C-Band Spectrum: "You Pays Your Money and You Takes Your Choice"

Most of the worry some have had about investments in 5G networks deals with the business model, and not the least of the worries is that 5G networks will prove too expensive. The original fear was that infrastructure capital investment would be too high. That actually has not proven to be a huge barrier.

But some worry more about the cost of investments in huge amounts of new spectrum, especially if licenses are not essentially perpetual, meaning operators are renting their spectrum, and have to keep buying it, over and over again. 

It would not be the first time, as the cost of 3G licenses nearly bankrupted many of the leading European mobile operators. Since then, operator bidding on spectrum has been decidedly more rational or careful. But spending for the U.S. C-band spectrum is causing some new concern. 

The issue is not so much the price per MHz-POP. C-band prices--arguably foundational for U.S. 5G, are not yet at AWS-3 prices, considered foundational for 4G, for example. The C-band auction offers the largest amount of licensed mobile spectrum ever made available in one process. So the total amount bid will be large as well. 

The AWS-3 auction made available a total of 65 MHz of capacity. The C-band auction is offering 280 MHz of capacity, about four times as much as the AWS-3 auction. All other things being equal--the AWS-3 auction being central for U.S. 4G and C-band being central for U.S. 5G--the total amount of assets at stake in the C-band auction is four times the amount of AWS-3 assets. 

So one would expect, based simply on volume, to see C-band proceeds four times greater than was bid for AWS-3. That auction raised $45 billion. So four times more spectrum, with the same strategic value--would in principle not be out of line in costing $180 billion. 

Nobody believes that will happen. In other words, on a cost per MHz basis, C-band prices should, on average, be less expensive than was the AWS-3 4G spectrum. But buyers will be acquiring four times the amount of real estate, so gross value will be higher. 

It is a bit like buying beachfront property in the same location, but one purchase is for a lot four times the size of the other. All other things being equal, you’d expect the larger lot to cost four times the smaller lot. And C-band and mid-band spectrum are beachfront properties for 5G. 

Still, one might still have to consider the financial outlay for buying the larger lot, if it is deemed necessary for some reason. 

At least in principle, the C-band outlay for spectrum licenses is virtually existential, for AT&T and Verizon, who lag T-Mobile in owning licenses for crucial mid-band 5G spectrum. One might have said the same for AWS-3 spectrum to support 4G. 

The C-band assets might be highly important--though perhaps not a matter of survival--for other participants who need to augment mid-band holdings to build out their own facilities. 

The point is that there are arguments for and against the notion that 5G is “too expensive” and will break the mobile business model. Radio transmission infrastructure will not be the crushing problem many feared, though some operators will find the optical backhaul more challenging than some others. 

Spectrum acquisition is likely going to be the bigger issue, simply because mobile networks are constantly called upon to deliver so much more capacity over time. Smaller cells really do help, but new spectrum--and lots of it--now are essential. 

The business models will have to be tweaked, if larger amounts of capital must be deployed to acquire spectrum. That means less spending on other inputs, all things being equal. “You pays your money and you takes your choice,” the old aphorism states. 

The phrase is said to have been used for the first time in 1846. The connotation was essentially that the buyer of an asset makes the choices about how the asset is used. The modern connotation is a bit different, implying one must live with the consequences of the choice. 

Either way, the notion is that buyers make choices and then must live with the consequences of the choices. Where it comes to 5G, all the facilities-based mobile operators “need” mid-band spectrum. Many other choices will come with the requirement to invest capital to acquire such spectrum.