A few years ago, rural wireless operators were required to remove Chinese-made Huawei equipment from their networks to strengthen national security. To help with this costly process, a fund was established for “Rip and Replace”. The problem? That fund has been short by $3 billion for years, putting serious financial pressure on rural carriers.
Congress now sees what looks like the perfect solution: use proceeds from the upcoming AWS-3 spectrum auction to fund the remainder of the Rip and Replace program. On paper, it’s a slam dunk. After all, AWS-3 licenses generated more than $3 billion in the original 2014 auction, and that spectrum is already in use nationwide.
So, what could go wrong? Quite a bit.
A Quick Refresher on the AWS-3 Saga
The AWS-3 story reads like a decade-long telecom thriller:
- 2014: Auction 97 turns into a bidding war between AT&T, Verizon, and Dish/EchoStar, driving proceeds to record levels. Until the C-Band Auction (Auction 107) was completed in 2021, AWS-3 was the largest spectrum auction ever held in the U.S.
- The Twist: Dish acquired $13B+ in spectrum through “designated entities” with a 25% discount—until the FCC determined Dish had a controlling interest and revoked the discount.
- The Default: Rather than pay full price, Dish selectively defaulted. It kept about $10B in licenses and left the rest tangled in legal disputes.
- Today: After 10 years of court battles, the remaining spectrum is finally heading back to auction.
Why This Auction Is Different—And Riskier
The Market Has Moved On
Here’s the uncomfortable truth: auctions are products of their time. The 2014 frenzy that drove AWS-3 prices to stratospheric levels was driven by specific market conditions that no longer exist:
- Spectrum scarcity: The industry was in the middle of a major spectrum crunch with no significant auctions since 2008.
- 4G desperation: AT&T and Verizon were strapped for capacity as LTE demand exploded from new mobile services over advanced smartphones like the iPhone and Android devices.
- Dish’s deep pockets: Based on bidding activity, the three major bidders all brought at least $10B (and AT&T up to $18B) – that’s going to leave a mark!
Fast forward to today:
- The industry has largely shifted to 5G-focused spectrum strategies.
- Major carriers are prioritizing large, contiguous TDD blocks instead of AWS-3’s fragmented licenses.
- Most of the attention is now on the 3 GHz band (including upper C-Band), which many believe will be the next auction.
- The carriers are focusing their capital and attention on that mid-band for deployment from T-Mobile’s 2.5 GHz band to AT&T and Verizon’s 3 GHz “Band 77” deployments.
The High-Stakes Markets
Four licenses are headed back to auction across three major markets—New York, Chicago, and Boston, representing $2.5 billion in original purchase prices. These metropolitan powerhouses will likely determine whether the auction meets expectations or falls short.
The $3B Guarantee That Isn’t
Here’s where it gets interesting. The FCC has mechanisms designed to ensure they raise the targeted $3 billion, but the reality is more complex than most realize.
Under Auction 97 rules, if a winning bidder defaults, they must cover the difference between their original winning bid and the resale price—plus penalties (see the Public Notice of July 2014, para 239). Dish already paid a hefty sum in penalties, but here’s the kicker: if these licenses now sell for less than they did in 2014, Dish (now EchoStar) is still on the hook for the shortfall.
This creates a potential nightmare scenario for EchoStar:
- If prices fall well below expectations, EchoStar could face billions in additional payments.
- That exposure could even push the company toward bankruptcy.
- Ironically, that would make it even harder for the Treasury to collect the $3 billion needed for Rip and Replace.
Auction Mechanics: More Important Than You Think
The FCC is proposing to shift from the SMRA format used in 2014 to a clock auction. This might sound like a technical detail, but it could impact outcomes.
The pricing rules used in 2014 were vastly different from what the FCC is now proposing for the AWS-3 reauction. Back then, bid increments were tied to the level of competition and activity on each license—more competition meant steeper increases. In fact, increments could go as high as 20%, and many licenses rose at that pace round after round.
By contrast, in the traditional FCC clock auction (the format being proposed this time), bid increments are usually set at 10%. While the FCC technically has the authority to raise those increments, in practice, they often let the auction proceed at the standard pace.
Here’s where it starts to matter. The four licenses in the high-stakes markets generated ~$2.5 billion, but the opening prices are currently proposed at $26 million.
- 2014 SMRA rules: Bid increments were tied to competition, capped at 20%. Many licenses jumped 20% round after round. At a $26M starting price, these high-stakes licenses hit $2.5 billion in 25–30 rounds.
- Proposed clock auction: Price increments usually sit around 10%. That means 45–50 rounds to reach $2.5 billion—if bidding is sustained.
The catch? More rounds = more time for second thoughts. Executives can get cold feet, bidders drop out, and final prices stall. And yes, that happens.
The Hidden Risk Nobody’s Talking About
Most industry analysts expect the FCC to negotiate a settlement with EchoStar before the auction, which by statute must happen by mid-2025. But there’s a very real risk that the auction doesn’t raise $3 billion.
If the gap is small, it’s manageable. If it’s big, the fallout could include:
- Forcing EchoStar into bankruptcy
- Leaving the Treasury without its expected Rip and Replace funding
- Locking up all of EchoStar’s spectrum holdings in legal proceedings
What to Watch
Chairman Carr faces a delicate balancing act: maximizing auction proceeds while addressing legitimate EchoStar concerns. Don’t expect a straightforward path to auction day.
Key milestones ahead include:
- Final FCC bidding rules (still pending from March comment period)
- Potential pre-auction negotiations with EchoStar
- Market response from major carriers as the auction approaches
The Bottom Line
It’s tempting to assume the AWS-3 reauction will easily fund Rip and Replace. But market conditions have changed, auction mechanics introduce new variables, and EchoStar’s financial exposure creates risks that could derail the entire plan.
The $3B target isn’t impossible—but it’s far from guaranteed. As the industry looks toward the mid-2025 auction, this saga is a reminder:
The telecom industry has learned not to count spectrum auction chickens before they hatch—and AWS-3 is a perfect reminder why.