2.5 GHz auction tops $400 million in gross proceeds

BitPath COO and auction analyst Sasha Javid said he wasn’t going to play “The Price is Right” game with the 2.5 GHz auction. But last week, he predicted that the auction would barely exceed $300 million in gross proceeds.

That turned out to be wrong, as the auction topped $400 million on Tuesday.

There are two reasons for the sharp increase, according to Javid. First is the large number of inexpensive products – or licenses – in this auction that still have excess demand. Second is that it appears a bidder moved some of its “parked” demand back into some large counties in California late last week.

There’s no way of knowing who that bidder is – the FCC keeps the identity of bidders a secret until after the auction action is over. But the entire event is generally seen as a way for T-Mobile to fill in coverage gaps for its 2.5 GHz mid-range spectrum layer for 5G.

The FCC kicked off Auction 108 in late July to sell a total of 8,017 county-sized licenses of Educational Broadband Service (EBS) spectrum, or 2.5 GHz. T-Mobile’s 2.5 GHz spectrum portfolio, which it obtained through the merger with Sprint, was built by striking long-term lease deals with incumbent EBS licensees. The terms of those leases remain confidential, which is one of the reasons this auction is mostly seen as a T-Mobile event and makes it hard to predict the final outcome.

“Based on what I saw yesterday, I’d say we’re back in the long tail of things and I think we’re going to settle in the mid-$400s” by the time all is said and done, Javid said, noting that at this rate, the auction could keep going for two or three more weeks.

What determines the length of the auction are factors like how quickly the FCC pulls its various levers, such as increasing the number of rounds. Currently, four rounds of bidding are held each day.

At the start of the auction, Javid said he thought Verizon and AT&T would try to drive prices up in the largest counties for T-Mobile. But based on the activity he’s seen, “it’s very unlikely that they did any of that,” probably deciding it wasn’t worth the risk of getting stuck with licenses they don’t want or that don’t fit into their band plans, he said.

Dish was a wild card. “I don’t think, based on what I’m seeing, that they’re a big player in this auction,” he said.

“Clearly, the encumbrances on these licenses have reduced prices,” he said. “Bidders have decided that certain counties like Cook (Chicago) and Harris (Houston) have too little unencumbered spectrum, or ‘white space,’ to bid on. Nevertheless, counties in Southern California, which are only slightly less encumbered, have attracted bids.”

This is the first time since the CBRS auction where the FCC is selling county-sized licenses, and that’s an attractive size for a lot of smaller service providers, including wireless internet service providers (WISPs). Other auctions with licenses that are based on Partial Economic Areas (PEAs) aren’t as attractive for smaller service providers but tend to attract the big carriers.  

In retrospect, it’s worth asking if the FCC would have been better off if this auction were conducted in a different way, like if incumbents were asked to trade in their licenses for credit, similar to what occurred in Auction 103 with the 39 GHz spectrum.

That might have resulted in higher gross proceeds, but that approach also would have had a lot of political complications, according to Javid, who was chief data officer and legal advisor for the 600 MHz incentive auction at the FCC in the 2015-2018 timeframe.

“This auction really wasn’t necessarily about generating money for the government. It was about cleaning up a band that T-Mobile really needed,” Javid said. But generating revenue isn’t the only mission of the government here; it’s to balance all of the stakeholders and come out with the best outcome, he added.