Despite his enthusiasm for federalising any policy that touches on telecoms, big footing state and local governments isn’t at the top of Federal Communications Commission chairman Ajit Pai’s 5G wish list. Pai and three of his fellow commissioners spoke at CES in Las Vegas earlier this week. When asked about the main barriers to widespread deployment of 5G broadband service, Pai listed cost, spectrum and the availability of trained construction crews.
Although there’s not a lot that a telecoms regulator can do about workforce training or construction costs, spectrum availability is the FCC’s core responsibility.
Pai promised to “push” more frequencies, licensed and unlicensed, into the broadband market. But opening up new spectrum for broadband means taking it away from or sharing it with other users, which quickly devolves into a zero sum game in Washington, D.C.
The satellite industry stands to lose 280 MHz of spectrum in the 3.7 GHz to 4.2 GHz ranges – AKA the “C” band. The FCC plans to auction off those frequencies to mobile carriers for exclusive, licensed use, presumably later this year.
The FCC has a plan to repurpose 45 MHz in the 5.9 GHz range, transferring it from the automotive industry and opening it up for WiFi and similar unlicensed uses. Carmakers “had not lived up to the promise” of their 75 MHz of dedicated short range communications (DSRC) spectrum, said Geoffrey Starks, the lone democratic commissioner to speak at CES. The FCC’s plan would assign 20 MHz of the balance to cellular-type vehicular communications – C-V2X in the jargon – and maybe leave 10 MHz for whatever uses the automotive industry eventually develops for DSRC. Or maybe not – WiFi has a huge fan base.
Sharing is contentious in D.C. because it’s often federal agencies that are being asked to give up exclusive use of frequencies they’ve had to themselves for decades. “I’ve learned in Washington there are three things you don’t discuss three things in polite society, religion, politics and sharing of spectrum”, Pai said.
Who came in third depends on how you’re figuring it. Comcast bid the third most money – $1.7 billion – but ended up with only 73 licenses, a mere 3%. U.S. Cellular – the distant number five mobile carrier in the U.S. – was number three in the license race, paying $329 million for 188 licenses (7% of the total, but not prime real estate).
AT&T plunked down nearly a gigabuck – $910 million – for 23 licenses, a 1% share. Verizon, on the other hand, was shut out, winning zero licenses but, on the other hand, paying zero dollars.
Sprint didn’t participate, or at least not under its own flag. There will certainly be further wheeling and dealing. Many of the winning bidders appear to be have transaction motives rather than action plans.
DISH is top of that list. Chairman Charlie Ergen made the leap from millionaire to billionaire after placing a low cost, high return bet on direct broadband satellite slots back in the 80s, and has been playing the spectrum sweepstakes ever since. He’ll light up frequencies himself when there’s an open field – as there was with DBS once it got going in 90s – but otherwise manages his licenses as an investment portfolio.
Don’t expect anything revolutionary from anyone in the near term. It’ll take a few years to move TV stations off of the frequencies they’re giving up in exchange for $10 billion. And which they, or at least the original license holders, paid exactly zilch to acquire.
The downward, selling price auction ended last month, with TV stations willing to accept $10 billion in return for giving up 84 MHz of UHF spectrum. After setting aside 14 MHz for unlicensed use and guard bands, the FCC opened the bidding for the remaining 70 MHz. The final buying price was $19.6 billion, just a bit less than wireless companies were willing to pay for the 80 MHz slice on offer in the third round.
The FCC produced a tidy profit of about $7 billion for the federal treasury, money that’s assumed to be going toward upgrading public safety communications networks. It’ll cost about $2 billion to “re-pack” remaining UHF television channels, in order to produce contiguous mobile broadband frequency assignments. The balance goes towards administrative overhead.
The final bid total was significantly less than hoped. Original estimates were that carriers would pay somewhere in the $30 billion to $40 billion range for 100 MHz. Broadcasters had their eyes on an even bigger payday, starting with a $86 million selling price in the first round, $57 billion in the second and $40 billion in the third – with the amount of spectrum cut each time – before collapsing to $10 billion on the fourth and final try. Carriers, on the other hand, were pretty consistent, bidding a total of $23 billion for 100 MHz initially and walking it back about a billion at a time until the end came on Friday.
