FirstNet 'Wildcard' as Carriers Decide on Incentive Auction Strategy, Wells Fargo Says
FirstNet’s concurrent pursuit of a partner to build a network using 700 MHz spectrum is likely to have an effect on the TV incentive auction because AT&T and Verizon are likely contenders for the FirstNet contract, said Wells Fargo analyst Jennifer Fritzsche Wednesday in a research note. Responses to the FirstNet request for proposals are due May 31, just as the reverse part of the auction gets started. Other analysts and observers disagreed whether Fritzsche is on target in her warning.
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“Do NOT Forget FirstNet,” Fritzsche wrote. One issue “likely not emphasized enough is the ‘FirstNet wildcard.’" She predicted both Verizon and AT&T will bid for the contract. “The fact that the FirstNet process is happening in parallel with the auction is somewhat ironic in that both opportunities could increase a carriers' low-band portfolio,” she said. Both AT&T and Verizon have “significantly densified their networks to support 5G, which could put them in an attractive position to satisfy the FirstNet extensive coverage requirements,” she said.
Fritzsche also predicted AT&T, T-Mobile and Verizon will bid in the incentive auction, but will all exercise discipline. Verizon’s network is centered around 22 MHz of upper 700 MHz band C-block spectrum and the carrier is likely to spend only about $5 billion in the incentive auction “given its stated intention to return to single-A credit ratings in the 2018-2019 timeframe,” she said. AT&T has 29 MHz of spectrum on average of low-band spectrum and is likely to spend around $10 billion since it also balance sheet concerns, she said. “A case could be made that more of their attention, focus and capital will be directed toward higher-band spectrum … or toward the recently acquired AWS-3 licenses,” she said of the two carriers.
Fritzsche predicted T-Mobile will spend about $10 billion in the auction. But she also noted that the incentive auction is the only planned FCC auction of low-band spectrum, which means future purchases will have to be made in the secondary market.
Wells Fargo got the analysis wrong, said former Expanding Opportunities for Broadcasters Coalition Executive Director Preston Padden, who advises reverse auction bidders."FirstNet is dysfunctional decision making by committee and the end product is likely to resemble a camel,” he said. “Good luck to any carrier that bases its future on that process. Some analysts continue to search for arguments to support their universally incorrect low-ball predictions for the 600 MHz auction. Spectrum is the lifeblood of the wireless industry. Both existing players and outsiders will bid aggressively in what will be the highest dollar auction in history."
But Roger Entner, analyst at Recon Analytics, said he shares Wells Fargo’s concerns. “The FirstNet opportunity serves like extra spectrum and Verizon and AT&T can calculate accurately how much the FirstNet spectrum cost them compared to auctioned spectrum,” Entner said. “It will impact their bidding strategy. I expect the wireless carriers to be more active but not dramatically. No matter how scarce spectrum is, the bids still can't over-leverage the companies.”
FirstNet could have some effect on the auction, said Fred Campbell, executive director of Tech Knowledge and former chief of the FCC Wireless Bureau. “But I suspect the differences between acquiring largely unencumbered spectrum in the auction and the opportunity to participate in FirstNet’s RFP process would limit its potential to impact the auction substantially,” he said.
“I think there are many factors that may impact what carriers will spend for low-band spectrum,” said Harold Feld, senior vice president at Public Knowledge. “Even with the FirstNet contract available, I'm not convinced that AT&T and Verizon will be happy letting huge swaths of low-band spectrum go to rivals.”