In the 5G Race, Airwave Auctions Are the Next Rivalry

The Wall Street Journal

Governments start selling access to spectrum for new mobile networks that would be much faster than those of today

A women looks at her mobile phone in central London.
A women looks at her mobile phone in central London. PHOTO: HANNAH MCKAY/REUTERS
A new battle for cellular airwaves is under way as governments around the world start to auction off spectrum for mobile coverage that could power near-instant video downloads and help run factories, control gadgets and navigate driverless cars.
Countries have long sold airwave rights for cellular service within their borders but places like Britain and Spain this year held their first major auctions for radio frequencies needed to make so-called 5G cellular networks, which could be much faster than today’s mobile networks, a reality. Italy made a splash earlier this month with a blockbuster sale—spinning off $7.6 billion of frequencies to several big European carriers, including Telecom Italia SpA and Vodafone Group PLC.
In June, South Korean mobile operators snapped up $3.3 billion of spectrum there. Next month, the Federal Communications Commission plans to hold the first major U.S. auction for 5G-friendly airwaves.
The frequencies sold at these auctions are the ones that governments and carriers think will be crucial for a broad rollout of 5G, which promises to eventually replace today’s fastest 4G networks.
Battle for BandwidthRecent government auctions for 5G-friendly airwaves, by total value raisedSource: the governments, the companiesNote: Some governments sell airwaves in phases, rather than all at once.
$7.55 billion3.261.800.510.090.09ItalySouth KoreaU.K.SpainIrelandFinland
The broad contours of how 5G will work, once it is fully operational, is only now starting to emerge, and some industry executives and analyst are skeptical of its potential, saying the technology might not be much different than today’s 4G. U.S. carriers plan to roll out their first iterations of 5G networks in a few cities in the next three months.
Cellular airwaves are a public resource akin to a lake that provides water to businesses and homes. Governments reserve chunks of spectrum for everything that requires wireless connectivity: radio and TV broadcasts, satellites, military communications, Wi-Fi, Bluetooth and even remote controls and garage-door openers.
Only a limited amount of airwaves are suitable for cellular service, so wireless providers such as Verizon Communications Inc. and AT&T Inc. compete fiercely for them. In general, a wireless carrier with more spectrum can provide faster service and serve more people compared with a competitor with less spectrum. It also can base advertising campaigns around that fact.
Demand for 5G airwaves, or spectrum, even in this early stage, is heating up. Auctions—including for 3G and 4G and potentially in a decade for 6G—typically sell 10- or 20-year leases to airwaves, so if a carrier misses out now, it may have to wait a decade or two for its next chance.
“If you don’t have spectrum, you can’t provide wireless service,” said Steve Blythe, who heads spectrum strategy for Orange, a French carrier that operates throughout Europe and Africa.
Carriers say 5G networks will be made up of loads of small antennas much more densely packed into populated areas. Those antennas will need to operate over different frequencies than those used in today’s networks. Generally, sought-after bandwidth will be capable of transmitting more data, but over shorter distances.
Governments in each country typically hold auctions to lease channels of airwaves to wireless carriers, and proceeds go into government coffers.
Cellular providers are closely watching auctions even in countries where they don’t have a presence. In addition to trying to lock in rights to the spectrum, carriers also can learn bidding strategies and lobby regulators on what they consider to be the best auction rules.
Wireless auctions already vary widely in terms of how they work around the world, and the heightened interest in 5G has drawn extra scrutiny to some. In the Italian auction that ended Tuesday, the government reaped more than double the revenue it had forecast, drawing criticism from one prominent carrier.
Four wireless carriers essentially bought 200 chunks of airwaves that they coveted for 5G networks. But instead of auctioning off individual packages, the Italian government said wireless carriers had to buy one of four big bundles. Two bundles featured 80 chunks of airwaves each, and two packages had 20 chunks each.
Bidding for the two larger packages was fierce. In the end, the carriers spent €6.55 billion ($7.55 billion) in the auction—more than double the €2.8 billion the Italian government had written into its budget.
Vodafone, which operates in more than 20 countries and is the world’s No. 2 wireless carrier by subscribers, won one of the 80-chunk packages, spending €2.4 billion in the overall auction. But the high price it forked over caused grumbling at the London headquarters.
“Auctions should be designed to balance fiscal requirements with the need for investment,” said Vodafone Chief Executive Nick Read, in a statement. He warned against future “artificial auction constructs.”
A spokesman for Italy’s ministry of economic development, which conducted the auction, declined to comment. European wireless executives said they believed the auction’s cost was an outlier compared with other countries because both Italy’s government and wireless industry face unique circumstances.