Why Were Spectrum Auction Expectations So Far Off?

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fcc2 (1)How could so many forecasts or the FCC’s incentive auction have been so far off? That’s what MoffettNathanson analysts are trying to figure out.

When the government’s broadcast incentive auction began last May, expectations were sky high. “This was the last great trove of low frequency spectrum. The most ambitious estimates flirted with 100 billion dollars and $3 per MHz-POP,” writes Senior Analyst Craig Moffett.

Now, the fourth and likely final stage of the forward auction begins today with an asking price of $10 billion for 84 MHz (see story above). “Broadcaster confidence has crumbled, replaced with a desperate rush to at least get something out of an auction that once promised riches,” writes Moffett in a client report.

One argument holds that the carriers’ spectrum needs have shifted, and now they prefer mid-band spectrum, which is well-suited for capacity, over low-band spectrum, which is ideal for coverage. “Once you’ve got enough low-band spectrum to cost effectively cover rural America, as do Verizon and AT&T, the argument goes, there’s not much need for more. The carriers face capacity constraints in urban, not rural, markets.”

Carriers are also turning to small cells rather than spectrum for capacity enhancement; what also may be the case in the “sobriety” of the auction is that carriers’ balance sheets “are stretched to the breaking point,” writes Moffett.

Despite the hand-wringing among some, the auction has done what it was supposed to do: discover a clearing price for a large (70 MHz plus guard bands) block of spectrum. With the offer price now low enough to suggest that this is almost certainly the final round – the gap between bid and ask is now gone – that clearing price is now within sight. Only now, with the ask low enough and with the technical rules of the auction close to being satisfied, will the spectrum buyers “get serious.”

January 18, 2017

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