Many anticipated lots of contentious bidding in the ongoing FCC C-band spectrum auction, but nobody expected telecom and cable companies to spend this much on the repurposed radio spectrum licenses. Bidding surpassed $77.3 billion in aggregate by midday Tuesday following the New Year's break -- a new record for the FCC.

Verizon (NYSE:VZ) and AT&T (NYSE:T) are expected to be the biggest bidders as they attempt to catch up to T-Mobile's (NASDAQ:TMUS) well-established mid-band spectrum position. But the increased competitiveness from others like Comcast (NASDAQ:CMCSA) and DISH Network (NASDAQ:DISH) could be making the auction less worthwhile for the bigger wireless carriers.

Cell towers seen from below.

Image source: Getty Images.

What's at stake

The FCC is auctioning off spectrum licenses in the 3.7 GHz to 3.98 GHz range. These "mid-band" radio waves strike a middle ground between being able to span broad areas while managing to deliver a signal quickly and with lower latency. They'll play an important role in any carrier's 5G network, particularly the early part of the build-out.

Importantly, T-Mobile is sitting on a boatload of spectrum in the mid-band range, and it's using it as the backbone of its 5G network. That's why it's come out with a strong lead in 5G coverage and capacity. AT&T and Verizon bet big on millimeter wave spectrum, and while they can deliver high speeds, coverage is limited. Now they're playing catch-up with T-Mobile.

T-Mobile's also participating in the FCC auction. It has the luxury of being more opportunistic than its competitors, though, buying licenses where there's value or where it has a specific need to round out its existing portfolio. AT&T and Verizon, however, are practically forced to pay whatever necessary to secure the licenses to cover most of the U.S. population and cover them ASAP.

In fact, there are a couple of classes of spectrum that companies are bidding on in this auction. A block spectrum is expected to clear in 2021, making it more useful for AT&T and Verizon, who need to use it now. The BC blocks won't clear for a couple more years, so they don't have as much immediate value, but they'll be just as helpful in the long term. Those BC blocks could be an opportunity for T-Mobile to cement its strong spectrum position for relatively cheap. So far, the A blocks in markets with dense populations have racked up a significant premium compared to other blocks up for bid.

Is spending big worth it?

Bidding seems to be getting to the point where it's hard to justify the price AT&T and Verizon (or any bidder) has to pay for some of these spectrum licenses. AT&T is already on somewhat shaky financial footing with its copious amounts of debt. While Verizon is in a better financial position, there are still a lot of costs involved with deploying the spectrum it's buying.

Aside from catching up to T-Mobile, AT&T and Verizon may be trying to prevent Comcast or DISH Network from buying strategically valuable licenses. Both companies have established significant presences in the wireless market over the last few years. Comcast counts 2.5 million wireless subscribers on its Xfinity Mobile plan, and it's adding over 100,000 subscribers every quarter. DISH bought Boost Mobile from Sprint before the Department of Justice approved the T-Mobile-Sprint merger, and it counts over 9 million subscribers. DISH also has a large portfolio of spectrum licenses it's acquired over the last decade.

So there could be additional value in preventing new competitors from putting a bigger dent in the market than they already have. Still, the cost of doing so at this point is extremely expensive for the telecom giants, and the wireless carriers don't have the balance sheets to completely lock out Comcast, DISH, and the dozens of other bidders.

Verizon and AT&T may be able to afford the big price tags the FCC auction's fetching, but it's going to hurt investors long-term, as it'll be difficult to extract enough value to justify the price. AT&T, in particular, could be putting itself in a very weak financial position considering its commitments to its dividend and paying down debt. It needs to liquidate some assets to acquire new ones.

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