Who will pay for the 5G spectrum worth hundreds of billions of dollars?

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This article is reprinted from the WeChat public account "IoT Media", the author is Yinjiang. Please contact the WeChat public account of IoT Media to reprint this article.

Recently, the U.S. Federal Communications Commission (FCC) announced the auction results of the 3.7-3.98GHz spectrum suitable for 5G network construction.

It is reported that a total of 21 bidders won 5,684 licenses for the 3.7-3.98GHz spectrum in this auction, and raised US$81.14 billion through the auction.

Specifically, in the auction of the 3.7-3.98GHz spectrum, Verizon, AT&T, and T-Mobile invested more than US$78 billion and obtained 5,274 licenses, spending the most and obtaining most of the spectrum licenses.

Verizon was the biggest winner, spending $45.455 billion in the auction and winning 3,511 licenses, or 61.7% of all licenses.

Among the other two telecom operators, AT&T spent US$23.407 billion and obtained 1,621 licenses; T-Mobile spent US$9.336 billion and obtained 142 licenses.

Previously, the most expensive spectrum auction in the United States came from the 4G spectrum auction. In 2015, the mid-range spectrum used for 4G networks achieved an auction price of US$44.9 billion.

In other words, the auction of the 5G mid-band spectrum has nearly doubled the price of the spectrum. In fact, the price these US operators have to pay is more than that.

In addition to the cost of bidding for spectrum resources, companies that obtain the 3.7-4 GHz spectrum will also need to spend at least $13 billion to modify equipment for satellite operators that are already using this part of the spectrum resources.

And this is just the auction price for the 5G mid-frequency band.

About a year ago, the auction of 5G millimeter wave in the United States was completed, with the total auction proceeds from the 24GHz, 28GHz, 37GHz, 39GHz, and 47GHz millimeter wave frequency bands reaching US$10.258 billion.

In other words, the United States' investment in spectrum resources alone has reached the level of hundreds of billions of dollars.

Of course, 5G spectrum resources are “hard currency” everywhere, not just in the United States.

Global 5G spectrum allocation (selected countries)

Compiled by IoT Media

It can also be seen here that the prices of spectrum auctions in each country vary greatly, which is easy to understand because the market determines the price.

The price of the spectrum will be determined based on a comprehensive assessment of factors such as the region’s total population, economic size, and level of social informatization.

The spectrum auction can be figuratively likened to the land acquisition behavior of real estate developers. The higher the income of the people and the stronger their consumption power, the better the price they can sell it at.

Why are spectrum resources so expensive?

Many people may wonder why spectrum is so expensive? The answer is its scarcity.

In the digital world, communication transmission technology is the lifeline for transmitting data. To put it more vividly, spectrum resources can be likened to a highway.

Without clear and reasonable traffic rules, there will be constant traffic accidents on the road and the traffic system will be paralyzed. The same is true for data transmission.

Therefore, in order to enable better data transmission, spectrum resources need to be strictly planned. In my country, except for a small number of free frequency bands and some civilian-specific frequency bands, most spectrum resources have their own owners.

Therefore, obtaining even a small piece of spectrum resources within the limited resources means obtaining access to this business.

For example

In the 1990s, China's telecommunications and postal services were operated by China Post. It was not until later that the telecommunications business was separated and operated by today's China Telecom. Today's big player, China Mobile, was separated from China Telecom and mainly operates mobile communications business.

At that time, mobile communications were still an emerging business, and China Mobile obtained the mobile communications license, while China Telecom retained the operating licenses for fixed-line telephones and fixed broadband networks.

Logically speaking, China Mobile was just a younger brother separated from China Telecom. In addition, the mobile communications business was far inferior to the fixed-line business at that time. China Mobile could definitely not compete with its big brother China Telecom.

But the times have been changing. After entering the 21st century, China entered the era of mobile communications. Mobile communications business skyrocketed. China Mobile took advantage of this trend and made a lot of money, becoming the overlord of China's mobile communications field.

During this period, China Telecom suffered from the lack of a mobile communications operating license and could only watch its younger brother play the "game" and count money, but it did not even have an "admission ticket".

It was not until the 3G era that China Telecom, which had already understood the "rules of the game", finally got its own "entry ticket" and began to play happily in the field of mobile communications.

However, China Telecom is still a generation behind and has been catching up...

After reading this story, everyone should be able to understand why foreign operators are willing to do anything to obtain 5G licenses.

The vast market space of 5G is also the driving force behind the sky-high spectrum prices

In addition to scarcity, it also depends on how big the market is.

As for the potential of the 5G market, we can see a lot of information on the Internet:

Some say that the market size of the 5G industry chain will reach more than one trillion US dollars;

Some say that 5G was born for the Internet of Things and can achieve tens of billions of connections;

Some say that 5G will profoundly change the entire society...

Putting aside these emotional predictions and analyzing rationally, the operators' large investments are understandable.

In 2015, the 4G spectrum in the United States was auctioned for $44.9 billion. So far, 4G has brought huge profits to various operators in the United States.

In the 5G era, the economy and society will be more dependent on wireless communication technology, and in addition to humans, tens of billions of IoT devices will also become potential consumers of 5G.

Coupled with the accumulation of inflation, it is not surprising that the price of 5G spectrum in the United States has doubled.

Of course, according to the experience of the real estate industry, even if the developer obtains the land price at an outrageous price, it can still recover the cost in the housing price.

After all, the wool comes from the sheep, and the operators will definitely find ways to recover their costs. This cannot be avoided unless you can leave the network.

Final Thoughts

Finally, we have to mention China's 5G spectrum. Unlike foreign countries where 5G spectrum resources require operators to spend a lot of money to obtain, the spectrum resources of Chinese operators are entirely allocated by the state.

Therefore, compared with foreign operators, Chinese operators naturally save a lot of 5G investment costs.

Correspondingly, domestic operators will also take political tasks into consideration when building their networks, such as covering the network in sparsely populated areas, reducing 5G network charges, etc.

Therefore, we have reason to believe that China's 5G popularization speed will be the fastest.