction.
| Official Bidder Name | Company |
| Cellco Partnership | Verizon |
| AT&T Auction Holdings, LLC | AT&T |
| T-Mobile License LLC | T-Mobile |
| United States Cellular Corporation | US Cellular |
| Weminuche L.L.C. | Dish Networks |
- The spectrum cap will limit the runaway pricing seen in the C-Band, and will act to moderate the value of this auction. The cap leaves room to a minimum of three winner per PEA. If the results of the C-band are a guide, Verizon, AT&T and T-Mobile would dominate this auction. I am not discounting Dish who could have a major impact on the final outcome since it can act to raise valuation for the others significantly.
- The sharing and coordination requirements would moderate the value of this auction. This was the case in CBRS, but with the caveat that the 3.45 GHz spectrum is more valuable because of the higher power limits and the absence of restrictions on antenna placements.
- The service providers have taken on a large amount of debt following the C-band auction. How much appetite is available for more spectrum needs to be weighed against existing holdings and future opportunities. AT&T, which stands at a relative deficit to Verizon and T-Mobile in TDD spectrum, is compelled to be very active.
- Operators are likely to be more selective in this auction in than prior auctions. They don’t have to amass spectrum in all markets and may well focus on the urban areas, leaving smaller markets to rural and small operators. This limits their financial liability.
- In this auction, the top 24 markets have 50% of the MHz-PoP. Two-thirds of the MHz-PoP concentrate in the top 60 markets. These markets should fetch higher valuation than the rest, in contrast to the CBRS auction where bidder paid high prices for many of the fringe markets. The likelihood for this to repeat in this auction is low because the field of bidders is small; and enterprises and spectrum speculators are not participating.
- A floor of $14.775 Billion for the outcome of the clock round net of bidding credits is set to compensate the NTIA for the relocation of existing users. This sets a floor on valuation.
| CBRS | 3.45 GHz | C-band | |
| Spectrum auctioned | 70 MHz | 100 MHz | 280 MHz |
| Number of licenses sold/available | 20,625/22,631 | 4,060/TBD | 5,684/5,684 |
| Number of bidders | 271 | 33 | 57 |
| Term (years) | 10 | 15 | 15 |
| Gross Proceeds (Billions) | $4,585,663,345 | TBD | $81,168,677,645 |
| $/MHz-PoP Nation-wide average | $0.21692 | TBD | $0.94526 |
Concluding Thoughts
The 3.45 GHz has many valuation "speed bumps" built into it which would dampen the final valuation. Yet, there's always room for surprises just as there were in the CBRS and C-band auctions. In assessing the prospects, I favour looking at the competitive dynamics and to frame the auction in the context of different factors such as market, technology, spectrum roadmap, and the how pressing is the need for this spectrum. For instance, more spectrum will come online in the coming years - there's already signs that the 3.1 GHz band could follow in the footsteps of Auction 110. Yet, no one can predict the motivation and behaviour of the bidders. It is precisely that which will determine the outcome.
All together, this auction should end in the range between the reserve price floor and C-band ceiling. This means it could raise between $15-$29 Billion. The outcome may well be biased towards the lower side of the range which I think is the more likely outcome. Let's wait and see the results in a few weeks!