How do the Auction 108 results affect 2.5GHz spectrum pricing? September 23, 2022 11:01

Since the auction results were posted on September 1st, there have been many discussions about how the purchase prices from the auction relate to the secondary market pricing.

Typically, when you are buying a spectrum license you are getting a contagious block of spectrum covering a complete geographical area, like a county or a group of counties. By purchasing a particular license, the owner knows that a wireless network can be designed to provide coverage to the entire market area, meaning the market area’s population can be provided with a revenue generating service.

What is the appropriate price for a license? After an auction, you will typically see a valuation ($/MHz-POP) from the auction that represents the national average price. Prices are calculated by multiplying the size of the spectrum (MHz) by the population (POP) available in the license area. The purchase price in dollars is then divided by the MHz-POPs quantity for the license. Highly populated markets or counties are purchased at a premium compared to the national average price and the lower populated markets are purchased at a discount to the national average price. Below is an example of this pricing range from the CBRS (Auction 105).

CBRS Auction Pricing:

With this spectrum license value framework in place, let’s look at four types of licenses that were available in Auction 108 and how their purchase price (bid) and valuation compared.  In each of these examples we provide outputs from our EBS Auction Tool which more clearly indicates what the licenses include and does not include.  The Population % chart indicates the percentage of the total county population that can be served by each subchannel of the auction channel.  The Population chart indicates the raw population that is available in the license areas for each subchannel of the auction channel.  The whitespace maps indicate the available whitespace license area.

Complete County - Benzie, MI:

The Benzie County C1 license (49.5MHz) provides the winning bidder with the opportunity to provide roughly a 50MHz channel of wireless service to all of the people living in Benzie County.  Because there aren't any encumbrances, the auction valuation is probably valid for this license.

County Whitespace Population % by Subchannel:

County Whitespace Population by Subchannel:

County Whitespace Map:

Auction License Valuation:

Encumbered County - Los Angeles, CA:

The Los Angeles County C1 license provides the auction winner with the rights to service about 136,000 people with wireless service using the full 49.5MHz of spectrum. The served population is at the northern and southern extremes of the county. An addition 210,000 people can be served with only the B channels in the area directly below the Ventura county line.  These are the only areas that the bidder can construct a wireless network using these channel.  This license sold for the minimum bid price, which was based primarily on the full county population not the available whitespace population.  I would not view this as a valid license valuation.

County Whitespace Population % by Subchannel:

County Whitespace Population by Subchannel:

County Whitespace Map (A channels):

 County Whitespace Map (C channels):

Auction License Valuation:

No Population County - Cameron, TX:

The Cameron County C1 license only covers a rural unpopulated area of South Padre Island.  This license was purchased for the minimum bid price and its valuation can not be calculated.

County Whitespace Population % by Subchannel:

County Whitespace Population by Subchannel:

County Whitespace Map:

Auction License Valuation:

No Bids County - Cook, IL:

The Cook County C1 license did not receive any bid.  Because the FCC's minimum bid was based on Cook County's total population.  In this case, the license only provided access to 220 people in a whitespace sliver in the northeast corner of the county.  The FCC's minimum bid would have garnered a $206/MHz-POP valuation so it is no surprise that no bids were received.

County Whitespace Population % by Subchannel:

County Whitespace Population by Subchannel:

County Whitespace Map (B and C channels):

Auction License Valuation:

Conclusion:

In the chart below we have summarized the valuations for the four types of licenses that we have examined.  It is clear that the licenses in Auction 108 are not homogeneous and have unique license challenges that must be investigated individually.  These challenges drive wide swinging valuations.  In addition, the FCC's minimum bids skewed both the bidding activity (purchasing licenses with no population or overpricing licenses with limited population) and the valuation process