Summary:

The PCS H-block auction only accounts for a small amount of spectrum, but given the ridiculously high value carriers have put on mobile airwaves recently, it’s bound to attract attention.

The last time the FCC put a serious chunk of mobile frequencies on the auction block, George Bush was still President. After a five-year hiatus, the Federal Communications Commission is preparing to put a significant chunk of mobile airwaves up for sale. It’s targeting January for the opening bids on newly minted 1900 MHz PCS airwaves, the same spectrum most of our mobile voice and 3G data networks use today.

First some background: ever since the dawn of the digital cellular age, the U.S. government has used a competitive approach to decide who gets to tap the mobile communications airwaves. Instead of picking licensees in a “beauty contest,” as it has for the broadcast airwaves, the FCC slices and dices mobile spectrum into different-sized bandwidths (say 10 MHz or 20 MHz units) and then further divides it up until geographical licenses before throwing them into the carrier pit. The hungriest beasts — i.e. the ones willing to pay the most — win the licenses.

Radio Waves Airwaves SpectrumThe process has evolved over the last two decades, particularly as the mobile industry has consolidated into a few nationwide megacarriers. The FCC has set spectrum limits to prevent one carrier from controlling an outsized portion of available airwaves in any given city or region. The commission has also implemented a discount bidding system for smaller operators, preventing them from being overwhelmed by the massive bank accounts of AT&T and Verizon Wireless.

The spectrum in question, called the PCS H-block, is really a tiny hunk of spectrum: just 10 MHz nationwide divided into 176 discrete geographical licenses. Only a single operator could use these frequencies in any given city to add capacity to an LTE or 3G network. In comparison the 700 MHz auction in 2008 set the foundation for Verizon’s big LTE rollout and raised $19 billion for federal coffers.

Chances are the H-Block won’t raise that kind of dough. But I wouldn’t rule out a high price tag in the final auction results. In the last year, carriers have started putting ridiculous premiums on any mobile spectrum.

T-Mobile paid $1.5 billion and gave up a quarter of the company to MetroPCS shareholders in order to get access to that carrier’s regional spectrum. AT&T is following the same logic in its $4 billion deal to acquire Leap Wireless. As I wrote in my analysis of the AT&T-Leap deal (which has lots of pretty illustrative maps), the big mobile operators have resorted to becoming chop shops, buying smaller carriers only to strip them of their airwaves.

fccThe most likely bidders in what is now being called Auction 96 are Sprint and Dish Network. Both own frequencies on either side of the H-block and both could use those licenses to augment their LTE networks. The other operators aren’t using the PCS airwaves for LTE (at least not yet), so getting that spectrum is less a priority, but don’t expect them to ignore the auction. Getting new spectrum has become one of the single biggest priorities for AT&T and Verizon — they won’t let many chances to get ahold of pristine unfettered airwaves pass them by.

Finally the revenues raised by this auction will go to funding FirstNet, a nationwide mobile data network for public safety any emergency services agencies at all government levels.

You can also look at the H-block as dress rehearsal for the immensely more complex broadcast airwave incentive auctions, which the FCC has tentatively targeted for later in 2014. That auction would turn any 600 MHz UHF TV airwaves broadcasters are willing to part with into very valuable mobile broadband spectrum, through a complex process of reverse bidding, spectrum repacking and traditional auction. That may sound like a hassle, but 600 MHz has some pretty unique characteristics that make mobile carriers’ mouths water — they travel far and wide compared to higher frequencies.

Spectrum image courtesy of Shutterstock user fotographic1980

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