3.45 GHz auction blasts past $7B

All eyes are on the 3.45 GHz spectrum auction this week as its success or failure hinges on making the reserve price set by the Federal Communications Commission (FCC).

Last week, the auction appeared to teeter on the brink, with analysts warning it might not meet the FCCs minimum reserve price. Gross proceeds topped $7 billion after Round 29 this morning, with several more rounds to go today.

The 3.45 GHz auction began October 5 and was part of a mandate by Congress that the FCC begin the 3.45-3.55 GHz band auction no later than December 31, 2021. The band is currently use by government incumbents, and there’s a transition period before private sector users can move in. Wireless operator executives expressed a degree is skeptism about the transition before the auction’s quiet period kicked in.  

The FCC set a reserve price of $14.77 billion, which is the highest reserve price of any auction, noted New Street Research policy analyst Blair Levin. It equals 110% of the relocation and sharing costs that the National Telecommunications and Information Administration (NTIA) estimates that federal incumbents, largely the Department of Defense (DoD), will incur, he explained in a note for investors today.

New Street analysts noted that for the first time, there’s a risk that the bidding will not meet the reserve price and the auction will not close. However, Levin added that: “We think the odds still favor the auction meeting the reserve price.”

Still, if it fails, the most important impact for investors will be how it lengthens the time in which the current spectrum advantages enjoyed by T-Mobile, and Verizon, with regard to C-band spectrum, remain in place. In summary, New Street projects a failed auction will be bad for AT&T, mixed for Dish Network, and positive for T-Mobile, Verizon and cable companies.

At the auction’s close on Friday, the aggregate amount of bids totaled $9.5 billion, but bids for the supply of licenses (or aggregate bids less excess bids for licenses, which are the “gross bids” that drive the gross proceeds reflected on the FCC’s website) was $6.5 billion, Levin noted.

Sasha Javid, COO of BitPath and former chief data officer and legal advisor for the FCC Incentive Auction Task Force, has been closely tracking the auction here and sending out daily email updates.

RELATED: 3.45 GHz auction hits make-or-break stage

Referring to Javid's most recent assessment of the auction, the reserve price should be met by Tuesday, barring another major drawback from bidders.

Levin also noted that if Javid proves correct, “this [October 18] note will enjoy the quickest route to obsolescence of any we have ever written,” though some of the analysis, to be sure, will be useful for the battle over the 3.1-3.45 GHz band. “If wrong, we expect to return to this subject often, as it will be the major bloody shirt of communications policy for a long time to come.”

If the auction were to go belly up: “The first set of reactions will be a set of spins in which everyone will see in the failure a confirmation of their previously held view," Levin wrote. "These reactions will seek to frame the debate about how to take a second run at allocating the spectrum.”

RELATED: What’s in the cards for the 3.45 GHz auction?

In a way, the most important reaction will be from the DoD, he noted. “We would guess its view will be that a) carriers are exaggerating the extent to which they need spectrum; b) government policy should be more deliberate about reallocating spectrum from the Defense Department (i.e., allow us to take more time in both the allocation and the transition); and c) the government should consider alternatives in which the Defense Department has more ongoing control over the spectrum.”