AT&T, T-Mobile, Verizon Top Disappointing 5G Airwave Auctions

The federal government’s latest auction of airwave rights that can be used for super-fast 5G mobile phone service brought in only $2.7 billion, a fraction of the amounts raised in earlier sales for 3G and 4G airwaves.

AT&T and T-Mobile were the top bidders, with each spending almost $1 billion for rights in the 24 GHz and 28 GHz bands, the Federal Communications Commission said on Monday. Verizon, which already owned a considerable amount of airwaves in the 28 GHz band before the auction, spent $521 million.

Meanwhile, United States Cellular spent $256 million, Boston-based wireless broadband startup Starry spent $48 million, and data carrier Windstream spent $27 million. The auction didn’t draw any bids from cable companies and big tech players that have previously shown an interest in wireless.

The total was far less than the $20 billion to $45 billion that the wireless industry spent each at auctions over the past decade covering airwaves in the 600 MHz, 700 MHz, and 1700 MHz bands. Sometimes referred to as the millimeter wave bands, the high frequency airwaves sold at the latest auction can carry a tremendous amount of data, but they don’t travel nearly as far as lower frequency bands and can be blocked easily by buildings and trees.

AT&T and Verizon have already begun deploying 5G service, which can reach download speeds 10 to 50-times faster than current 4G LTE networks, using millimeter wave frequencies like those just auctioned. Verizon has started selling the Samsung Galaxy S10 5G phone for use in parts of Minnesota and Chicago, with dozens more cities planned to come online later this year. AT&T has been offering 5G service via a mobile hotspot in parts of 19 cities and says its rollout plan, which will also include some lower frequency band spectrum, will be nationwide by early next year.

But the lack of big money going after the millimeter wave bands at the latest auctions had analysts wondering if AT&T (T) and Verizon (VZ) will be able to rely mainly on such bands for 5G service. T-Mobile (TMUS) says it would start 5G service with 600 MHz spectrum later this year and Sprint (S) just started using the 2.5 GHz band to offer 5G in four cities.

The results seem to indicate that millimeter wave spectrum won’t be so crucial for 5G service, New Street Research analyst Jonathan Chaplin wrote in a report on the results on Monday. “The prices fetched in this auction should cause investors to question Verizon and AT&T’s confidence in using mmWave as their primary band for mobile 5G,” he wrote. “Verizon and AT&T might claim that they just got their hands on great 5G spectrum at an incredible price, but if that were true, why didn’t the three participating carriers bid harder to get more? And why didn’t others bid?”

Other countries like South Korea, Japan, and Germany are relying on mid-wave spectrum bands in the 3 GHz to 4 GHz range for 5G service. Such airwaves balance the need for high capacity with the longer distance the signals can travel. But in the United States, most of the mid-band has been assigned to other users, like the military and communications satellites. The FCC is working on plans to share or re-assign some of the airwaves for 5G use, with support from the Trump administration.

So the carriers may have been saving money to bid on future mid-band spectrum freed up by the FCC, analyst John Hodulik at UBS noted. Mid-band spectrum “will likely serve as the workhorse of 5G,” he wrote. “We believe all carriers are interested in gaining new mid-band airwaves and auction results preserve dry powder for additional spending.”

(Update: This story was updated on June 4 with additional analyst comments.)