The wrangling isn’t over – the next step is to figure out which exactly frequencies TV stations will surrender and which will go to the winning bidders, whose identities haven’t been released yet.
In the reverse auction phase of the third stage, broadcasters lowered their price to $40 billion (including the FCC’s cut) for 108 MHz of spectrum in the 600 MHz UHF band. The FCC then turned around and put 80 MHz on the block, reserving the remaining 28 MHz for guard bands and unlicensed use. However, the most that mobile carriers were willing to bid yesterday was $20 billion, half the asking price.
In the first stage, the reverse auction produced a selling price of $86 billion but mobile operators were only willing to pay $23 billion for the 100 MHz on offer. In the second stage, the available spectrum was cut to 90 MHz and the price dropped to $57 billion. But with less on the table, carriers offered less money, $22 billion that time. And now the third stage has produced the same result – less spectrum means both a lower asking price and a lower willingness to spend.
So now it’s on to a fourth try. The FCC anticipates “that bidding in Stage 4 of the reverse auction will begin Tuesday, December 13, 2016”. No spectrum target has been announced yet, but the assumption is that it’ll decrease by another 10 MHz to 70 MHz (plus guard and unlicensed bands). Earlier predictions that broadcasters and mobile carriers would eventually meet somewhere around $30 billion now seem too optimistic – mobile carriers appear to have a firm value in mind and it drops along with the amount of spectrum on offer.
Mobile carriers were willing to pay $21.5 billion for the 90 MHz that was on offer. Unfortunately for them, though the minimum price set was $56.5 million. That’s about a billion dollars less than the carriers were willing to pay in the first stage of the auction, when 100 MHz was up for grabs. On the other hand, the gap is closing, sorta: in that first stage, broadcasters were asking $35 billion more than they did in this second one.
There are two schools of though as to what will happen when the FCC launches subsequent rounds of reverse-and-forward bidding, with progressively lower amounts of spectrum on the table. It could be that as the supply tightens, the value to buyers – the demand – will increase and mobile carriers will start putting more money on the table. There are a number of forecasters who talk about a final meeting price somewhere in the $30 billion range, for maybe two-thirds of the current amount of bandwidth that’s up for sale.
But there’s also the possibility that wireless carriers will simply say less spectrum is worth less money and keep their bids heading in a southerly direction. For the process to be a success, broadcasters would have to drop their asking prices at an even faster rate. In this case, success equals more spectrum for mobile broadband – where bandwidth demand continues to outstrip supply – and less for television broadcasting, where allocations made decades ago in ancient analog times are far too lavish in the digital age.
The FCC will announce the third stage schedule later this week.
Broadcasters have reduced their selling price by $32 billion in the second round of the Federal Communications Commission’s incentive auction, which ended yesterday. Even so, there’s still a big gap between that and what mobile broadband carriers were willing to pay in the first round.
The auction is aimed at moving legacy TV stations off of prime UHF real estate so mobile broadband companies can use the bandwidth instead.
The second, reverse round of the auction began last month, with 90 MHz of prime mobile broadband spectrum on the line (and another 24 MHz for unlicensed uses and guard band duty). TV station owners bid their selling price for that spectrum down from the $88 billion they wanted for 100 MHz in the first round to the current $56 billion ask for 90 MHz.
The problem is that mobile companies only bid $23 billion to buy 100 MHz the last time around. Looked at one way, broadcasters met mobile carriers more or less halfway: the $66 billion gap is now $32 billion and change. If mobile companies were holding back to a significant degree the first time, they might be willing to pay more this time. On the other hand, $23 billion might be the max given their expected return on the investment and chopping out 10% of the available spectrum could mean they’re not interested in paying as much as in the previous round.
It gets more complicated. It’s not enough to just match the selling and buying prices. Congress is expecting the FCC to raise extra money to pay for digital upgrades to public safety networks.
