AT&T, T-Mobile and Verizon expected to make up majority of auction’s $35B haul; wild cards include Google, Softbank
Analysts are still trying to parse out expected bidding plans for participants in the Federal Communications Commission’s upcoming 600 MHz incentive auction, which could be a significant financial overhang for telecom operators heading into 2016.
The latest analysis came from Jennifer Fritzsche, a Wells Fargo Securities senior analyst, who said she expects total bidding to top out around $35 billion, and be led by established players AT&T Mobility, T-Mobile US and Verizon Wireless. Those three operators are predicted to contribute up to $25 billion of the auction’s expected total haul, with their current balance sheets being the limiting factor.
Fritzsche said she expects about 75 megahertz of spectrum to be offered up by television broadcasters as part of the proceeding’s reverse-auction process, which in turn will result in about 60 megahertz of spectrum freed up for bidders in the forward-auction portion of the process. The forward-auction portion is predicted to garner average bids of $1.75 per megahertz/potential customer covered, which would put it well below the $2.68 per megahertz/pop that came out of the 700 MHz auction in 2008, and $2.76 per megahertz/pop from the record-setting AWS-3 auction held earlier this year.
“These assumptions lead to our estimate of about $33 billion in total proceeds, although we note there is considerable uncertainty in these estimates given the unknown amount of spectrum that will be relinquished in the reverse auction,” Fritzsche noted in a research report.
Among expected bidders, Fritzsche said she expects AT&T to pony up approximately $10 billion for a 20 megahertz nationwide chunk of 600 MHz spectrum, T-Mobile US to bid at least $6 billion and Verizon to spend between $5 billion and $10 billion. The auction’s remaining bids are expected to come from regional telecom operators looking to bolster their low-band holdings as well as potential “wild cards” from outside the traditional telecom space.
“We also expect there to be at least one wild-card nontraditional bidder, with the cable companies, Google and Softbank as potential candidates,” Fritzsche added.
The auction process is scheduled to begin March 29, led by the reverse-auction proceedings, with the forward-auction process set to follow once the FCC has had time to inventory spectrum offered up by television broadcasters.
Sprint said it will not participate in the auction, citing its already ample spectrum portfolio that includes access to 150 megahertz of nationwide spectrum in the 2.5 GHz band. The carrier, which is majority owned by Softbank, is also in the midst of cost-cutting measures expected to slice $2.5 billion from its operating expenses.
Among expected participants, Verizon Wireless has been the most aloof on its plans, with Verizon Communications CFO Fran Shammo having repeatedly downplayed the carrier’s activity. Shammo has cited potential interference concerns with the carrier’s current 700 MHz spectrum holdings as well as a greater interest in higher-band spectrum to support increased network capacity.
A recent report from BTIG Research noted that with prices expected to come in under those posted by previous auctions and with the largest amount of competition to be split between Verizon Wireless and AT&T Mobility, Verizon Wireless may find it hard to pass up significant participation.
“It would be more logical for those carriers to each take [20 to 25 megahertz] and keep prices low,” explained BTIG’s Walter Piecyk. “Verizon has downplayed its need for low-band spectrum. Yet given the lack of spectrum available … it’s possible that Verizon could be far more aggressive in this auction. At [$2 per megahertz/potential customer covered], it would cost Verizon $12.5 billion for 20 megahertz of spectrum.”
AT&T has already said it plans to bid at least $9 billion in the auction as part of garnering government approval for its $48.5 billion acquisition of DirecTV.
T-Mobile US has been open about its interest in the 600 MHz spectrum auction, having already raised around $4 billion to fund its participation, with expectations that it could raise an additional $2 billion to further those plans.
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