AWS-3 Auction Closes on $44 Billion: Did They Cross The Bounds of The Rational?

AWS-3 AuctionIt seems US wireless operators have crossed the bounds to the irrational in bidding on the AWS-3 spectrum. As I write this article, round 91 closed at over $43.74 billion for the 65 MHz of spectrum. That’s a gross average of $2.3/MHz PoP. To put this into perspective, the 90 MHz of AWS-1 spectrum in 2006 netted $13.7 billion at gross average of $0.54/MHz-PoP. In other words, the cost of AWS-3 is more than 4 times that of AWS-1. In fact, the cost of AWS-3 is more than 2x the cost of the 700 MHz spectrum which is considered superior because of better propagation characteristics that leads to lower infrastructure capex. Overbidding on spectrum in higher bands is doubly damaging.

When it comes to competitive bidding, there is at times little rationality. European carriers learned their lesson in the early 2000’s when they overbid on 3G spectrum. This not only resulted in delayed 3G deployments, but also further delayed 4G rollouts so now Europe stands behind Korea, Japan and the US in LTE adoption. But the case today is different. While in the 3G auctions the motivation was driven by optimistic business plans and future outlook stimulated by the tech boom of the 90’s, the AWS-3 spectrum is more of the case where incumbents are working to protect their turf. The cost of spectrum for AT&T and Verizon, two among the major incumbent bidders, seem to outweigh the cost of a new competitor, mainly Dish Network. Whatever the case, we can anticipate that other plans carriers may have would be forestalled. Hopeful vendors in adjacencies have to take caution that solutions which are not core to the AWS-3 network buildout may get significantly delayed.

Some detail on the AWS-3 spectrum for perspective:

– The reserve price for the paired licenses (1755-1780/2155-2180 MHz) was set at just over $10 billion

-The reserve prince for the unpaired licenses (1695-1710 MHz) was set at just over $579 million

Block Frequencies Bandwidth Pairing Geographic Area Type Number of Licenses
A1 1695-1700 MHz 5 MHz unpaired EA 176
B1 1700-1710 MHz 10 MHz unpaired EA 176
G 1755-1760/2155-2160 MHz 10 MHz 2 x 5 MHz CMA 734
H 1760-1765/2160-2165 MHz 10 MHz 2 x 5 MHz EA 176
I 1765-1770/2165-2170 MHz 10 MHz 2 x 5 MHz EA 176
J 1770-1780/2170-2180 MHz 20 MHz 2 x 10 MHz EA 176

(EA = Economic Area; CMA = Cellular Market Area)

 

AWS-3 Paired Bands: 1755-1780 and 2155-2180 MHz

AWS-3 Paired Bands: 1755-1780 and 2155-2180 MHz

 

AWS-3 Unpaired: 1695-1710 MHz.

AWS-3 Unpaired: 1695-1710 MHz.

The bidding shifted to stage 2 earlier this week so the auction will start to wind down. The incremental change in value over the last few rounds as been on the order of 0.1%, so the final price will be close to the figure above.

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About Frank Rayal
Telecom industry management consultant.

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