FCC, Broadcasters May Need to Lower Incentive-Auction Expectations, Say Analysts
Wireless industry lawyers and analysts at the CTIA meeting in Las Vegas last week were mostly bearish on the outlook for the TV incentive auction. With Dish Network’s pursuit of 600 MHz spectrum in doubt, and Comcast not expected to be a major player, industry observers said the three major national carriers that are bidding, AT&T, T-Mobile and Verizon, all have to be concerned about their balance sheets and may not push prices that much higher than the current bids. The reverse auction's second phase starts Tuesday (see 1609120064).
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With carriers in a quiet period mandated by FCC rules, there was little direct discussion of the auction at CTIA. FCC Chairman Tom Wheeler during a keynote speech (see 1609070033) urged carriers to step up to the plate and bid. Wheeler said the wireless industry already missed out on the possibility that 100 MHz of spectrum will be made available for wireless broadband after the first stage of the auction ended.
A wireless carrier lawyer not directly involved in the sale said the FCC needs to get used to the idea that an auction that raises only slightly more than the $22.45 billion in net bids in phase one is a success. Other lawyers who represent carriers said there are many unknowns, but the expectation has long been the auction would fall at or below the levels seen in the AWS-3 auction. The AWS-3 auction closed in February 2015 with more than $41.3 billion in provisionally winning bids (see 1501300051).
Preston Padden, who advises broadcasters who are trying to sell their spectrum licenses, complained about the tone of some of the discussions at the annual show. "It is hard to sit through endless panels about the need for more spectrum after the industry chose to get access to less nationwide, non-shared, pristine 600 MHz spectrum,” Padden told us.
“The reality is that the carriers just don’t have the kind of balance sheet capacity to drive the auction to the kind of stratospheric levels we saw in AWS-3,” Craig Moffett, analyst at MoffettNathanson, told us. “I’m not sure that ugly reality has really sunk in yet.”
Bidding patterns at the end of stage one suggested Dish might be exiting the auction, said Tim Farrar, a satellite industry consultant. If Dish is out, “then no one else has an incentive to push up prices,” he said. “I'd be surprised if we end above $30 billion.”
Optimists are still predicting a $40 billion auction, but somewhere “south” of $35 billion seems more likely, said Doug Brake, telecom policy analyst at the Information Technology and Innovation Foundation, who was at the show. “Regardless of where we end up, we've cleared the reserve and even $23 billion is a tremendous amount of value to be transferred,” Brake told us. “With closer eyes on Dish, there was good reason not to expect the gangbusters of AWS-3. The model works, and can be replicated elsewhere; that's huge. Even if particular contingencies may see lower bidding than expected, I'll still call it a success.”
Roger Entner, analyst at Recon Analytics, said he didn't hear directly from carriers while at the CTIA show. “I think the previous predictions of around $30 billion stand," he said. The auction is likely to go no higher than $25 billion, said Richard Bennett, free-market blogger and network architect. “The auction is largely the victim of bad timing as it falls so soon after the AWS-3 auction, but there’s no denying that the FCC’s open internet regulations have dampened the enthusiasm of potential bidders,” he said.