T-Mobile USA (NASDAQ:TMUS) often launches low-cost products and plans to compete with far larger rivals AT&T (NYSE:T) and Verizon Communications (NYSE:VZ). But there's another price war brewing between these three wireless competitors right now, and it has nothing to do with data plans or unlimited minutes.
I'm talking about the latest FCC auction for wireless spectrum licenses. Matter-of-factly dubbed Auction 97, this spectrum sale redistributes radio licenses formerly assigned to various federal and commercial uses such as meteorology reporting, military radio relays, and space-to-earth satellite communications. The resulting AWS-3 license package is earmarked for commercial use, mainly in the wireless communications market.
The auction was launched in mid-November, with the total reserve price set at $10.6 billion. (The sale will continue running "until further notice.") The next week, the winning bids added up to $24 billion; as of bidding round 96, the combined bids stand at $43.8 billion. That makes this auction a tremendous success for the FCC, which will rake much more cash into federal coffers than originally planned.
It's also another sign of how heated the competition has become for premium radio spectrum licenses. In 2006, the first auction of licenses in the AWS range (Auction 66 -- let it roll off your tongue!) gathered just $13.9 billion in winning net bids. That auction bolstered Verizon's long-range but lower-quality license portfolio, and formed the cornerstone of T-Mobile's spectrum holdings.
T-Mobile is an official bidder in auction 97 as well, alongside both Verizon and AT&T. Conspicuous by its absence, Sprint (NYSE:S) didn't appear in the list of approved bidders and is probably saving its gunpowder for the even bigger and bolder auction that's being planned for lower-frequency spectrum sales in 2016.
The 2016 auction, which will light up spectrum in the 600 megahertz range that was previously assigned to UHF-band analog TV stations, offers much higher-quality radio connections than the AWS bands, which run between 1,700 and 2,200 megahertz. Lower frequencies provide stronger signals and more power to penetrate dense building walls, with the added bonus of longer connection ranges in the open field.
AT&T and Verizon dominated the last low-frequency auction, which is why they offer higher-quality wireless connections today. Sprint sits on a handful of low-frequency licenses from its old push-to-talk Nextel systems, and T-Mobile is hoping to get its first taste of premium-quality wireless signals.
Auction 97 is slowing down, with each new bidding round adding very little to the overall winnings. The final results should be announced soon, and then we'll see the names behind the anonymous winning bids. I think T-Mobile is getting its fill of licenses in this region, and will save much of its capital for the 2016 auction just like Sprint.
The Germans are probably throwing just enough capital into the auction to keep the winning bids high -- and to keep AT&T and Verizon on their toes. Again, the final auction results will tell the tale.
Anders Bylund has no position in any stocks mentioned. The Motley Fool recommends Apple and Verizon Communications and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.