Record Italy 5G Auction Dents Telecom Industry Finances

Italy’s record $7.6 billion sale of high-speed airwaves gouges a chunk out of phone companies’ finances before they embark on costly network upgrades, according to Bloomberg.

The two-week bidding process that ended late Tuesday saw prices of some of the most coveted airwaves soar as companies battled for a chance to offer the 5G services. The industry’s final bill is more than twice what the government had expected and will leave investors wondering how the companies will turn a profit on 5G once the networks are installed. Telecom Italia and Vodafone each committed to pay about 2.4 billion euros for the largest blocks.

The big winner from the auction is the Italian government, said Dhananjay Mirchandani, an analyst at Bernstein. Telecom Italia and Vodafone will ultimately have the advantage over CK Hutchison Holdings Ltd.’s Wind Tre and France’s Iliad SA, he said. “Today, it stings. Longer term, the strategic benefit accrues to TI and Vodafone,“ said Mirchandani in a note.

The most fevered bidding in the two-week auction focused on 3.7-gigahertz airwaves that offer the strongest signals in built-up urban areas, according to a statement by the Economic Development Ministry. That piece of spectrum alone attracted about 4.35 billion euros.

Iliad bid 1.19 billion euros for smaller chunks in a sign the new entrant is committing to Italy, Wind Tre bid 517 million euros and Swisscom’s Fastweb only committed 33 million euros. The carriers are required to pay a portion upfront this year, followed by installments in subsequent years and the bulk of the fees are due in 2022.

The auction outcome helps to replenish Italy’s public coffers in a year where investor concerns have centered around the country’s future in the euro area. The Italian industry will now have less cash to spend on antennas and radio systems once the auction is paid for.