The Federal Communications Commission (FCC) has announced the results of Auctions 101 and 102, the auctions of spectrum in the 28 GHz and 24 GHz bands respectively. There were 33 winning bidders in the 28 GHz auction and 29 winners in the 24 GHz auction. Including their prior holdings, three national carriers—AT&T, T-Mobile, and Verizon–now have licenses to cover all urban Americans and nearly all rural Americans with millimeter wave spectrum and many other entities have licenses to cover various portions of the country.
This spectrum was sold to be used for 5G, the next generation of wireless technology, which promises much higher speeds, greater bandwidth, and lower latency, i.e. better quality, than is possible with current technologies.
American consumers will benefit from 5G in many ways. Fixed wireless broadband will make it possible to provide competition to current wired broadband providers at super-high speeds and quality. For example, Starry–a privately-held new entrant in the fixed wireless broadband market that has already entered several markets and plans to enter nearly two dozen markets rapidly—committed almost a third of the capital it has raised so far (as shown by Thomson Reuters) to buy licenses in the 24 GHz band. Mobile wireless broadband will make the benefits of 5G available on the move. In each case, less buffering will make the viewing of entertainment videos and gaming more enjoyable.
But 5G has many applications beyond entertainment, where safety is paramount. Autonomous cars, for example, need know what is around them at all times. Remote surgery can’t tolerate even brief interruption. Many other applications, such as factory automation, smart cities, and precision agriculture, also require 5G’s low latency.
The 28 GHz auction raised $700 million while the 24 GHz auction raised $2 billion. Additional spectrum auctions are already in the pipeline, with Auction 103 scheduled for December of this year, to make even more spectrum available at 37 GHz, 39 GHz, and 47 GHz. Analysts John Hodulik at UBS and Jonathan Chaplin at New Street Research, respectively, estimate that those auctions may raise $8 billion to $10 billion, because there will be far more spectrum available for sale in those bands.
For wireless carriers, spending roughly $10 to $12 billion on millimeter wave spectrum will only be the beginning of the investment needed to provide Americans with the benefits of 5G. Once spectrum licenses have been won and granted, the carriers can begin the process of building out the hundreds of thousands of cell sites that will be needed to provide coverage. While the billions of dollars spent for licenses constitute significant risk to investors, that risk is dwarfed by the hundreds of billions of dollars in capital investment (capex) that will have to be spent on infrastructure. 5G will require fiber to those hundreds of thousands of cell sites as well as equipment at each of those sites.
In a report dated June 3rd, New Street’s Chaplin estimates that–for a single carrier–covering just the most densely populated urban areas in one third of the U.S. with 5G-based fixed wireless broadband will require $29 billion in initial capital investment and covering the rest of that third would require additional capital. Chaplin estimates that covering the second third would take multiples of the capital required for the first third. It is fair for us to assume, given how low population density is in the last third of the U.S., that costs to cover those rural areas would be a large multiple of the cost to cover the second third. Clearly, covering the entire U.S. with 5G will cost hundreds of billions in capital, most of it to cover suburban and rural America.
It is thus remarkable that at least three national carriers plus many smaller carriers have invested in millimeter wave spectrum in rural areas as well as urban and suburban areas. Carriers bought 99.8% of the licenses offered in the 24 GHz band and 96.5% of the licenses offered in the 28 GHz band. These carriers will have to convince their own investors that the risks involved in building out America, especially rural America, with 5G are tolerable. Investors will not provide the necessary capital to the carriers unless they have a reasonable level of confidence that the carriers who are spending the capex will be allowed to complete and use their 5G networks.
There has been a flurry of press coverage recently about the concerns expressed by NOAA and NASA that 5G traffic in the 24 GHz band might interfere with signals from weather satellites, possibly degrading NOAA’s weather-predictive abilities. The study on which these concerns are based has not yet been made public (as of 6/5/19). It was, however, discussed in a May 16th hearing of the House Committee on Science, Space, and Technology (HSST). The hearing dealt primarily with Representatives’ concerns that proposed deep budget cuts might hamper NOAA’s capabilities, but there were also questions about the NOAA/NASA study. A recent CTIA blog, on the other hand, pointed out numerous concerns about the study itself. It is clear that all of the parties involved—members of Congress, NOAA, the FCC, and industry—want to ensure that Americans enjoy both the benefits of 5G and of accurate weather forecasts.
Quick resolution of this debate is important now that the auction has concluded and the spectrum has been sold, so that buildout of the 24 GHz band can proceed. If that is not the case, then uncertainty will surround future 5G spectrum auctions as well as investment in 5G infrastructure. Investors expect certain risks, naturally, but they don’t normally expect an FCC auction’s results to be overturned after the fact. Carriers will not be able to persuade their investors to provide the hundreds of billions of dollars needed to buy 5G spectrum and to build it out without at least the assurance that the FCC’s licenses carry their usual level of certainty. New entrants would be especially vulnerable to uncertainty.
The Administration has made it clear that leading the world in 5G is one of its key goals. Members of Congress of both political parties have worked hard to enable the FCC to free up spectrum for 5G. Many states and localities have taken steps to expedite cell-site approval to facilitate the buildout of the necessary infrastructure. Each of the major wireless carriers has committed to beginning 5G service this year and all have already taken the first steps toward it.
With the 28 GHz and 24 GHz auctions, the FCC has begun to run the series of auctions that will free up the enormous bandwidth needed for 5G. It is up to all the parties—the Administration, Congress, the relevant agencies, and industry—to ensure that the success of these twin auctions creates the foundation for the investment and buildout that will bring the benefits of 5G to all Americans.
Anna-Maria Kovacs, Ph.D., MBA is a Visiting Senior Policy Scholar at the Georgetown Center for Business and Public Policy. She has covered the communications industry for more than three decades either as a financial analyst holding the CFA designation or as a consultant.