Long-Awaited 5G Auction Expected to Stretch Carriers' Balance Sheets
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
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
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
"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
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
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 email@example.com
(END) Dow Jones Newswires
December 08, 2020 09:15 ET (14:15 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.