2.5 GHz Auction Opens at $103.5M; Experts Say T-Mobile Likely to Dominate

The FCC’s final scheduled 5G auction, of 2.5 GHz spectrum, opened Friday at $103.5 million after one round of bidding. Two more rounds are scheduled for Monday. Industry analysts tell us T-Mobile looks likely to dominate, filling in gaps in its 2.5 GHz holdings, with some smaller carriers likely to jump in if they see the opportunity for a bargain. Verizon, AT&T and Dish Network qualified to bid but appear unlikely to make much of a play, analysts said. T-Mobile already has 159 MHz of 2.5 GHz spectrum nationwide.

AT&T and Verizon both had rough Q2s, and executives made clear on analyst calls that both are relatively satisfied with their spectrum holdings and have other items to address (see 2207220061) and (see 2207210059). Dish reports this week. The bidding so far is well below the last two mid-band auctions. The C-band auction opened with $1.9 billion in bids in round one, 3.45 GHz with $672.4 million.

“This auction is really all about T-Mobile,” Sasha Javid, BitPath chief operating officer, told us. “The FCC gave it the multiround auction format that it wanted so the risk of overpaying, or worse, losing spectrum licenses that it really needs, are mitigated,” he said: “This auction could be the final step towards T-Mobile solidifying its lead in 5G for years to come by cleaning up holes and ownership issues in its foundational 2.5 GHz portfolio.”

While Verizon and AT&T are playing catch-up to T-Mobile, that means spending on deployment of the C-band and 3.45 GHz licenses they bought in the last two big FCC auctions, Javid said. “At most, they will be marginal players in this auction,” he said: “The same logic applies to Dish, which still has a daunting task of building a greenfield nationwide network in front of it. But Dish also has a hard time passing up cheap spectrum, which should be the case in this auction.”

“The 2.5 GHz auction looks like a repeat of the 600 MHz auction, with T-Mobile dominating the field [and] some small carriers picking up licenses here and there,” said Recon Analytics’ Roger Entner. AT&T, Verizon and Dish probably won’t make big moves since the licenses are mostly rural, he said.

“While we are bullish on spectrum values generally, and on the value of upper mid-band spectrum from 2.5-4.0 GHz in particular, we expect this auction to underwhelm on price,” New Street’s Jonathan Chaplin told investors. Some speculate about “the likelihood of other national carriers bidding to drive up the price T-Mobile has to pay; we agree that this will happen but don’t expect the impact to be of the magnitude often supposed, as none of the other national carriers would want to get stuck with these licenses,” he said.

From a financial perspective, AT&T, Dish and Verizon are already “pretty tapped out,” Chaplin said. “From a networking perspective, none of the national operators besides T-Mobile are deploying radios compatible with 2.5 GHz spectrum, meaning they would have to spend significant capex after buying the spectrum to put it to use,” he said: “Given the unique shape of the underlying licenses being offered and the need to protect the incumbent operator in any license area (usually T-Mobile), the deployment would also be complicated. And, since these other operators would need to deploy other bands of spectrum alongside the 2.5 GHz deployment to fill in coverage gaps, they would have to navigate new interference concerns in their own network.”

T-Mobile will likely “walk away from the table with [the] most ‘chips,’ chips they probably will get for a lower price,” emailed John Strand of Strand Consult. Many of the licenses cover rural markets, he noted. “The big question is how [many] smaller rural carriers look at 2.5 GHz and … want to buy it. The answer is probably yes and no -- the bottom line is that T-Mobile probably will be the major player.”

Strand noted that the nature of 5G opens up possibilities. “It is a smart network that allows the integration of different frequencies to solve various tasks flexibly,” he said: “In the same way as upgrading tools helps a carpenter perform more sophisticated jobs, 5G helps operators turn dumb networks into smart ones. In the old days, the quality of a network was the result of how much money an operator spent on infrastructure. In the future, the quality of a network will be determined by an operator’s spectrum sophistication.”

“We all know there are gaps in 5G coverage, especially in rural America, and this auction is a unique opportunity to fill them in,” said FCC Chairwoman Jessica Rosenworcel: “I am grateful to the teams that have worked so hard to both stand up this auction and ensure the success of our efforts to make these airwaves available to Tribes to support wireless service in their communities.”

On Thursday, Bank of America downgraded Verizon, lowering its rating on shares to neutral and the price target to $51 from $64. "What is clear now is that Verizon faces a conundrum similar to that which the cable industry faces today," said analyst David Barden:. "After 20 years of default dominance, the foundational premise of that dominance, network 'quality,' in truth may no longer matter."