The FCC is estimating telecoms and MSOs will spend $60 billion-$80 billion in next year’s incentive auction to redistribute wireless spectrum from television broadcasters to wireless service operators. AT&T (T) Mobility chief Glenn Lurie thinks that might be a bit of a reach.
In an interview with Re/Code, Lurie called that $60 billion number “unrealistic at this time.” But, after the FCC raised $45 billion with the AWS-3 auction earlier this year, the FCC expects to raise even more for the larger lot of spectrum in the more valuable 600 MHz band. The lower band spectrum is particularly useful for telecoms because it’s able to send signals farther and penetrate buildings better (think about how you used to be able to watch I Love Lucy over the air in your parents’ basement).
What could hold telecoms back from bidding?
At least one telecom company, Sprint (S), has said it won’t be participating in next year’s auction. Management believes the company’s current spectrum license portfolio is suitable enough to deploy its immediate network upgrade plans.
With Sprint not bidding, it will be easier to acquire more spectrum for less. T-Mobile (TMUS) will be the prime beneficiary because the FCC has reserved 30 MHz of spectrum for smaller carriers in each region. T-Mobile may be able to snatch up large chunks of spectrum for the minimum bid of $1.25 per MHz/POP. While TMUS said it has enough wiggle room to spend up to $10 billion on the auction, CFO Braxton Carter has said $1 billion is probably enough to get the job done next March.
Meanwhile, Verizon (VZ) CFO Fran Shammo has said acquiring more low-band spectrum is not a great need at the moment. He left it up in the air whether the company would participate in the incentive auction. In fact, as of right now, TMUS is the only major telecom that has indicated it’s definitely participating.
Other bidders may challenge telecoms
Dish Network (DISH) is a likely participant in the upcoming incentive auction. The company was a big bidder in the AWS-3 auction, bidding about $13.5 billion on various spectrum licenses. DISH initially thought it would receive small business discounts totaling about $3.5 billion on its bids, but the FCC eventually ruled against it. DISH had to surrender $3.5 billion worth of spectrum and pay a fine.
The satellite company will likely look to bolster its spectrum holdings next year. Another pay-TV provider, Comcast (CMCSA), may elect to participate as well to further diversify the growing media conglomerate and better compete with DISH. Additionally, Alphabet (GOOG, GOOGL) could be interested in participating, after launching its Project Fi service earlier this year on Sprint and T-Mobile’s networks.
More non-telecom bidders can cause significant price increases. Dish’s participation in the AWS-3 auction was a big reason the FCC raised $45 billion, more than twice the amount originally anticipated.
Could telecoms get a deal?
The FCC reserve for the incentive auction is $1.25 per MHz/POP. With 84 MHz-100 MHz expected to be up for auction, telecoms will have to spend at least $30 billion to complete the auction. After AT&T spent heavily on the AWS-3 auction and its purchase of DirecTV, it may just be posturing to try to get competitors to take it easy in the auction.
Ultimately, however, this low-band spectrum is, theoretically, worth more than the mid-band AWS-3 spectrum that sold for $2.72 per MHz/POP earlier this year. Someone with deep pockets is sure to come in and buy up those licenses, with plans to extract value out of them at some later date. So, if AT&T can’t afford to spend the money now, it had better start saving up for five years from now when it needs all that spectrum and has to license it from another company.
As of this writing, Adam Levy did not hold a position in any of the aforementioned securities.
