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T-Mobile Big Buyer in $19.8 Billion Spectrum Auction
The FCC announced yesterday the results of its incentive auction for the 600 MHz spectrum, with spend totaling $19.8 billion. That is roughly equal to the $19.6 billion the FCC raised in the 700 MHz auctions back in 2008. In that earlier auction the big buyers were AT&T and Verizon, but we had a different mix of players this time around. T-Mobile was the biggest buyer spending $8 billion, followed by Dish Networks spending $6.2. billion, and Comcast that laid out $1.7 billion. By contrast, AT&T spent $910 million, and Verizon and Sprint sat this one out.
Sprint has significant spectrum holdings (estimated to be around 100 MHz to 125 MHz) in the 2.5 GHz band it acquired with WiMAX carrier Clearwire in 2013. BTIG Research estimates that a leaseback deal Sprint announced back in October values that Clearwire spectrum at six times the price Sprint paid to acquire Clearwire. Verizon's position is that spectrum has simply become too expensive, and it has elected to put its money into technologies that will allow it to use its existing spectrum resources more efficiently.
It seems no one is quite sure what Comcast and Dish plan to do with the spectrum they acquired. Comcast was part of a consortium with Time Warner Cable and Bright House Networks that jointly invested $2.37 billion in the 700 MHz auction in 2008. In 2011, those companies sold the spectrum to Verizon for $3.6 billion in return for the rights to resell Verizon's network under their own brands. Comcast appears to be using that arrangement as the foundation of its new wireless service.
The 600 MHz and 700 MHz bands, which have been used for over-the-air UHF TV broadcasting, are very attractive for mobile operators. Signal loss over distance is significantly better than the 1.9 GHz and 2.5 GHz bands, as is the ability to penetrate structures. All of that means better coverage with fewer towers.
In a new twist, the FCC designed this as an "incentive auction." Under the plan, broadcasters operating in the UHF band could offer up their licenses to be auctioned. In the end, 175 stations will collect $10.05 billion for agreeing to relinquish 84 MHz of spectrum. The 50 buyers who have committed the $19.8 billion, and will get access to 70 MHz, while the other 14 MHz will go to wireless microphones and unlicensed use.
PC pioneer Michael Dell was among the winners. Through his investment arm, MSD Capital LP MSD subsidiary, OTA Broadcasting LLC has acquired 24 TV stations since 2011 for some $90 million. The company sold 10 of those licenses for about $440.7 million- not a bad return. Comcast also cashed in, selling three licenses for even more, $482 million, but those stations were in New York, Chicago, and Philadelphia.
According to the FCC's press release, "Authorized by Congress in 2012, the auction used market forces to align the use of broadcast spectrum with 21st century consumer demands for mobile video and broadband services. ... the incentive auction benefits consumers by easing congestion on wireless networks, laying the groundwork for 'fifth generation' (5G) wireless services and applications, and spurring economic growth."
Wireless Carriers Carry On
So the wireless waters continue to boil, but some of the bigger players are spending their money on diversification. Verizon still holds the No. 1 spot with 143.9 million subscribers, followed by AT&T with 135 million. T-Mobile has pulled solidly ahead of Sprint with 71.5 million subscribers, compared to Sprint's 60.2 million.
The big guys are also the ones spending heaviest on diversification. Verizon purchased AOL for $4.4 billion in 2015, and picked up Yahoo's operating business in 2016 for $4.83 billion, including a $250 million discount occasioned by Yahoo's security problems (hey, what's 1 billion hacked user accounts worth?).
While Verizon is looking at the Internet, AT&T is into TV. It acquired DirecTV for $48.5 billion in 2014, and has now reached a deal to acquire Time Warner for $108.7 billion, though that deal is pending regulatory approval.
The big question going forward is, "Who's buying whom?" AT&T and Verizon will likely stay "acquirers" rather than "acquirees," and Sprint is likely safe with Softbank, though Softbank CEO Masayoshi Son is a notorious dealmaker, so who knows. T-Mobile's name still comes up despite failed attempts to be acquired by AT&T and then Sprint over the past few years. Comcast, along with Charter Communications, Liberty Media and Dish Networks, have all been mentioned as possible acquirers of T-Mobile. Of course, the Trump administration's posture on large M&A deals is yet to become clear -- along with a lot of other things.
We live in interesting times, to be sure.