Incentive Auction Delay Seen Giving Carriers Some Breathing Room
The FCC decision to delay the TV incentive auction wasn’t much of a surprise and shouldn’t lead any of the four national wireless carriers to rethink their likely participation, financial analysts and other industry observers told us. AT&T, Sprint, T-Mobile and Verizon all need, to one extent or another, low-band spectrum and so will go big in the auction, analysts agreed. Several observers said some spacing between this month’s AWS-3 auction and the incentive auction could help the carriers get their incentive auction plans in order. The FCC recently opted to delay the start of the auction from mid-2015 until early 2016 (see 1410240048).
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“I cannot imagine the chairman’s new delay has any effect whatsoever on the carriers, as they are still in the process of deploying spectrum in their reserves,” said Rick Kaplan, NAB general counsel and former chief of the FCC Wireless Bureau. Kaplan said even T-Mobile, which is the “most constrained when it comes to low-band spectrum,” is still rolling out service using the 700 MHz spectrum it bought from Verizon.
“No other company is in great need of low-band spectrum, as AT&T and Verizon Wireless already use that spectrum to cover the nation, and Sprint truly has more spectrum than it knows what to do with,” Kaplan said. “The delay is likely a good thing for the carriers, as it creates a better spacing with the AWS-3 auction. As we saw the last time around with the back-to-back auctions in 2006 and 2008, when auctions are close together, some companies bow out.”
The result of any delay is unclear and depends in part on whether the FCC changes the proposed rules for the auction, said Fred Campbell, director of the Center for Boundless Innovation in Technology and former chief of the Wireless Bureau. “Given this auction’s novelty, it makes sense for the FCC to make sure its system will work,” Campbell said. “A rushed auction that fails wouldn’t raise any revenue at all.”
Wells Fargo analyst Jennifer Fritzsche expects all the national carriers to take part in the incentive auction. She predicted all will have to go to the capital markets to borrow money, but noted that rates are low.
The only potential risk is that interest rates may not be as low in a year as they are today, said Craig Moffett, analyst at MoffettNathanson. “All of the carriers need and want low-band spectrum, and the auction is the only place they’re going to find it,” Moffett said. “If anything, it could help to give the carriers time to get their financial houses in order before the auction.”
“The delay won't make any difference to the carriers' need for spectrum or the amount they are willing to pay,” said Jonathan Chaplin, analyst at New Street Research. “This will be a fiercely contested auction, likely to generate prices of at least $1.50/MHz-POP regardless of whether it happens in late 2015 or early 2016.”
A delay could provide “breathing room” between the AWS-3 and incentive auctions, said Paul Gallant, analyst at Guggenheim Partners. “It’s also probably good just to give the FCC more time to get everything lined up,” he said. “The most important thing for wireless operators is the auction actually take place, and this delay probably raises the odds of that happening.”
A lawyer who represents carriers said the delay could be beneficial and means carriers won’t have to raise money for the incentive auction so quickly after going to capital markets for the AWS-3 auction. “It takes time to 'digest' new spectrum, no matter how acquired,” the lawyer said. “I would imagine they'd like to have as much time as possible to develop and make plans for new AWS-3 markets in order to be well prepared for the 600 MHz auction.” A second attorney who represents carriers and other clients said no one really expected the auction would take place next year because of all the pending auction questions before the FCC. “I wouldn’t expect to see any effects,” the lawyer said.
"The FCC can only do this once between now and 2023, so better to wait until conditions are easier," said Goldin Associates Managing Director Armand Musey. "The longer they wait, the more demand will be building and more broadcasters will be looking for exits."
Meanwhile, the FCC said Thursday 70 bidders have qualified to take part in the AWS-3 auction, scheduled to begin Nov. 13. AT&T’s application, initially deemed incomplete, is now complete, documents show. Dish Network, T-Mobile and Verizon also have qualified to bid in the auction (see 1410020059).