Total ‘winning’ bids in the ongoing FCC 600 MHz incentive auction surpassed a milestone, though most don’t expect first-stage success

As expected, the Federal Communications Commission’s ongoing 600 MHz incentive auction hit its “first component” milestone in its latest bidding round as total auction proceeds reached nearly $16.4 billion and net proceeds of more than $15.7 billion through 15 rounds.

Auction observers had expected the proceedings to hit the milestone, which is one of three needed for the auction to end successfully. For an auction stage with at least 70 megahertz of cleared spectrum up for bid, clearing the first component means, according to the FCC; “total proceeds of the forward auction exceed the product of $1.25 per-megahertz/[potential customers covered]x 70 megahertz x the total number of pops for the high-demand partial economic areas with at least one Category 1 block in this stage. This alternative formulation will allow the auction to close if the incentive auction repurposes a relatively large amount of spectrum for wireless uses, even if the price per-megahertz-pop is less than the benchmark price.”

Despite the milestone and growing pot, it remains unlikely this first auction stage will end successfully in terms of wireless carriers actually getting their hands on these exact licenses or that television broadcasters will get paid from the growing bids. Few expect the first stage to reach the $88 billion in total proceeds as part of the second component and needed to finance the financial demand of broadcasters for the 126 megahertz of total spectrum – which includes 100 megahertz of licensed spectrum for commercial wireless services.

“Satisfying the first component of the auction’s final stage rule is an important waypoint en route to a successful auction outcome,” explained Dan Hays, principal at PwC’s Strategy& consulting group. “In crossing this hurdle, the auction demonstrates that it can at least meet the minimum price per unit of spectrum required by the auction rules.”

In this opening stage, the FCC is offering up a varied number of spectrum blocks across 428 PEAs, with each block containing 10 megahertz of spectrum. Similar to recent spectrum auctions, the FCC is only releasing bidding information on markets and not on which bidders have placed those bids. The current auction has 62 qualified bidders, including the likes of Verizon Wireless, AT&T Mobility, T-Mobile US, U.S. Cellular and C Spire.

Sprint had previously stated it would participate in the auction, citing its current spectrum holdings, including its robust 2.5 GHz spectrum assets, as being sufficient for Sprint to move forward with its network plans and not need additional support from license in the 600 MHz band

Most observers note the current stage is likely to provide more clarity on just how much companies are willing to spend on spectrum resources, with the auction itself next moving to a second stage expected to clip 12 megahertz of total spectrum and 10 megahertz of licensed spectrum from the proceedings. With the first stage expected to conclude by the end of September, it’s likely the second stage will begin with a new reverse-auction process in mid-October.

Walter Piecyk from BTIG noted in a recent report he expects the auction proceedings won’t end until a fourth stage, which will see a total of 84 megahertz of spectrum up for bid and just 70 megahertz set aside for licensed use.

“Assuming the three national operators want to grab 20 megahertz per market, the auction and prices drop quickly in the reverse auction, it could take 4 stages resulting in 70 megahertz of cleared spectrum for wireless operators to end the auction,” Piecyk wrote.

Such a timeline could result in the auction extending well into the first quarter of next year.

In the meantime, the current stage is set to continue today with a trio of one-hour bidding rounds.

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