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Financials Spetrum and Auctions

So much of 600 MHz is for sale, that some will be left on the shelf

The US auction for 600 MHz spectrum takes place in two parts. The first, the reverse auction, asks existing holders of the spectrum how much they would need to be paid for their airwaves and to move operations into another band. That process has been completed, exceeding the FCC’s targets in terms of the amount of spectrum cleared for the second phase, the auction itself.

But the auction may be a victim of its own success. The FCC says it has as much as 126 MHz of broadcast spectrum to put to wireless broadband use, but the clearing cost would add up to $86.4bn. Many commentators are suggesting that this is way too much for the forthcoming auction and that unsold spectrum will have to be returned to owners (which is allowed for by the auction process).

The Wall Street Journal has pointed out that the $86.4bn figure is more than the combined market cap of T-Mobile USA and Sprint, which today total around $53bn. It would make more sense for a large operator to buy them (if they could afford it and get it past regulators) than to buy this spectrum.

The interest in low bands like 600 MHz spectrum is heavily tied to cost effectiveness, since the propagation qualities of these airwaves allow operators to cover large areas cheaply. But if the spectrum itself is too expensive those cost arguments go away, at a time when many MNOs are moving to a second, capacity-driven phase of LTE roll-out, which shifts the value of spectrum to higher bands which support density.

The timing is interesting too. In five years’ time, US broadcasters may well feel that the broadcast networks are an expensive way to deliver TV, and move more and more towards broadband and over-the-top delivery. Then they will find they are paying the upkeep on spectrum and associated broadcast equipment which they just don’t need. So five years from now, if spectrum has been returned to them, the clearing cost will be substantially lower, and broadcasters might be happy to walk away from it.

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