Few Surprises Emerging on Incentive Auction Bidders

AT&T, T-Mobile and Verizon are on the list, as are Comcast, through CC Wireless, and Dish Network through ParkerB. There were no apparent major surprises. Potential new market entrants like Social Capital, the boutique investment firm owned by Chamath Palihapitiya, had already signaled an interest in the 600 MHz spectrum through a new venture called Rama. Others on the list include Columbia Capital and Raj Singh, Investor Mario Gabelli, John Malone-controlled Liberty Spectrum and Sinclair Broadcast Group. The Wall Street Journal said in a report that Liberty filed but doesn’t plan to bid in the auction.

“The lack of any surprises in the bidder list should likely keep expectations low for auction values,” BTIG analyst Walter Piecyk said Monday in a note to investors. Piecyk said America Movil filed an application under the name Puerto Rico Telephone Co., “leaving little room for our peers to continue to speculate on any interest by that company on being a facilities-based wireless operator in the United States beyond their operations in Puerto Rico.” Piecyk said the company, controlled by Carlos Slim, is more likely to sell TracFone than invest more in the continental U.S. NTT DoCoMo was on the list under the bidder name DoCoMo Pacific, “but like America Movil, they typically bid in the markets where they have operations in Guam and the Northern Marianas,” Piecyk said.

There were “no surprises and unfortunately nothing to get newly excited about,” a broadcast industry lawyer said. “If anything, the news is that the auction is made up of a few mainstays but mostly speculators that will end up selling to the mainstays down the road.” The list was likely good news for T-Mobile and shows it will have an easy path to buying substantial amounts of reserve spectrum, the lawyer said.

The list of potential bidders is “the minimalist set of the usual suspects that we expected minus any surprise entrants,” said Roger Entner, analyst at Recon Analytics. “The FCC failed in its endeavor to broaden the set of well-financed companies interested in wireless licenses. I can't see how the limited number of well-financed bidders who don't seem to have the means and the motive to go big can reach the broadcaster goal of $84 billion and the set-aside spectrum block that contains the more pristine spectrum will keep auction results below what it could otherwise have been.” A May 2014 FCC order set aside reserve spectrum in each market for carriers without substantial spectrum holdings in each market (see 1405160059).

“While the list does not tell us much about what bidding tension will be in the auction, the robust bidders list suggests we should see solid demand,” New Street Research said. “The same participants that drove almost all of the action in AWS-3 are there. In addition, there are some well-funded new entrants (Comcast) and some wild cards (Rama & Sinclair).” Sinclair may be in the auction to drive up values in the reserve auction, the firm said. New Street also said despite that speculation, Sprint parent SoftBank isn't on the bidder list.

“Initial applicant lists for FCC auctions can be a bit difficult to decipher since many bidders will submit applications through subsidiaries with different names,” Goldman Sachs said in a report to investors.

Evercore said in a research report released Friday after the FCC released names that it still expects lots of broadcasters to put up their licenses in the auction, but bidders to be less enthusiastic. “We expect the buyers, due to: (1) capital constraints, (2) an increasing number of licensed spectrum options, and (3) availability of unlicensed spectrum, will not have as strong an incentive to participate,” the firm said. “This could drive down both prices for spectrum licenses and the amount of spectrum bid on, leading to lower total proceeds from the highs seen in the AWS-3 auction.”

The AWS-3 auction certainly had some “unique dynamics” that drove up prices “that hopefully will not be at play in the forward auction, but all the major players are back, and then some,” said Doug Brake, telecom policy analyst at the Information Technology and Innovation Foundation. Dish, bidding through two designated entities, was the second-highest bidder in the AWS-3 auction. But the FCC denied the DEs’ request for bidding credits, citing Dish’s control of their bidding decisions (see 1602040024).

“We don’t need any surprise bidders to expect a vigorous auction,” Brake said. “The value of nationwide, paired, low-band spectrum will drive this auction more than any dark horse.” Many potential bidders “have a strategic interest in playing coy, but the values on both sides of the equation are strong enough to see a significant amount of spectrum change hands, which should be the real measure of success,” he said.

Taken together “it looks like it’s hard to see multibillion dollar bids coming from outside the usual suspects,” said satellite consultant Tim Farrar. “That might open up an opportunity for Comcast to gain some licenses, but it would be very surprising for them to spend enough to gain a national 10x10 MHz footprint that would [be] the minimum needed for a buildout of their own,” he said. “The most plausible option would be for Comcast to buy enough to give them some leverage in renegotiating their MVNO deal with Verizon, for example letting Verizon use the spectrum in their network in exchange for getting cheaper capacity for Comcast’s subscribers.”

Meanwhile, NAB filed a letter endorsing AT&T arguments the FCC should rethink its approach to repacking following the auction and consider a regional approach (see 1603140072). “An orderly transition will proceed more quickly than a disorganized, chaotic transition,” NAB said in the letter. “Because broadcast signals travel great distances, individual stations in a given market cannot be repacked in isolation. In some cases, every station in a market may not be able to move to its new channel until all stations in the market are prepared to move.”

NAB also agreed with AT&T that the structure for overseeing the transition should be based on planning, reporting and dispute resolution. “A system for monitoring and reporting progress in the transition will be important for both industry and decision-makers,” NAB said. “Winning forward auction bidders deserve to know the status of the transition in markets across the country so they can plan for testing and deployment.” The FCC should be “prepared to address disputes concerning broadcaster reimbursement, to provide broadcasters with confidence that they will be reimbursed for their costs,” the group said. The agency also needs to establish a waiver process “with predictable standards, to address situations where the transition extends beyond the FCC’s deadlines for a given market or region,” NAB said.