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Second Round of FCC's Reverse Auction Sees a Price Cut

Zacks Equity Research

The Federal Communications Commission’s (FCC) ongoing reverse auction wherein TV broadcasters sell airwaves to wireless operators has seen a massive drop in threshold price. Initially, TV broadcasters have been demanding $86 billion for 100 Mhz spectrum and have now lowered it to $54.6 billion for 90 Mhz airwaves. The auction is being conducted with the intention to free up some spectrum for wireless use.

Spectrum Crunch

In a saturated wireless market, spectrum crunch has become a major issue in the U.S. telecom industry. Most of the carriers are finding it increasingly difficult to manage mobile data traffic, which is growing by leaps and bounds. The situation has become even more acute with the growing popularity of iPhone and Android smartphones as well as rising online mobile video streaming, cloud computing and video conferencing services. Thus, in order to free up some of the usable spectrum for wireless communication, the FCC has asked TV broadcasters such as CBS Corporation CBS to sell their unused spectrum to wireless carriers like AT&T Inc. T and Verizon Communications Inc. VZ.

Lowering Prices

During the initial stage of the auction, broadcasters were demanding $86.4 billion for their airwaves. However, wireless players deemed the price as too high and offered to pay only $23.1 billion. However, the FCC has revised the price target to $54.6 billion, a massive drop albeit there will be 10% fewer spectrum licences than the first round.  However, the revised price is still too high for the wireless providers and the auction is likely to drag on to the third round.

To Conclude

The airwaves in the auction are of high importance to wireless carriers as these are ideal for transmitting cellular signals over long distances and have higher penetrating ability in buildings. Thus, many wireless operators are looking to buy these spectrums for their wireless services. Also, the auction is very important to Comcast Corporation CMCSA who is set to launch wireless services next year. Meanwhile, Dish Networks Corp DISH is also actively participating in the spectrum slae as it is on the lookout for a wireless partner to launch wireless operations.

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CBS CORP (CBS): Free Stock Analysis Report
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VERIZON COMM (VZ): Free Stock Analysis Report
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