First two rounds of forward auction of 600 MHz airwaves draws over $9B in bids

Bidders in the FCC’s incentive auction offered $8.5 billion for some of the 600 MHz airwaves during the event’s first round Tuesday, far outpacing the first day of bidding for AWS-3 spectrum less than two years ago.

But a second round of bidding garnered only $500 million more, and analysts remain skeptical that bidding will top the $88 billion necessary for the event to end after just a single stage.

The Commission hopes to auction off 100 MHz of the low-band spectrum in any market during the first round of the auction compared to the 50 MHz of paired mid-band spectrum sold during the AWS-3 auction, which drew $1.77 billion in bids in its first round. Bidders were particularly aggressive in targeting major markets such as New York, Los Angeles, Chicago, San Francisco and the Washington D.C. area, Walter Piecyk of BTIG Research noted.

“In the top 25 markets, demand outstripped supply by 40 percent at opening bid prices with some markets seeing demand top supply by 2x-3x,” Piecyk wrote on BTIG’s website. “In total there was $17 billion of bids placed resulting in ‘winning bids,’ or as the FCC calls it ‘auction proceeds,’ of $8.5 billion ($0.29/MHz/POP). This compares to $1.7 billion ($0.11/MHz/POP) after the first round of the AWS-3 auction. We estimate that round 2 will increase to $8.8 billion unless bidders start spreading their $17 billion of bidding units/activity over more markets, resulting a higher mix of ‘winning bids.’”

The second round of bidding Tuesday morning saw $500 million in additional bids. The FCC raises its prices by 5 percent after each round.

The FCC discloses market-by-market bidding activity during the forward auction, but it doesn’t disclose the identity of the bidders. Verizon, AT&T and T-Mobile are all expected to spend billions at auction, while Sprint – which continues to struggle financially – opted out of the proceeding. Other major bidders include Dish Network and Comcast.

Bidders in the first stage of the auction indicate whether they’re willing to buy a 10 MHz block of spectrum in a given market at set auction prices. The FCC received far more bids per block than is actually available in many markets, but the winning bid totals reflect only the number of blocks that can be won – not the aggregate value of bids received.

More than half of the 4,048 spectrum blocks received no bids, although Piecyk said those blocks will likely draw increased interest from bidders as the first stage progresses. Regardless, the event probably won’t meet the clearing cost required to pay TV broadcasters for their airwaves, among other things. Which means the Commission will need to reduce the amount of spectrum it will free up and resume bidding with TV broadcasters in the reverse auction in a second stage of the auction.

“We think it’s safe to conclude that round 1 bidding provides no indication of what a possible buyer values this 600 MHz spectrum at, but is simply a function of the opening price set by the FCC and the overall structure of the auction,” Piecyk wrote. “If Stage 1 bidding does not top $88 billion, which it’s unlikely to do, the maximum available spectrum will drop to 90 MHz in Stage 2.”

Analysts at Wells Fargo Securities agreed with Piecyk, noting that the AWS-3 auction generated only about $45 billion.

“We will stick with our original analysis, which says that the forward auction will ultimately net anywhere between $27 billion and $38 billion,” Wells Fargo wrote in a note to clients, as TVNewsCheck reported. “We don’t see how this incentive auction will come in at more than double the AWS-3 auction.”

For more:
- read Piecyk’s BTIG Research post
- see this TVNewsCheck report

Related articles:
The forward portion of the incentive auction starts tomorrow, and no one knows what to expect
Rama, Sinclair not on final list of bidders for 600 MHz spectrum auction
600 MHz incentive auction primer: Who will bid, when it will happen, how it will work, and how much money it will raise