Although there’s always been the hope of a fast and lucrative finish to the incentive auction, the base assumption has been that several rounds will be needed. The FCC will launch the second half of the second round – the forward, buyer’s auction – next week.
It’ll cost $86 billion to free up 100 MHz of broadcast television spectrum for licensed mobile broadband use and another 26 MHz for guard bands and unlicensed users. That’s the result from the reverse auction run by the Federal Communications Commission for television station owners, who were supposed to progressively bid down the price they were willing to accept in exchange for giving up their assigned channels.
That figure is more than twice as much as originally expected. The estimates made when the bidding began earlier this month pegged the likely cost at around $37 billion. The actual result was a jaw dropper for pretty much everyone involved – staggering amount is a common description – although in retrospect it makes a certain amount of sense. The next step is for mobile broadband companies to bid on how much they’re willing to spend to get the spectrum. If they don’t bid enough over the coming month to cover broadcasters’ offered price, the reverse/forward auction will go to another round. So keeping the sell price high in what would be just the first round of haggling is a rational move.
At this point, there’s little expectation that mobile broadband companies will be willing to meet that price. So the next step would be to cut back on the amount of spectrum sought and ask broadcasters to bid down sell prices again. It’s possible that three or more rounds will be needed, dragging the process into next year. The sky high price also throws cold water on hopes that the double auction would produce a windfall profit – once pegged at $24 billion – that would go towards public safety network upgrades.
The long delayed double auction aimed at transferring 100 MHz of UHF spectrum from television broadcasting to mobile Internet service is finally underway. The first step is a reverse auction where television station owners bid down the price they’re willing accept to give up their channel assignments. It started this week with one daily round of bids on Tuesday and Wednesday, and stepped up to two rounds a day yesterday.
All totalled, the FCC wants to set a price for 126 MHz of UHF spectrum in the 600 MHz band. Once the price broadcasters are willing to accept hits rock bottom – a process that could run through the month of June – the FCC will set aside 26 MHz for guard bands and unlicensed uses, and then auction off the rest to mobile carriers in 10 MHz slices.
That’s the plan, anyway. It’s a complicated and expensive process. According an estimate by Wells Fargo analyst Marci Ryvicker quoted in TV Technology, mobile carriers will have to bid at least $37 billion in order for the FCC to buy back the entire 126 MHz. Less money likely means less spectrum available for mobile Internet service.
There’s also the question of whether the double-auction will be a windfall for the federal government. The original plan called for a profit of at least $24 billion, which would go to pay for public safety network upgrades. For that to happen, broadcasters have to sell low and mobile carriers have to buy high. It’s an interesting theory. We’re about to see how it works in practice.
“I keep describing it as a Rubik’s cube”, said FCC chair Tom Wheeler as he answered questions at CES about plans to auction off television frequencies for mobile broadband use. Like a Rubik’s cube, it’s a constantly moving problem on three axes: a reverse auction to buy back TV channels and a regular auction to sell the bandwidth to mobile phone companies, all while repacking television stations into less spectrum. It’s scheduled to happen in 2015, just about the time that the mobile broadband capacity crunch is expected to produce acute consumer pain.
In the meantime, another initiative to free up space for mobile broadband involves making government agencies do a better job of sharing spectrum. Frequencies assigned decades ago in easy going analog times would be sold to telecoms companies to raise money for public safety networks and open up more bandwidth for public use.
Ten MHz of vacant spectrum is scheduled for sale later this month, with the FCC expecting it go for at least $1.6 billion. There’s a chance that won’t happen, though. Commissioner Jessica Rosenworcel voted against the plan originally and said again at CES that auctioning off more spectrum at once will raise more money. She’d prefer to bundle it with a bigger slice of former government frequencies that’s expected to on the block in the fall.
Altogether, the auctions are expected to net at least $7 billion, which lawmakers say must pay for a complete digital overhaul of the nation’s public safety networks. Hope flows downhill from congress and it’s up to the FCC to put it to good use. “If you work in Washington you’re required to be an optimist”, Rosenworcel said.