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Dec. 23, 2020, 9:34 a.m. EST

5G auction breaks record as bids top $66 billion

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By Drew FitzGerald

The Federal Communications Commission's ongoing sale of wireless licenses has fetched more than $66.4 billion after three weeks of bidding, a record sum that could alter cellphone carriers' prospects for the next decade.

The auction proceeds have already topped the $44.9 billion raised in 2015 by an earlier sale of midrange cellular licenses, which U.S. cellphone carriers used at the time to enhance their 4G service. Those companies are now investing billions of dollars in the next wave of fifth-generation coverage. The 5G standard promises to speed the flow of data to phones and other wireless devices like personal computers, cars and industrial machinery.

The recent bids have blown past Wall Street's highest forecasts, suggesting that several companies are fighting over the most valuable wireless rights. The 5G auction kicked off Dec. 8 and will pause for the holidays until Jan. 4, when total bids could move even higher.

Each bid is swathed in secrecy until the auction process ends. Analysts expect big names like AT&T Inc. and Verizon Communications Inc. to walk away with a large share of the licenses to match assets that rival T-Mobile US Inc. captured with its February takeover of Sprint.

"Mid-band spectrum will be where 5G lives," said Walt Piecyk, a telecom analyst for research firm LightShed Partners. He added that T-Mobile's merger with Sprint "clearly put pressure on Verizon and AT&T" to match their rival's war chest.

"When the numbers get this big, you have to assume that everybody's getting more aggressive," Mr. Piecyk said.

Mobile service providers are also bidding against investment firms and new market entrants. Satellite provider Dish Network Corp. won many of the licenses sold in the 2015 auction. The company this month raised more cash through a $2 billion convertible-note offering to help fund more network investments. Dish is building its own cellphone network after buying assets and about 8 million customers from Sprint.

Cable internet providers could also influence the auction's outcome after years of experimentation with wireless services. Comcast Corp. and Charter Communications Inc. teamed up to bid in the current auction after they spent nearly $1 billion on a smaller license sale earlier this year.

The radio frequencies being offered range between 3.7 and 4 gigahertz, a middle-of-the-road range considered well-suited for 5G service. New 5G smartphones can already connect to those frequencies in other countries that have cleared the spectrum. The U.S. is also selling big chunks of spectrum at once, enhancing their value.

The high offers benefit the U.S. Treasury, which will collect a windfall after the winners pay for their licenses. The victors will also need to spend at least $13 billion more to help modify equipment for a group of satellite companies that already use the frequencies. The satellite operators agreed to an FCC plan that shifts their TV transmissions to a narrower portion of the radio spectrum known as C-band.

Cellphone carriers can afford to commit to big payments given their low borrowing costs and relatively stable service revenue, said Raymond James analyst Frank Louthan.

"Investors see these companies as some of the most secure around," Mr. Louthan said. "I don't think a slight change in a debt ratio would make much of a difference."

The FCC won't reveal the auction's winners for several days after the auction ends, meaning the broader telecom industry could remain in suspense until February. Federal rules against coordinated bidding also limit what the auction participants can say about the process, restricting their ability to raise capital or discuss major deals involving spectrum.

Write to Drew FitzGerald at andrew.fitzgerald@wsj.com

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