Was C-Band Spectrum a "Bargain?"

The potential issue with U.S. mobile operator spending on C-band spectrum has less to do with the aggregate spending than with the business model mobile operators confront. Spectrum costs of about $81 billion--up to perhaps $94 billion after clearing costs--represent a huge capital investment impact, to be sure. 

On the other hand, costs on a per-unit basis arguably are quite reasonable. The larger issue is capex investment in a business whose revenue growth rates are perhaps one percent a year to 1.5 percent a year. 

As a strategic matter, nobody contests the notion that C-band spectrum (and mid-band spectrum generally) will be foundational for 5G, as the AWS-3 spectrum was foundational for 4G. 

Despite the reliance on unlicensed spectrum, existing low-band, existing mid-band and millimeter wave capacity, virtually everyone agrees that contenders including AT&T, Verizon, the cable operators, Dish Network and, to a lesser extent, T-Mobile “needed” that spectrum to compete. 

Overall C-band prices were about $0.94 per MHz-POP. The foundational 4G AWS-3 auction featured prices of about $2.20 per MHz-POP, in comparison. The issue is volume. The C-band auction of 280 MHz of capacity was about four times the amount of AWS-3 spectrum. 

If C-band and AWS-3 represented beachfront property, then the C-band auction represented four times as much beachfront property to be acquired. 

Spectrum prices always are highly influenced by the most-recent sale of similar spectrum. So it is logical to compare C-band prices with Citizens Broadband Radio Service prices, auctioned in 2020. That auction had average overall prices of just $0.21.7 per MHz-POP. So it might be argued that the C-band assets were wildly more costly.

But there are key qualitative differences. CBRS represented a total of 70 MHz of capacity, but on a shared basis: the licenses are not exclusive, and feature transmit power and geographic restrictions. 

On one level, it can be argued that some firms--including AT&T and Verizon--simply did not have a choice: they had to acquire substantial C-band spectrum--whatever the cost--or risk their ability to compete in the 5G era. 

The larger issue is the impact the capex will have on revenue and alternative uses of that capital to promote growth, retire debt or buy back stock, in a market many would argue has saturated, with little opportunity for significant incremental revenue growth.

On the other hand, some argue new revenue sources contingent on adequate 5G bandwidth,  will develop, partially offsetting the risk of spectrum acquisition. Also, like it or not, mobile service providers must keep increasing the amount of bandwidth their customers can use, at roughly stable prices over time. 

That makes additional spectrum costs unenviable, but also quite necessary. There will have to be offsetting inputs--cost and revenue--to accommodate the C-band spending.