The bidding for licenses in the C-Band auction has ended with bids of $81 billion for 280 MHz, surprising most observers. The C-Band auction exceeded the previous record holder, the 2015 AWS-3 auction, which yielded $44.9 billion. While C-band raised almost twice as much as AWS-3, one of the things to consider is that different amounts of spectrum were for sale: 280 MHz in the C-Band auction versus 65 MHz in the AWS-3 auction. In terms of dollars per MHz of Population covered ($/MHz Pop), the metric by which we compare different amounts of spectrum and population coverage, the AWS-3 auction is still the most expensive auction in US history.
What are the drivers for spectrum prices? Looking at some of the most important auctions over the last 15 years gives us some important pointers, both when comparing prices within an auction and from auction to auction.
|CBRS||2020||3500||70||$4.6b||$0.22||Maximum 30 MHz & combined with unlicensed, limited power|
|600 MHz||2017||600||70||$19.6||$0.88||AT&T & Verizon mostly ineligible to bid|
|AWS-3 paired||2015||1700/2100||50||$42.5b||$2.71||Unincumbered spectrum|
|AWS-3 unpaired||2015||1700||15||$2.4b||$0.52||Unpaired spectrum|
|700 MHz B Block||2008||700||12||$9.06b||$2.24||Unincumbered spectrum|
|700 MHz A Block||2008||700||12||$3.87b||$1.17||Needed filters|
|700 MHz C Block||2008||700||22||$4.75b||$0.76||Net Neutrality|
|700 MHz E Block||2008||700||6||$1.26||$0.74||Unpaired spectrum|
Conducted in 2008, the 700 MHz auction sold four different blocks of spectrum. A Block had significant interference issues because some broadcasters were still operating in the spectrum at that time and handsets required filters in order to work properly. However, none of the handsets in the time had those filters. The B Block was clean and ready to use spectrum. The C Block comes with net neutrality provisions attached to it because Google promised the FCC to bid on the spectrum. The FCC at the time was very eager to incentivize a new entrant into the US wireless market and the FCC interpreted from what Google had told them that Google would win the C Block auction and become a mobile network operator. Finally, E Block is a sliver of unpaired spectrum.
To no surprise B Block, the clean, ready to use spectrum, sold for the highest price. The problem A Block sold for half the price of the B Block. The C Block sold for one third of the A Block after Google bid once in the first round, Verizon topped it in the second round, and nobody else bid on it in the next 222 rounds of the auction. The smaller E Block of unpaired spectrum sold for a tiny bit less than the C Block because at the time, nobody really knew what to do with it as the technology to use it was not mainstream yet.
In the 2015 AWS-3 Auction, clean paired spectrum again sold for substantially more than unpaired spectrum. This time, it was more than five times the amount: $2.71 per MHz Pop compared to $0.52. Since the AWS-3 block laid next to the AWS-1 block which mobile operators had already deployed, it was very easy and cheap to use the spectrum without incurring infrastructure cost as the same equipment could be used. Basically, roughly the amount of the cost of the infrastructure went into the auction and drove up the price for the spectrum since operators calculate their total ownership cost of spectrum plus the cost to deploy in their budgeting process.
Prior to the 2017 600 MHz Broadcast Incentive Auction, T-Mobile and regional operators argued that AT&T and Verizon had too much low band spectrum in the market for others to be competitive, and therefore should not be allowed to bid on the 600 MHz auction. T-Mobile argued that it had no 700 MHz spectrum and therefore it was at a disadvantage, omitting that it chose at the time not to bid in the 700 MHz auction. Long story short, AT&T and Verizon were excluded from bidding on the vast majority of license. T-Mobile won more than half of the spectrum on bid for the auction (37 Mhz of 70 MHz) for one third of the price ($0.88 per MHz Pop) of what spectrum went for at the AWS-3 ($2.71 per MHz Pop) and 700 MHz ($2.24 per MHz Pop) auction since the regional operators did not have the financial resources to effectively compete with T-Mobile and Sprint chose not to participate.
Fast forward three years: T-Mobile buys Sprint for $26 billion. Sprint owned between 160 and 194 MHz of 2.5 GHz spectrum in the Top 100 markets with a nationwide average of 137 MHz plus 37 MHz in the 800 MHz, PCS, AWS bands and the Department of Justice and the FCC only require T-Mobile to divest 14 MHz of 800 MHz spectrum to Dish for $3.6 billion. Suddenly, T-Mobile has three times the low- and mid-band spectrum of Verizon and two times that of AT&T. Well played, T-Mobile, well played!
In 2020, the FCC auctioned off 70 MHz of 150 MHz CBRS spectrum. In the CBRS band, the 70 MHz CBRS auction winners could buy up to three 10 MHz Priority Access Licenses (PAL) and use them exclusively in addition to the 80 MHz General Authorized Access Licenses (GAA) licenses. Wherever PAL licenses were not sold, these licenses became GAA and could also be used by anyone. This novel approach of combining shared access with a licensing approach created an auction totaling $4.6 billion for the US Treasury or $0.22 per MHz Pop. This is by far the lowest amount per MHz Pop of all the auctions. One quarter of the 600 MHz Auction and one tenth of 700 MHz and one twelfth of the AWS-3 auction.
A few months after the CBRS auction concluded, the C-Band auction took place. The two spectrum bands are adjacent to each other and have identical propagation characteristics. The same spectrum at the same time could one lead to believe that the prices for the two bands would be very similar. The C-Band auction, which is clean, unincumbered spectrum yielded more than four times the price per MHz Pop than the CBRS Auction with its sharing characteristics. Furthermore, CBRS licenses were auctioned on a per county level whereas C-Band was auctioned on a Partial Economic Area basis, which are much larger.
Comparing the different prices, the following drivers of spectrum proceeds become obvious and should be considered by the FCC when designing upcoming spectrum auctions. After all, it’s the taxpayer’s money:
- Exclusivity and larger license areas: Exclusive use in larger license areas has a 4x premium over shared use – C-Band versus CBRS (427%)
- Clean spectrum: Cleared spectrum without incumbents sharing the spectrum is up to 2x as valuable – A Block versus 700 B Block (191%)
- No bidder restrictions: Allowing everyone to participate in an auction increases spectrum value by up to 3x – AWS-3 paired versus 600 MHz (307%) or 700 MHz B Block versus 600 MHz (254%)
- No restrictions on business models: Lack of business model restrictions increases spectrum value by 3x – 700 MHz B Block compared to 700 MHz C Block (294%)
- Propagation characteristics: Unrestricted low band spectrum in 3x as valuable as mid band spectrum – AWS-3 paired compared to C-Band (288%)
- Paired and unpaired spectrum no longer matters: The historic 3x difference between paired and unpaired spectrum does not have a technical reason anymore as 5G works better on unpaired spectrum.