Wireless Carriers Make Underwhelming Offers in FCC Spectrum Auction

AT&T (T) , Verizon Communications (VZ) , T-Mobile USA (TMUS) , Comcast (CMCSA) and other potential buyers of wireless spectrum licenses made underwhelming offers in the third stage of a government auction. The bidding began and ended on Monday, lasting just one round and setting up a next stage of the auction.

The Federal Communication Commission is selling television broadcast spectrum licenses to wireless carriers and other buyers through a complex auction aimed at enticing broadcasters to sell their licenses to the government, so that the wavelengths can be repurposed for wireless service.

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Each stage of the auction contains two rounds of bidding. In the first, broadcasters tell the FCC how much they will accept for their spectrum. Then, wireless carriers and other bidders say how much they are willing to spend. In each subsequent round, the government offers less spectrum for sale to incentivize bidders to act sooner rather than later.

The latest bidding lasted just one round, with the wireless carriers and others offering about $19.7 billion, well below the TV station owners' ask of $40.3 billion.

BIA/Kelsey analyst Mark Fratrik expected the wireless carriers to show more interest in the latest round. TV station owners have lowered the ask from $86.4 billion in the first round to $54.6 billion in the second before their latest offer in the third round, which closed Thursday.

"I was pleasantly surprised last Thursday that the reverse auction dropped all the way down to $40.3 billion," Fratrik said. "I was thinking the total number might lead the wireless companies to be more aggressive in bidding in the forward part of stage three."

The FCC will start the next stage on Dec. 13. The commission has not said how much it will seek to auction. However, Fratrik and others expect the FCC to lower the amount of spectrum it hopes to clear from 108 MHz to 84 MHz.

"Going from 108 to 84 is a pretty big drop," Fratrik said. "You're going to need a lot fewer TV broadcasters and volunteers. That total dollar amount should go down noticeably."

Walt Piecyk of BTIG projects the TV stations would ask for $24.2 billion in the next stage of the auction, which should be within range for the wireless carriers. If the auction proceeds to a fifth stage, Piecyk estimates that the TV station owners would accept $18.1 billion.

At the end of the first round, the total bids were less than half of the ask. The spread may have persuaded bidders to "wait for a lower hurdle to end the auction that might be available in future stages," Piecyk wrote.

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The wireless carriers offered less in third round than in the second, when they made cumulative bids of $21.5 billion.

The drop in activity, and the abrupt end to the bidding by wireless carriers, does not bode well for the auction, Wells FargoSecurities broadcast analyst Marci Ryvicker wrote in a recent report.

"Well, for one, it means that this auction is NOT going as well as the FCC had planned," she wrote, suggesting that the FCC held the sale too soon after last year's $41.3 billion blockbuster spectrum auction and AT&T's purchase of DirecTV for $67 billion, including assumed debt.

She wondered "if the whole regulatory landscape might change the broadcasters' desire to even ''sell' their spectrum." Relaxation of ownership rules could encourage broadcasters to focus on mergers, she suggested. Others could hold onto their spectrum as ATSC 3.0, the next generation of digital TV standards, approaches.

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