Sprint Bowing Out of Incentive Auction Raises Big Questions for FCC, Analysts Say
Sprint’s decision not to participate in the TV incentive auction raises big questions about the FCC’s decision to restrict bidding on parts of the spectrum to just competitive carriers, said Charles Golvin of Abelian Research on a webinar Monday sponsored by Recon Analytics. Golvin and other analysts discussed big recent trends in the wireless sector, including the changing nature of AT&T, as it becomes more than a traditional carrier.
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Sprint’s decision “is putting more scrutiny on the FCC and their processes and the structure of the auction,” Golvin said. Sprint said Sept. 26 after studying the issue carefully it wouldn't bid in the auction, scheduled to get underway March 29 (see 1509280059).
Sprint’s dropping out of the auction could be a big win for T-Mobile, leaving it standing alone as a major carrier eligible to buy the reserve spectrum in the incentive auction, said Jim Patterson of Patterson Advisory Group. “It really does open up a very unique door for T-Mobile” and possibly other market entrants, he said.
A big gap will remain between Verizon and AT&T and its smaller competitors regardless of FCC auction policy, said Jan Dawson of Jackdaw Research. U.S. regulators want to foster competition, but won’t take a string of steps to do so as regulators have in Europe, he said. “It raises this important question about Sprint and T-Mobile and their ability to be competitive over the long term” when they remain significantly smaller, Dawson said. Sprint’s decision to sit out the incentive auction raises even more questions about whether the gap between the big two and its competitors “is ever going to be closed in a measurable way,” he said.
Sprint bowing out of the incentive auction likely makes the 600 MHz spectrum much more affordable for T-Mobile, said Roger Entner, analyst at Recon. But questions remain about the auction, he said, saying Dish Network seems unlikely to make a big move in the incentive auction like it did in the AWS-3 auction. The auction still has to raise enough money to pay off broadcasters, Entner said. “If more and more companies are bowing out … we will not see enough bidders in there with deep enough pockets,” he said. There's “obvious” demand for spectrum, but carriers don’t have a “never ending pool” of capital to “tap into,” he said.
Touching on broader industry movement, Entner said all evidence is that AT&T is becoming a very different competitor, with its foray into satellite TV, home security and other business lines. “We see so much more coming from them where their competitors … can only respond with one or two products,” he said.
Patterson also sees a big change in the emergence of AT&T as a very different company with its buy of DirecTV. AT&T is moving away from the traditional “RBOC” business model, he said. Patterson said the new AT&T has “no border to the south with their movement into Mexico and potentially further south.”
The wireless industry is also becoming “bifurcated,” Entner said. Verizon and AT&T are “rewarded” by analysts for profitability while Wall Street wants growth from T-Mobile and Sprint, he said. “This creates a completely different set of behaviors and strategies of how they are addressing the marketplace,” he said. “We often throw them in one bucket, where it’s actually much more than that.”
Another important change in recent months is a recommitment of SoftBank and its CEO Masayoshi Sonto investing in Sprint, Dawson said. “That I think is a change that we’ll see sort of play out over the next year or two,” he said. “I think it should re-energize competition, especially among the smaller players.” Dawson said the big question for Sprint and T-Mobile is whether they can translate an aggressive business strategy into long-term growth and profitability.
A trend to watch is the decision of some handset makers, led by Apple, to push more strongly into smartphone sales, offering customers financing as an alternative to buying the device from a carrier, Dawson said. He said one of the biggest factors tying subscribers to their carrier is their contract to buy their handset and breaking that relationship could mean more churn.
Golvin said one of the biggest trends of 2015 is the emergence of T-Mobile as a bigger player with an “in your face” attitude. “I think their continued momentum really reaffirms that the issues on which they’re focused, whether it's contracts, whether it’s the device lock in, really are the ones that resonate with their customers.” T-Mobile is also improving its network, with throughput speeds and LTE availability to rival Verizon and AT&T, he said. Golvin said there's no doubt wireless carriers are following a new business model, getting away from an emphasis on selling devices to their customers and signing them up to traditional service plans.
Golvin predicted the FCC could impose a listen-before-you-talk requirement on carriers that want to deploy LTE-unlicensed. On LTE-U, Entner said the “big question” is “who is doing the land grab?” Is it cable operators trying to protect current Wi-Fi operations or carriers “responding to the shortage of spectrum” for licensed use? he asked. “The FCC has been very wise not to specify what technology to use, even in licensed spectrum, unlike the Europeans,” he said. It would be “event more remarkable” if the FCC were to place strictures on the use of unlicensed spectrum, he said.