With another FCC spectrum auction in the books, many broadcasters may be interested in taking stock of the value of their spectrum usage rights and the likelihood that they may have an opportunity to monetize their spectrum sometime in the future.
Let’s start with the most recent news and then try to figure out what it means for broadcasters. Last Thursday, the FCC announced the close of Auction 101, in which the Commission auctioned two 425 megahertz wide blocks of 28 GHz spectrum (27.5-27.925 GHz and 27.925-28.35 GHz) in just 1,536 counties spread across the United States (out of more than 3,000 counties total). 28 GHz spectrum is known as “millimeter wave” or “high-band” spectrum, and is characterized by short wavelengths that require dense networks with closely located transmitters. By comparison, broadcast spectrum falls below 700 MHz and is characterized by long wavelengths that allow broadcast signals to travel long distances and penetrate buildings.
The value assigned to the 28 GHz spectrum, at $0.011/MHz-POP, was by far the lowest of the three most recent FCC spectrum auctions:
|Auction||Average Price (MHz-POP)|
|AWS-3 (Auction 97)||$2.71/MHz-POP|
|TV Broadcast Incentive Auction (Auction 1002)||$1.26/MHz-POP|
|28 GHz (Auction 101)||$0.011/MHz-POP|
However, there are several explanations for the lower prices in Auction 101, including the location of the spectrum in a frequency band that requires more physical infrastructure, the lack of terrestrial operations in nearby spectrum bands, the smaller geographic areas for each license, and the sheer volume of spectrum associated with each license (425 MHz, compared with 5 MHz pairs in Auction 1002 and Auction 97). Furthermore, the licenses available in Auction 101 only covered about 24% of the population and did not include counties located in most large metropolitan areas.
So what does this mean for broadcasters?
One of the many lessons of the recent TV Broadcast Incentive Auction was that, for many broadcasters, spectrum usage rights are among their most valuable assets. Even broadcasters with both strong cash flows and a deep commitment to free, over-the-air broadcasting remain interested in the market value of the spectrum they are using. And broadcasters, investors, and analysts continue to wonder whether the Incentive Auction was a once-in-a-lifetime opportunity or just the first chance for broadcasters to consider spectrum as a business opportunity.
Perhaps the most important takeaway from Auction 101 for broadcasters looking to monetize their spectrum is that demand for commercial spectrum remains strong. Given all of the factors discussed above, the average price of $0.011/MHz-POP and the level of bidding activity in the auction suggest that the wireless industry and investors continue to see the need to acquire more spectrum.
But the results from Auction 101 also raise many questions about the value of broadcast spectrum, specifically.
For one, what role does the low-band spectrum in and around the bands used for broadcast radio and television have in a 5G world? High-band seems to be all the buzz right now, with wireless carriers continuing to talk about the importance of high-band and millimeter wave spectrum for their 5G plans. But while 5G networks might rely on high-band spectrum to deliver increased speeds and to maximize capacity, that does not mean the need for low-band spectrum will dissipate any time soon. Deploying the dense networks needed to utilize high-band spectrum requires substantial dedication of capital and time, meaning existing networks based on low- and mid-band spectrum are likely to drive wireless networks for many years to come. And even as wireless carriers bring more high-band spectrum online, when you think about many of the IOT applications expected to utilize 5G networks, such as connected cars and smart cities, coverage remains just as important as capacity. For this reason, even if high-band spectrum takes off, low-band spectrum will remain an important part of any comprehensive 5G network, providing important capacity and redundancy.
A second question relates to spectrum valuation. What does the disparity between the prices paid in the FCC’s three most recent spectrum auctions tell us about the value of spectrum? Is there an overall decline in the amount that wireless carriers are willing to pay for spectrum? Unfortunately, it is difficult to make any broad assumptions about spectrum valuation given the unique characteristics of the last three auctions. Our insight into the current price of spectrum may improve in the next several months, however, with another auction of high-band spectrum right around the corner. In Auction 102, the FCC will auction 700 MHz of spectrum in the 24 GHz band on a nationwide basis. Because the licenses to be auctioned cover the whole country and are largely unencumbered, they will likely command a significantly higher price than the licenses offered in Auction 101. How much, though, remains to be seen.
The last, but perhaps most important, question for broadcasters is when they will have another opportunity to monetize their spectrum for non-broadcast use. We do not anticipate another FCC-commissioned auction of broadcast spectrum in the near- or mid-term future. The FCC already has several auctions of mid- and high-band spectrum on the horizon. Given the complexity of repurposing broadcast spectrum and the general perception that the results of the 2016-17 Incentive Auction were underwhelming, we do not think the FCC will revisit repurposing broadcast spectrum again until it has exhausted all available mid- and high-band spectrum and the wireless industry returns its focus exclusively to low-band spectrum. We are not holding our breath that either of these will happen anytime soon.
In the meantime, ATSC 3.0 and digital radio may represent the best way for broadcasters to monetize their spectrum beyond linear broadcasts. The one-to-many architecture of broadcasting would appear to offer a unique opportunity for broadcast to complement next generation wireless networks, and it is incumbent upon the broadcast industry to identify and develop a market for those services.
For many broadcasters, meanwhile, delivering free, over-the-air news, entertainment, and informational programming will remain the best and highest use of broadcast spectrum for many years to come.