The U.S. wireless carriers – Verizon (VZ, Financial), AT&T (T, Financial), T-Mobile (TMUS, Financial) and other carriers – are keen on adding additional wireless capacity to roll out their 4G LTE network infrastructure. The incentive auction conducted by the FCC has received massive response from wireless carriers that have placed bids exceeding $37 billion. The auction that started on November 13 is dubbed as AWS-3 and 1,614 licenses to offer. It has by far seen 35 rounds of bidding and would continue until the bidding stops. While there are several carriers participating in the auction, TV-satellite provider Dish Network (DISH, Financial) has special interest. An update on the auction would give better idea regarding the key takeaways.
An overview of the auction
Though the entire process of the auction is kept confidential, but there’s no doubt that Verizon, AT&T, and T-Mobile are part of the spectrum auction. In September, T-Mobile had clearly stated that it was raising debt to participate and fund the spectrum purchase in the auction. However, Sprint (S, Financial) is not participating in the auction. As many as 408 bids have been made and there are more to come. Apart from bidding as individual companies, a consortium of three players are also being formed which is said to be controlled by Dish.
While Sprint is largely expected to be sitting out of the airwaves auction, Dish Network is assumed to be apparently interested in the bidding process. The satellite provider is believed to be bidding a high amount to pull up the auction price of the spectrum license and inflate the value of its own spectrum holding.
Carriers winning in the bid would get the license to use the spectrum and expand their network to increase their subscriber coverage. The government had kept a minimum reserve price of $10 billion for the auction, but the bid has way surpassed the expectations. In fact, it is nearly twice of the amount raised in the 2008 spectrum auction. Generally the amount raised from the sale is utilized by the FCC to fund the government deficit. However, this time the fund raised has been designated for other purpose. The fund would be used to pay for a new national broadband network.
Is Dish benefitting from the auction?
Several analysts predict that the AWS-3 wireless auction is bearing a positive impact on Dish’s spectrum holding. This news sent the company’s shares soaring high up to $73.7. Dish Network has been extremely keen to explore the telecom wireless market, but its efforts have not really paid off. It made several attempts including a counter offer for Clearwire (CLWR, Financial) when Sprint was pursuing the former, and a counterbid for Sprint when Japan-based Softbank had made a proposal to acquire stake. But neither of its efforts bore fruits.
However, the ongoing bid to acquire spectrum is doing some good to the company. Dish holds a large mass of wireless spectrum that can be put to use for building a telecom wireless network. The company has an average spectrum position of 56 MHz which isn’t that far behind the national carriers’ holdings. Sprint enjoys the highest average spectrum position at 171 MHz, followed by AT&T with 123 MHz, Verizon with 102 MHz, and T-Mobile with 69 MHz. However, Dish’s holdings are highly undervalued.
The spectrum auction is surely making Dish’s spectrum more valuable. But investors need to be careful regarding Dish’s artificial bid. If Dish keeps raising its bid to increase the value of its spectrum holding and there’s no counterbid, then it might backfire the company as it might have to end up buying the airwaves. How other carriers have fared at the auction depends on how much frequency they could buy and the price paid for the acquisition. As far as Dish’s position is concerned, investors should keep an eye on the stock and currently stay away from it.
