Stage four of the forward portion of the FCC’s spectrum incentive auction begins today and the lower than expected “ask” by broadcasters suggests the event may be coming to an end sooner than expected. The steep reduction in clearing cost expectations from stage three ($10B vs. $40.3B) should enable a timely close.
It’s hard to know what motivated broadcasters to significantly reduce their expectations. A key factor was likely the significant bid – ask spread in the prior rounds, according to Barclays, which says the forward auction prices were not high enough to sell from the broadcasters’ point of view.
Moreover, fewer stations are needed in the auction to meet the Stage four clearing target of 84MHz (vs. 126MHz, 114MHz and 108MHz respectively, in the prior rounds). Another consideration could be the prospects for a shifting regulatory landscape. Rising expectations that a Republican-led FCC could support more television broadcast consolidation may have left television owners less willing to sell for what they may perceive to be depressed valuations.
Meanwhile, carriers have been reducing their aggregate bid value with each auction round. This could be due in part to the shifting nature of low band spectrum because carriers are increasingly seeking high band spectrum to meet rising capacity requirements across mobile networks and expected capital requirements for further consolidation, according to the analysts.
A lower than expected bidding range means wireless operators should be able to get the spectrum they need at “relatively competitive price points,” say Barclays analysts. When the auction ends, so too, does the anti-collusion period, which should help spur broadcast and wireless M&A.
Barclays projects operator bidding needs to be at least $15 billion to close the auction to cover the $10 billion bid plus ~$2.0 billion in relocation/repack costs and administrative fees; that price would also ensure the $1.25 per MHz-POP price benchmark for the 40 high-demand Partial Economic Areas.
January 18, 2017
Reader Interactions