What a cycle costs

Combined capex peaked at $56.7 billion in 2022 and has run at $46 to $48 billion since

Capital expenditure is the one line every carrier files every year, under a tag a machine can read, so the shape of the 5G cycle can be drawn without an estimate anywhere in it (Exhibit 1).

The shape is a single hump. Combined capex was $44.0 billion in 2019 and much the same, $43.9 billion, in 2020. It climbed through 2021 to $56.7 billion in 2022, the year the C-band radios went up, and then settled between $46 billion and $48 billion for each of the three years since. The peak was 29% above the 2019 base, and it lasted one year. Verizon and T-Mobile both peaked in 2022. AT&T’s highest year on the filed line is 2025, but that reflects its fibre build as much as its wireless one. On its own capital-investment measure, which adds back vendor financing, AT&T peaked in 2022 as well, at $24.3 billion (Exhibit 2).

Three things about that cycle matter for the next one, and we would hold on to all three.

• Order. The spectrum came first, in the first quarter of 2021, and the build peaked the year after.
• Scale. The spectrum payments on the 2021 cash-flow lines, $82.4 billion by our sum, were larger than the biggest single year of network capex, which was $56.7 billion.
• Duration. The peak lasted one year. Combined capex fell to $46.4 billion in 2023, only 5% above the 2019 base, and has been between $46.2 billion and $47.8 billion in every year since.

The spectrum bill was lumpier than the network bill, and most of it fell in one year

The network was the larger number, and the spectrum the lumpier one. Most of the spectrum money left the three companies in a single quarter of 2021 (Exhibit 3).

Auction 107, the C-band, stopped bidding on 17 February 2021, and a week later the FCC closed it in public notice DA 21-207. The headline was $81,168,677,645 in gross bids, $81,114,481,921 net, from 21 winning bidders, with all 5,684 licences sold. Verizon, bidding as Cellco Partnership, took 3,511 of those licences for $45,454,843,197, which is more than half the money. AT&T Spectrum Frontiers LLC was next, with 1,621 licences for $23,406,860,839, and T-Mobile License LLC a distant third, with 142 for $9,336,125,147. United States Cellular paid $1,282,641,542 for 254.

Auction 110, the 3.45 GHz band, was a smaller affair. Bidding ended on 4 January 2022 and the Commission closed it in DA 22-39: $22,513,601,811 gross, from 23 winning bidders, for 4,041 of the 4,060 licences on offer. This time AT&T Auction Holdings LLC was the largest buyer, with 1,624 licences for $9,079,177,491, and Dish’s Weminuche the second, with 1,232 for $7,327,989,290. T-Mobile won 199 for $2,898,418,995, UScellular 380 for $579,646,526 and Columbia Capital’s Three Forty-Five Spectrum 18 for $1,379,489,483.

The cash-flow statements show the same money leaving, with the clearing on top. Verizon’s payments for wireless licences were $47.6 billion in 2021, against $3.9 billion the year before and $3.7 billion the year after. Its 10-K ties $45.9 billion of that to the C-band, including $1.3 billion toward clearing. T-Mobile’s were $9.4 billion in 2021, against $1.3 billion and $3.3 billion either side. AT&T is harder to read, because its acquisitions line bundles spectrum with capitalised interest and clearing payments. That line was $25.5 billion in 2021 and $10.2 billion in 2022, against auction prices of $23.4 billion and $9.1 billion. Add the three up and we put the 2021 spectrum payments at $82.4 billion, which is more than any single year of their combined network build (Exhibit 4).

The buying did not stop with the auctions. The two largest spectrum transactions agreed since 2022 are both private sales by EchoStar, one to a carrier and one to a satellite company.

What is left after the dividend

The next cycle will be funded from the same three cash-flow statements. Direct-to-device part 6 worked out what they leave over once the dividend is paid, and the same figures apply here (Exhibit 5).

The next spectrum bill is bigger than a year of what is left

Against that $33.8 billion a year, the first 6G-era purchase already has a date. The 160 MHz of upper C-band goes to Auction 115, with bidding from 27 April 2027. What might it cost? We have two recent prices to apply. At the $0.852 per MHz-POP the 2021 C-band cleared at, across a population of 340,110,988, we make the 160 MHz $46.4 billion. At the $0.662 the 3.45 GHz band cleared at, we make it $36.0 billion. Either figure is more than a year of what the three carriers have left after the dividend (Exhibit 6). And it buys capacity for the existing generation, on existing radios, rather than anything the word 6G describes. The order also requires incentive payments to the satellite incumbents, which we leave outside this comparison, and a device base that has to be built, which part 2 explains.

The 5G cycle cost the three national carriers $333 billion of network, about $90 billion of mid-band spectrum and about $13 billion of clearing. The spectrum arrived in one year and the network peaked the year after. The next cycle opens with a spectrum bill in 2027 that, at either recent price, is more than a year of what the three have left after the dividend. No 6G hardware will have a specification to be built to until 2029.

The ordering is the useful lesson, in our view. Last time the spectrum was bought first, in 2021, and the build peaked in 2022. If the sequence repeats, Auction 115 in the spring of 2027 is followed by a capex rise from 2028. That is Release 21’s freeze year, and two years before any vendor expects a 6G system. So the money is committed to 5G capacity right through the period in which 6G is being specified, and a 6G capital plan has to fit after it rather than beside it.

The terms, briefly

• Gross and net bids. Gross is the sum of winning bids; net deducts the bidding credits small and rural bidders receive. Auction 107’s gap was $54 million, Auction 110’s $95 million.
• Accelerated relocation payment. The $9.7 billion FCC 20-22 offered the C-band satellite operators to clear early. The auction winners pay it in proportion to their holdings, on top of their bids and the operators’ actual relocation costs.
• Capital investment. AT&T’s own measure of capex plus cash paid under vendor financing, which its cash-flow statement books as a financing outflow rather than capex.
• MHz-POP. Megahertz of bandwidth multiplied by the population covered. A price per MHz-POP is how one auction is compared with another.