Confusion Over Incentive Auction  

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Last week, Kathryn Bachman of Katy on the Hill reported that studies indicate the 2016 incentive auction could fetch $49 billion. Jennifer Fritzsche, senior analyst at Wells Fargo, attended an investor’s conference in Washington D.C. last week where the auction was a big topic of discussion. “What we walked away from the meetings with was general confusion about the numbers being thrown about for the expected broadcast auction proceeds,” Fritzsche wrote. “I mean these are some big numbers – like in the $60 billion – $80 billion range. We don’t get it…..consider the buyers. Just looking at our companies – you have AT&T with a leverage ratio of approx. 2.9x (post-DTV close), Verizon at 2.5x, Sprint at 4.9x and T-Mobile at 3.6x. And each of these companies’ CFOs has indicated it wants to bring these ratios down, not up.” Fritzsche notes that spectrum is a finite asset, and while this is an important auction, “money does not grow on trees.” This could be one of the last major spectrum auctions we see in a while, but those numbers don’t seem to correlate. “There seems to be a very big disconnect somewhere,” Fritzsche wrote. “When I asked one of our speakers last Thursday at our D.C. meetings if anyone in D.C. focuses on balance sheets, the response was priceless….’Well of course we don’t – we have a $500 billion deficit!’ While funny and true, it does seem like the dots do need to be connected here big time.”

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