By Drew FitzGerald 

Verizon Communications Inc. and other cellphone providers are expected to spend billions of dollars to secure prized spectrum for their 5G networks in a U.S. government sale that kicks off Tuesday.

The Federal Communications Commission is launching a new auction for C-band airwaves, a stretch of wireless frequencies especially valued by companies trying to offer the fifth-generation service.

Typical bidders like Verizon, AT&T Inc. and T-Mobile US Inc. registered to participate. Cable, technology and investment companies also entered the contest, which could last several weeks.

"They all need to have a foot in the door," said Davis Hebert, an analyst at debt research firm CreditSights. "C-band is going to be the cornerstone of 5G networks for the next decade."

Wall Street analysts expect the auction to raise tens of billions of dollars over the coming weeks, a reflection of high demand. The frequencies sit in what telecom executives consider a "sweet spot" for 5G transmissions because they can move plenty of data quickly while still traveling long distances from a cellular tower.

CreditSights expects bidders to spend about $38 billion to secure the assets. Mr. Hebert expects cellphone carriers to "play it safe from a credit perspective" to avoid dragging down their bond ratings, which could limit their ability to outbid other participants.

New Street Research told its clients the licenses could fetch $52 billion if bidders use all the resources at their disposal, though the total could be much less if federal officials make a concerted effort to privatize nearby Defense Department spectrum, adding more potential supply to the mix. Either way, New Street predicted the bake-off "will be hard fought with carriers winning spectrum based on their balance sheet capacity."

The wide-ranging projections reflect the uncertainty surrounding an auction that took years to prepare. Satellite companies already use C-band airwaves to beam TV feeds and other content to receivers in the U.S. The satellite operators agreed to clear some space for cellphone companies after a drawn-out lobbying fight that delayed the sale of new licenses.

Verizon tapped the debt markets earlier this year to build up cash before the auction. T-Mobile, which absorbed rival Sprint Corp. earlier this year, also has cash on hand for bidding. Investors expect Verizon, the country's largest carrier in terms of subscribers, to bid aggressively to bolster its relatively low share of midrange spectrum.

Spokespeople for AT&T and Verizon declined to comment. T-Mobile didn't immediately respond to requests for comment. FCC rules barring coordinated bids often constrain companies' ability to discuss the auction.

The FCC is kick-starting the auction as President-elect Joe Biden prepares to nominate a new chairman to steer the commission. Current Chairman Ajit Pai, a Republican, has announced plans to leave in January.

The transition won't affect the continuing auction, which commission staff members oversee.

The FCC once doled out permission for radio and TV stations to use certain frequencies for free. The telecom regulator started selling new spectrum rights as demand for the resource grew. Auction spending surged as the smartphone explosion fueled demand for more data on the go.

The public ultimately benefits from the government's sale of new licenses, with proceeds from the winning bids steered to the U.S. Treasury. But the companies that win the licenses must pay for the assets through new borrowing, which is ultimately secured by the fees they charge their customers.

The commission's most expensive auction closed in 2015 with nearly $45 billion in bids. The winners quickly used the licenses to bolster their 4G service, allowing their customers to stream more music and videos.

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

 

(END) Dow Jones Newswires

December 08, 2020 09:15 ET (14:15 GMT)

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