600 MHz $$$ Will Exceed AWS 3

Some commentators have predicted that the revenues generated in the FCC’s 600 MHz auction will be lower than the $44.9 Billion in the AWS 3 auction.  I believe that those projections are very wrong and here’s why.
The AWS auction involved 65 MHz of spectrum, only 50 MHz of which was paired spectrum.  There were 70 qualified bidders.  The pricing was driven primarily by four bidders – AT&T, Verizon, T-Mobile and Dish.
Based on detailed auction simulations in the FCC record, the 600 MHz auction is likely to include a net of 90 or 100 MHz of paired spectrum – twice as much as in AWS 3.  That fact alone strongly suggests higher – not lower auction revenues.  And, demand is greater in this auction.  104 bidders have filed in the 600 MHz auction – more than the 70 in AWS 3.
All the key bidders who drove the pricing in AWS 3 (AT&T, VZ, T-Mo and Dish) are back bidding in the 600 MHz auction.  And, they have the same capacity and the same incentives to bid as they did in AWS 3.  Spectrum is still the life-blood of the carriers.  There is no more spectrum in the pipeline after this auction.
600 MHz is uniquely valuable spectrum – it travels long distances and goes through walls.  Even advanced 5G systems will need low band spectrum for signaling channels.  As would be expected in their “posturing” before the auction, the carrier/bidders have tried to downplay the value of this spectrum.  But just a few weeks ago, Bill Smith, President of AT&T Network Operations, gave a speech in which he candidly admitted the continuing need for more spectrum.  And with AT&T and VZ launching spectrum hogging new video services and T-Mo inviting their customers to “Binge-On”, the suggestion that they might not bid aggressively is just silly.
In terms of financial capacity, the major carriers are among the most credit worthy enterprises on the planet.  And, at the moment, money is free!  With no other auctions looming, the carriers will have plenty of time to de-lever after the 600 MHz auction.
As for Dish, they continue to have the same interest in protecting the value of their spectrum portfolio as they had in AWS 3.  And, Dish knows that mid-band spectrum alone cannot get the job done as evidenced by T-Mo’s voluminous filings at the FCC begging for a low-band reserve.
So, the four bidders who drove the pricing in AWS 3 will drive the value of twice as much spectrum being offered in the 600 MHz auction.  But wait, there’s more – much more!
In addition to those four bidders, data just released by the FCC reveals additional deep pocketed potential disrupters who have filed to participate in the 600 MHz auction.  Any one of these disrupters – any one of them –  could seriously raise the auction stakes for every bidder.  They include:
– Billionaire Technology Executive Raj Singh bidding with Columbia Capital (Senator Mark Warner).  Columbia just hired former FCC Wireless Bureau Deputy Chief Jon Liebovitz who helped to design the auction.
– Comcast.
– Billionaire Tech and Media Investor Mario Gabelli.
– Billionaire Silicon Valley Executive Chamath Palihapitiya who already has built a wireless business in Sri Lanka that he runs from San Francisco.  Palihapitiya has publicly stated his intention to bid up to $10 Billion in this auction and reportedly has recruited an extremely wealthy Asian investor.
 – Sinclair Broadcasting which has publicly stated their intention to sell $2 Billion in broadcast spectrum in the first part of the auction.  In the second half of the auction, they can bid that $2 Billion, in a tax advantaged manner, before they even begin to impact their balance sheet.
 – Liberty Global.  After filing to participate in the auction, a spokesperson for Dr. Malone’s organization stated that they have changed their minds.  Whether that is true, or a typical bidder’s pre-auction misdirection, remains to be seen.
 – Former Verizon Executive John Dirkson and as yet undisclosed investors.
None of these potential disrupters was a factor in driving the pricing in the AWS 3 auction.  But one or more almost certainly will play a role in driving up the 600 MHz prices.
So, for anyone to believe that the 600 MHz auction will yield less revenue than the AWS auction, they MUST believe:
(1) that AT&T, VZ, T-Mo and Dish will bid less than half of what they bid in the AWS auction (recall that the 600 MHz auction will involve twice as much spectrum); and
(2) that none – not a single one – of the new disrupters actually will bid in the auction.
For example, the analysts would have to believe that Columbia Capital recruited Raj Singh and lured Jon Liebovitz from the FCC without any intention of bidding in the auction.  And, they would have to believe that Chamath Palihapitiya recruited his Asian investor and boasted about bidding $10 Billion without any intention of actually bidding.  Reductio ad absurdum!
 
Any objective review of the facts – the doubling of the amount of spectrum likely for sale, the unique and essential quality of the spectrum, the increased number of bidders, the financial capacity and the business incentives of the returning major bidders, AND the existence of many deep pocketed potential disrupters – compels only one conclusion.  The revenues in the 600 MHz auction will be greater than the revenues in AWS 3.

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