5G spectrum auction is nearly done. What it means for AT&T, Verizon and T-Mobile

U.S. telecom companies are about to spend the better part of $100 billion on wireless spectrum licenses in coveted frequencies most useful for their next-generation 5G networks. The Federal Communications Commission-run auction is close to its conclusion, after 75 rounds and more than $80 billion of bids already in.

Verizon Communications (ticker: VZ) and AT&T (T) are expected to be the biggest spenders when the auction concludes, but T-Mobile US (TMUS), Dish Network (DISH), Charter Communications (CHTR), and Comcast (CMCSA) could also get plenty of new spectrum.

The licenses up for grabs—in the so-called C-Band—cover about 280 megahertz of spectrum falling between 3.3 GHz and 4.2 GHz. That counts as mid-band spectrum, which offers an attractive trade-off between connection speed and range. Higher-frequency signals allow for faster connectivity, but don’t travel far from an antenna. Low-band spectrum has the opposite trade-off: It allows carriers to blanket a large geographic area with service from relatively few antennas, but without the lightning-fast speeds that 5G promises.

Wireless companies effectively need to have licenses in all three categories to boast a fully developed 5G network, with high-band coverage in dense urban areas and places like stadiums or airports and mid- and low-band filling in the gaps in suburban and rural areas in the rest of the country.

T-Mobile boasts the U.S. wireless industry’s most complete spectrum portfolio, largely thanks to an abundance of mid-band licenses secured in its acquisition of Sprint which closed in April 2020. Verizon has bet big on high-frequency spectrum commonly referred to as millimeter wave, or mmWave, while AT&T is somewhere between its two rivals.

“We continue to argue that carriers can’t overspend on this spectrum; the more a carrier wins, the better off they are,” wrote New Street analyst Jonathan Chaplin on Monday. “T-Mobile has an insurmountable lead with prime 5G spectrum; the C-Band auction will determine how much of a lead they maintain. For Verizon and AT&T, the C-Band auction is critical, and the prices in the auction demonstrate this.”

The auction also means there will be a ton of debt issuance from the U.S. telecom sector in the coming months. AT&T is the most indebted of the group, and investors have worried in the past year about the numerous demands on its cash flows—including debt repayment, a large dividend commitment, and investment needs beyond just wireless spectrum. T-Mobile plans to close a $3 billion bond offering this week.

Satellite-TV provider Dish also boasts a portfolio of wireless spectrum licenses, and plans to build a nationwide 5G network in the coming years. Cable companies like Charter or Comcast have been growing mobile virtual network operators, or MVNOs—companies that sell wireless service but don’t own the networks on which they operate—in recent years. Their interest in acquiring spectrum licenses is to handle their customers’ traffic themselves on their own antennas and cable networks in areas where they already have a presence.

Comcast’s Xfinity Mobile and Charter’s Spectrum Mobile both currently operate on Verizon’s network, but owning more spectrum would let them direct some traffic off of Verizon’s network in those places.

The C-Band auction began on Dec. 8, and has progressed through dozens of rounds of secret bidding in which licenses for defined frequencies and geographic areas are allocated to bidders.

Nearly 99% of markets were completed as of Monday, when gross proceeds stood at roughly $81 billion. It will cost billions of dollars more to clear the spectrum for use by the wireless companies—it’s currently occupied by satellite companies like the bankrupt Intelsat. That will take months, and the spectrum won’t be fully ready for 5G use before the end of the year.

The C-Band auction follows the CBRS auction last September, which included 70 MHz of radio frequencies between 3.5 GHz and 3.7 GHz and went for a total of $4.5 billion. The final C-Band bill could double the previous record from a spectrum auction in 2015.

T-Mobile stock is up 63% over the past year—Barron’s recommended buying the shares last January—versus a 20% loss after dividends for AT&T and a flat return including dividends for Verizon. The S&P 500 has returned 18.5% in the past year and the Dow Jones Industrial Average has returned 10%. Barrons