Serious ‘Shade’ Thrown at Auction by Stock Analysts

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It’s too early to tell how the FCC’s incentive auction will turn out, but some pundits believe the latest truncated bidding stage with the fourth round to begin on Tuesday is telling.

Zacks Investment Service characterizes the response by wireless bidders so far as “lukewarm.”

TV station owners agreed to free up a total of 126 MHz of spectrum for $86.4 billion. Proceeds must be sufficient to cover auction costs, including the aggregate of broadcaster clearing costs, some $226 million to cover the FCC’s costs and $1.75 billion to cover the channel repack. That means the forward phase must bring in $88.4 billion for a successful auction.

The FCC reduced the clearing size to 114MHz from the original 126MHz, and then cut that again to 90 MHz for a clearing price of $54.6 billion. Then, stage two came to an abrupt end after a single round of bidding generated only $21.5 billion, Inside Towers reported. Stage three came in short as well, also ending after one bidding round with a total bid of just $19.7 billion, far below the $40.3 billion target clearing price for 108 MHz of spectrum.  

“Some industry watchers predict that telecom operators might need around 60 MHz to 70 MHz of spectrums in 600 MHz bands for a clearing price of around $30 billion,” states Zacks. Low-band spectrum is essential for wireless operators as the signals can be transmitted over longer distances and through brick-and-mortar walls in cities.

However, some industry experts believe that telecom operators may be unwilling to pay such a hefty sum for low-band airwaves. Indeed, Sprint is not taking part in the auction and Inside Towers reported Sprint Chief Financial Officer Tarek Robbiati this week said what’s being offered is “spectrum of the past.”

“The world is moving towards high-capacity data networks.” That means mid-band spectrum, he said.

In January 2016, FCC Chairman Tom Wheeler said several times the auction would be “historic” and the “largest spectrum auction ever.” At present, this optimism seems a distant dream,” stated Zacks.

Wells Fargo analyst Marci Ryvicker said in a client report “we are still quite a ways away from this potential outcome,” meaning failure. “We consider a failed auction more of a disappointment than a thesis changer for our broadcast stocks especially in light of a Republican administration.”

December 9, 2016

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