By Emily Bary
The three major U.S. wireless companies spent heavily at a recent wireless-spectrum auction that raked in a record $81.2 billion and is expected to dramatically reshape the telecommunications industry for years to come.
Verizon Communications Inc. /zigman2/quotes/204980236/composite VZ +1.02% was the biggest bidder in the auction for “C-band spectrum,” a type of wireless spectrum that the biggest U.S. carriers expect will prove crucial in the rollout of 5G networks. Verizon spent $45.5 billion at the auction, while AT&T Inc. /zigman2/quotes/203165245/composite T +1.19% spent $23.4 billion and T-Mobile US Inc. /zigman2/quotes/204659678/composite TMUS +3.54% spent $9.3 billion. Others rounded out the auction with smaller bids of their own — U.S. Cellular Corp.’s /zigman2/quotes/203420412/composite USM +2.74% $1.3 billion haul was the next largest total after T-Mobile’s.
The spectrum purchases will have a profound impact on the U.S. telecommunications market in more ways than one, as the carriers begin to deploy the spectrum to deliver the 5G speeds they have long promised and deal with the financial impacts of such costly bidding, which vastly surpassed initial expectations.
Here’s what you need to know about the latest auction.
What was the spectrum auction?
The U.S. government controls wireless spectrum, or the radio frequencies that allow information to travel. The government periodically makes chunks of spectrum available for purchase by private telecommunications companies.
Through the recent C-band spectrum auction, the government allowed wireless providers and others to bid for the right to spectrum frequencies that they can use to build out their wireless networks. The companies bid on chunks of spectrum corresponding to different areas of the country and with various clearing dates, meaning that the spectrum will become available for use at different times over the coming years.
The auction was a “roaring success” for the government, wrote MoffettNathanson analyst Craig Moffett, as it “raised more money for the U.S. Treasury, by far, than any auction before it.”
What does it mean for 5G?
There are different frequencies of spectrum, and the C-band auction offered access to certain mid-band frequencies thought to be crucial for operators as they build out their 5G networks.
Verizon, AT&T, and T-Mobile have talked about their “nationwide” 5G networks, which rely mainly on low-band spectrum that travels greater distances but offers limited advantages in terms of speed. Carriers have also played up millimeter-wave spectrum, which enables fast speeds but doesn’t travel far, meaning that the use cases have been limited to small, dense places like stadiums.
Mid-band spectrum is the “just-right porridge,” TECHnalysis Research President Bob O’Donnell said, in a reference to “Goldilocks and the Three Bears.” While low-band spectrum could help the carriers expand into rural areas and millimeter-wave spectrum could help in places like airports, “it seems pretty clear now that mid-band is going to be the core part of 5G,” he said, since this type of spectrum offers the right mix of spectrum width and travel distance to enable better coverage in metropolitan areas.
In many other countries, carriers were able to launch their 5G networks with mid-band spectrum, O’Donnell explained, but in the U.S., many mid-band frequencies had been controlled by the government for military applications and other purposes, and a large portion of spectrum was only just released. Of the three major carriers, only T-Mobile had a substantial amount of mid-band spectrum prior to the auction, which the company obtained through its purchase of Sprint last year.
It will take some time before carriers can deploy what they obtained at the latest auction. Only 100MHz of the 280MHZ of spectrum that was up for purchase at the latest auction is expected to become available toward the end of this year, with Verizon winning 60% of that and AT&T taking the rest. Other blocks won’t be released for use until later. Carriers will also have to build out infrastructure at additional cost to support the new spectrum frequencies.
“I wouldn’t expect customers to start seeing benefits until we get into 2022,” Edward Jones analyst David Heger told MarketWatch.