Airwave Bonanza for Wireless Carriers and the FCC

Last January, several major U.S. wireless carriers (most notably AT&T, T-Mobile and Verizon) bid against each other to increase their respective slices of the AWS-3 airwaves during an auction organized by the Federal Communications Commission. As reported in WSJ’s MoneyBeat “Spectrum Auction Could Bang the Gavel for Telecom Stocks,” It was the first major auction of its kind held since 2008 as the FCC had for a few years not seen the need to grant companies further concessions in the wireless spectrum until the firms in question could prove that they had done all they could to optimize their existing coverage and services. According to FCC Chairman Tom Wheeler, “By their actions, wireless carriers have demonstrated the importance of new spectrum,” though the Treasury’s cry for more funds is sure to have played a part, as well.

The Treasury Secretary can rest easy in this regard: the auction brought in an unprecedented $44.9 billion, exceeding even the government’s own expectations as the communications giants fiercely bid against each other in a frantic few weeks. The first week alone broke records as $10.1 billion was paid, doubling the amount the last auction brought in over its entire duration. Most of these funds will be used by the FCC to further ensure the safety of public networks, though some $7 billion will go to federal coffers as well. Besides these direct benefits, wireless carriers promise to use the freshly acquired bandwidth to boost the country’s GDP and create many thousands of new jobs.

Though it is hard in an auction as complicated as this one to assign one party as “winner,” an analysis by New Street Research of the involved communication firms’ debt-raising patterns shows that AT&T and Verizon spent the most during the auction and can be expected to have acquired the biggest two slices of the spectrum accordingly. In fact, some observers suggest that these two behemoths may have overspent on the auction as the wireless market slowly approaches saturation. In response to this, other analysts have said that it shows both companies as being poised to take the intense competition over the new airwaves to a yet-unseen level; time can only tell how it will work out, though it seems investors have become more cautious in recent months.

Spurred on by the FCC’s success, the agency’s Canadian counterpart also held an auction in March of this year, which was very lucrative. In fact, the FCC expects to hold a similar auction in 2016, the biggest and most complicated yet. The agency expects to raise an even larger amount this time around as they plan to sell off a record amount of bandwidth, though this time around many analysts seem to agree that it will be the smaller players in the market that will walk away from it with an expanded market presence Graet Gossip.