Telecom companies spent billions more than expected during the Federal Communications Commission's Auction 107, which ended Jan. 15. The mid-band radio spectrum the carriers were bidding for will be crucial in their efforts to build out their 5G networks over the next few years.

Spectrum auction spending totaled nearly $81 billion from among the 57 bidding entities, but there were six main buyers:

  • Verizon (VZ 1.48%)
  • AT&T (T 0.53%)
  • T-Mobile (TMUS 1.23%)
  • Comcast (CMCSA 0.46%)
  • Charter Communications (CHTR -2.65%)
  • DISH Network (DISH)

Here's how much they're expected to have spent, and what it means for investors.

A person holding a lot of $20 bills.

Image source: Getty Images.

Verizon: $35 billion

Verizon's expected to be the biggest spender by far in this auction due to a combination of need and purchasing power. Cowen analysts led by Colby Synesael estimate the largest wireless carrier spent $35 billion. That's about twice as much as most analysts had expected heading into the auction at the start of December.

Verizon had a goal of purchasing 100 MHz of A-block spectrum, which will be usable this year. That means investors should expect Verizon to continue with its capital investment plans, and perhaps even accelerate them. "The higher price puts more pressure on Verizon and any high bidder to build more quickly to secure a return on this investment," Lightshed analyst Walter Piecyk wrote. Management said its 2020 capital expenditures will come in at the high end of its guidance range of $17.5 billion to $18.5 billion when it reports fourth-quarter earnings at the end of January.

The increased outlay could put a dent in Verizon's balance sheet and negatively impact free cash flow. While investors shouldn't worry too much about its dividend -- which eats up just half of free cash flow -- the company is unlikely to use any cash for share buybacks. It'll also likely raise debt to fund the purchase and clearing costs of the new spectrum licenses, adding to the $110 billion in debt already on its balance sheet.

AT&T: $20 billion

AT&T is also expected to have spent a lot at the auction, as it has just as much need for additional spectrum as Verizon, if not more. But due to its budget constraints, it probably wasn't able to spend as much.

It has about $153 billion in long-term debt already on its balance sheet, significantly more than Verizon's $110 billion. It has also made debt reduction a key piece of its financial strategy after spending heavily on acquisitions over the last decade. 

But to spend $20 billion on spectrum licenses, AT&T will need to go back to the debt market. The telecom company is seeking a $14 billion one-year loan from banks, which it'll likely have to refinance when the term expires.

AT&T's likely settling for more BC blocks than Verizon, which means it won't be able to use much of the new spectrum until 2023. As a result, investors shouldn't expect any impact on AT&T's capital investment plans in 2021. But it also means the company's network capabilities will likely fall behind those of Verizon and T-Mobile.

T-Mobile: $10 billion to $15 billion

T-Mobile doesn't have nearly the need for spectrum that Verizon and AT&T do. Following the acquisition of Sprint, it has the strongest spectrum position of any major U.S. telecom by far. That said, it does have some gaps in its portfolio, particularly in big cities. Cowen expects the company to have spent between $10 billion and $15 billion.

Spectrum in major metropolitan areas may come at a premium, and the overall competitiveness of the auction could have caused T-Mobile to spend more than it anticipated. The company is raising $3 billion from the debt market to pay for its spectrum acquisition, with terms ranging from five years to 10 years and all interest rates less than 3%.

Part of T-Mobile's auction strategy likely involved getting AT&T and Verizon to bid more for spectrum. Based on the results, those efforts seem to have paid off. As such, T-Mobile could emerge the biggest winner of the auction just by getting its chief competitors to stretch their balance sheets.

Cell towers seen from below.

Image source: Getty Images.

The two cable companies: $10 billion to $15 billion

Charter and Comcast aren't exactly on the same team, but they're not competing against each other either, so they'll share a category here. The cable giants are mostly interested in spectrum licenses in markets where they operate their pay-TV businesses. Combined, they could have spent as much as $15 billion.

Both currently operate virtual cell phone networks for their cable subscribers that operate using bandwidth from their own public WiFi networks combined with Verizon's network. And both offerings have been reasonably successful, leading to higher retention rates and better customer lifetime value. Building out their own wireless networks could reduce the costs of those services long term. Alternatively, the two companies could license their spectrum back to a wireless carrier in exchange for rights to use its existing network.

DISH Network: $0 to $5 billion

DISH Network has acquired a broad and deep portfolio of spectrum licenses over the last decade. Following its deal to acquire Boost Mobile from Sprint as part of the T-Mobile merger, DISH is finally in the wireless business. But it has little need for more spectrum. Not only does it have a big portfolio of mostly unused licenses, it also has an agreement with T-Mobile to use its network while it works to build out its own.

Still, DISH had an interest in bidding up the prices in the FCC auction. The higher the prices its competitors pay, the more valuable its spectrum portfolio appears, both in the eyes of shareholders and practically speaking, if it wants to license its holdings to another company. Analysts expect DISH focused mostly on getting its competitors to bid more instead of actively trying to win spectrum itself.

Hey, big spender

The large outlays from Verizon and AT&T should be of mild concern to their investors, as they put pressure on their balance sheets. Verizon still looks better positioned than AT&T due to its stronger financial situation and credit rating. The big winners, however, will likely be those that could remain opportunistic and buy licenses at a relative value like T-Mobile. The FCC will release the full results of the auction in February or March.