Bidding in Government Auction of Airwaves Reaches $34 Billion

As reported by the NY Times: A government auction of airwaves for use in mobile broadband has blown through presale estimates, becoming the biggest auction in the Federal Communications Commission’s history and signaling that wireless companies expect demand for Internet access by smartphones to continue to soar.

And it’s not over yet.

Companies bid more than $34 billion as of Friday afternoon for six blocks of airwaves, totaling 65 megahertz of the electromagnetic spectrum, being sold by the F.C.C. That total is more than three times the $10.5 billion reserve price that the commission put on the sale, the first offering of previously unavailable airwaves in six years.

Prices are likely to rise further, because the auction has no definite end and could continue for days or weeks. The previous record was $18.9 billion raised in a 2008 sale of airwaves that, because of their lower frequency, are considered more attractive for wireless phone use than the current batch.

“It’s stunning,” said Preston Padden, executive director of the Expanding Opportunities for Broadcasters Coalition, a group representing broadcast television stations that are considering giving up their spectrum for sale in the F.C.C.’s next auction, scheduled for 2016. “Consumer demand for wireless broadband is on a growth curve that looks like a hockey stick, and carriers are desperate to keep up with that demand.”

The F.C.C. chairman, Tom Wheeler. “Years of hard work paved the way” for the auction, he said. Credit Jabin Botsford/The New York Times

A successful sale was anything but a foregone conclusion. The frequencies are currently occupied by government agencies, including branches of the military, which had to be cajoled to agree to move out or to share portions of them.

Several factors appear to have contributed to the auction’s success, as the pent-up demand from years without an auction coincided with the explosive popularity of smartphones and mobile broadband. The response is more surprising given that the airwaves’ high frequency makes them less attractive for wireless use than those sold in the last auction or scheduled for the 2016 sale.

Coming soon after President Obama called for strong net neutrality regulations to be applied equally to wireless networks, the robust bidding also seems to indicate that mobile phone companies are not as reluctant to make new investments as they indicated they were when protesting the president’s recommendation.

The auction is a significant victory for the F.C.C. and the National Telecommunications and Information Administration, the agency in the Commerce Department that oversees the nation’s communications systems. It makes it much likelier that broadcast stations might be willing to give up or move their positions on the spectrum to free up airwaves to be sold in the 2016 auction, because they will receive a portion of the proceeds as an incentive.

“Years of hard work paved the way” for the auction, “and ongoing bidding appears to signal considerable commercial interest in this spectrum,” the F.C.C. chairman, Tom Wheeler, and an assistant secretary of commerce, Lawrence E. Strickling, said in a joint statement on Friday.

About $7 billion of the proceeds will be used to finance the building of a nationwide public-safety communications network, known as FirstNet, with the remainder going to the Treasury.

The relatively high position on the electromagnetic spectrum of the blocks being sold also cast doubt on their attractiveness. Higher-frequency waves generally have more trouble passing through buildings, making them less desirable for mobile phones, although they are able to carry lots of data, increasingly important to wireless broadband.

Frequencies being sold include two blocks in the 1695-1710 megahertz band, and four paired sets of frequencies at 1755-1780 and 2155-2180 megahertz. The next scheduled broadcast spectrum auction, in 2016, involves frequencies in the 600 megahertz band.

The last such sale was in 2008, when the iPhone was barely a year old and demand for mobile broadband was at a relative trickle. Today, as consumers stream video and share photographs with many more phones, tablets and other devices, demand for bandwidth has exploded.

Some analysts have also speculated that because the auction of broadcast television bands currently scheduled for 2016 has already been delayed twice, buyers might be skeptical that those frequencies will come to market on schedule — giving them extra incentive to buy now rather than wait.

Still, the current spectrum, known as the AWS-3 bands, is also not likely to be available for use for some years. Government users will first have to move out of the bands, or buyers figure out how to share some of the airwaves with military operators.

Seventy companies were approved to bid in the auction, but the high bidders will not be identified until after the auction is completed. New owners will then have to engineer their devices to work with the high-frequency spectrum, although the biggest companies, like AT&T and Verizon Wireless, already use similar, adjacent frequencies, so that is not likely to be too onerous.

Verizon Wireless and AT&T are assumed to be among the big bidders in the sale. But Philip Cusick, a financial analyst at J.P. Morgan, wrote in a note to clients on Thursday that “the continued rapid rise in bids is a sign that there is a third, or perhaps fourth, large bidder in the auction.”

One of those could be Dish Network, the satellite company, which already owns some nearby frequencies. Dish Network’s share price rose 13 percent last week as investors realized the aggressive bidding meant Dish’s holdings were probably undervalued.

Shares of Verizon and AT&T, for their part, fell slightly, as analysts noted that the companies might be spending more than they expected.

Some prices are truly eye-popping. The price for licenses in a 20-megahertz block of paired frequencies covering New York and Long Island and portions of adjacent states stood at $1.96 billion Friday afternoon. In the bidding round that starts Monday morning, the minimum bid is more than $2 billion.

The results of the yet-to-be-completed auction have some parties calling for Congress to pave the way for more sales, and soon. “Companies are clamoring to give the federal government money,” Vince Jesaitis, vice president for government affairs at the Information Technology Industry Council, a trade group, wrote on the group’s blog last week.

“The clamoring for spectrum available in this auction,” he added, “should refocus our lawmakers’ attention on the value of this resource and the need to put it to use to meet the needs of the American public.”