Carriers Will Participate in Incentive Auction Regardless of Timing, Padden Says
Carriers will participate in the incentive auction and “bid hard” even if it's held close on the heels of the AWS-3 auction, said a white paper prepared by Kagan Media Appraisals at the behest of Expanding Opportunities for Broadcasters Coalition Executive Director Preston Padden. Rising wireless usage, competitive pressure and limited spectrum resources “should be irresistible drivers for the carriers to be there,” said the paper, "Can the FCC Attract a Full House for the 2016 Broadcast Incentive Auction?" by Kagan analyst Sharon Armbrust.
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Analysts and attorneys agreed in interviews that it's unlikely that major carriers would skip the auction, but said the strength of their bidding could be affected if the auction isn't held at the right time. Members of the coalition, who are expected to participate in the auction, are facing their own time pressure to unload their broadcast holdings, a broadcast attorney suggested. Industry observers and the white paper also pointed to currently favorable interest rates and the prospect that they might not last long as also favoring an incentive auction being held sooner rather than later.
Despite the “unintended consequences” that the heavy spending in the AWS-3 auction soaked up a great deal of wireless company funds, they still will be able to locate the resources to spend on the “one time unrepeatable opportunity” of the incentive auction, the white paper said. It estimated revenue of $60 billion to $80 billion from the incentive auction, Padden said in a news-media call Wednesday. He called the idea that carriers would sit out or not fully participate in the incentive auction ”a false notion.” Armbrust said Wednesday that the $60 billion to $80 billion revenue figure is a “conservative” estimate.
Sprint and T-Mobile “need low band spectrum to compete effectively over the long term,” the white paper said. Because the auction is the only opportunity to acquire large amounts of that spectrum on the horizon, those carriers will be motivated to participate no matter when it is, Padden said. AT&T and Verizon need the spectrum to foreclose the other carriers from using it and maintain their “competitive leads,” the paper said. An FCC spectrum screen limiting how much low-band spectrum AT&T and Verizon can purchase that goes into effect after the incentive auction will be an additional encouragement for them to participate in the incentive auction even if it's held sooner than they would prefer, the white paper said. “The value of getting the spectrum and keeping it out of the hands of prospective competitors outweighs the value of waiting to have a better financial situation,” Armbrust said.
AT&T stands by its earlier announced commitment to bid “at least $9 billion in connection with the incentive auction provided there is sufficient usable spectrum available to us in the auction to provide AT&T a viable path to at least a 10x10 MHz nationwide spectrum footprint,” a spokesman emailed us. Verizon, Sprint and T-Mobile didn't comment. The AWS-3 auction may have been “a success” for the U.S. Treasury, but “it was a disaster for American wireless consumers,” T-Mobile President John Legere wrote in a blog post Wednesday (see 1502180054).
It's certain that carriers will participate, but it's not certain how aggressive they will be, said Armand Musey, managing director of Goldin Associates' communications practice. Along with their expenditures in the AWS-3 auction, AT&T and Verizon have other financial obligations, such as AT&T's proposed purchase of DirecTV, Musey said. The larger carriers also already own a great deal of low-band spectrum, making participation less mandatory for them than Sprint and T-Mobile, Musey said. He also said the auction isn’t necessarily the only chance for large carriers to have access to the low-band spectrum. If smaller companies snap up the spectrum in the incentive auction, large companies like AT&T could always acquire it later by buying those companies, Musey pointed out.
Current interest rates favor holding an auction sooner rather than later, said Musey, Padden and a broadcast attorney. “Money is essentially free at the moment,” Padden said, saying companies don't know how long that will continue. AT&T and Verizon are large enough to borrow enough money to propel a successful auction, and Sprint and T-Mobile have parent companies with similar clout, Padden said.
Wireless participation in the auction is less of an issue than broadcast participation, Recon Analytics analyst Roger Entner said. A delayed auction could provide an opportunity for more broadcasters to become comfortable with participating in the auction, a broadcast attorney said. Padden disputed the premise that a later auction would lead to more broadcast participation. The large broadcasters that recently visited the FCC to discuss the auction “favor the current timetable,” Padden said.