Yesterday, DISH announced the release of an RFP regarding network planning, and more explicitly laid out the timeline for the 5G network launch (LINK). This comes after two other RFPs issued earlier this year that addressed the core network (LINK), and project management for the deployment. In this brief note, we lay out the next steps for the DISH’s network business, which we think will ultimately be worth $100BN (see our deep-dive report HERE).
In this weekend update we review the Senate hearing on the C-Band, which did not cause us to change our projections but did raise questions about details, timing, a Trump Wildcard, and above all, where is the actual plan, as none has yet been filed that meet the FCC objectives. Then we invoke Zeno’s Paradox to explain why, though all the FCC Commissioners have voted, we may not see the order approving the TMUS/S deal for another few weeks. We close with quick updates on 5G international competition and the ongoing discussions between Elliot and AT&T.
We’ve never bought into the idea that 5G is a magic wand for competitiveness and prosperity, or that being first out of the 5G starting blocks held any particular merit.
However, we are not dismissive of the idea that the early stages of 5G can illuminate important features of the telecoms landscape, or that 5G concerns will continue to energise politicians and regulators. Both of these aspects of 5G should be of concern to investors.
The landscape feature that we want to focus on here is the relative scale of the telecoms sectors in Asia, the USA and Europe – the three poles of the global industry. Our observation is that many investors have a false sense of the relative scale and importance of these three poles – partly because Asian EVs are relatively modest, but mostly the effect of investors’ proximity to their local telecoms markets in the US and Europe. This false sense of relative scale is reinforced by the confident projection by western operators of their own importance in the global pecking orderIn the US there is also a persistent ‘don’t worry, we’re doing great!’ line from some in government and the FCC (see here for example). Although this is balanced by ‘no we are not‘ from other quarters (e.g. here), it succeeds in muddying the waters..
The early picture of emergent global 5G may help to puncture this misperception –
Today the Senate FSGG sub-committee held a hearing with FCC Chairman Ajit Pai and Senator John Kennedy (R-LA), which we previewed yesterday (LINK). Here are our quick takeaways (Blair will be providing more detail in his weekend update):
Continue reading “Senate C-Band Hearing: What We Learned”
Tomorrow, the Senate will hold a sub-committee hearing to conduct oversight of the FCC Spectrum Auctions Program. The hearing will be presided over by Sen. John Kennedy (R-LA), who has been in opposition to any C-Band re-allocation process that would see the C-Band Alliance capture significant proceeds. FCC Chairman Ajit Pai will be a witness, and this may well be the first time we get more insight into his thinking on the C-Band re-allocation process (the two other witnesses are from deficit hawk lobbying groups). In this brief note, we lay out what we would read as positive and negative signs for the CBA and Intelsat (see our recent bullish initiation HERE).
In this weekend update we explain why you can probably skip this one but you will definitely want to read next week’s.Both our marketing and data analytics department hated this opening line but we always go with honesty as being the best policy. And we know that not all weeks have the same significance. So really, particularly given the confluence of baseball playoffs, football, and the totally bizarre combination of greatest Elmore Leonard novel ever and a bizzaro version of Lawrence of Arabia engulfing DC, if you want to skip an update, skip this one On the C-Band front, a hearing Thursday, and the likely lead up, will provide the clearest public information about the points of view of Chairman Pai and an important critic, Senator Kennedy. On the TMUS/S/DISH litigation front, we will likely finally see the FCC order, providing our best view of the strength of the pro-deal arguments. On both fronts, we analyze news that emerge last week, including confirmation of the FCC coming together on at least 300 MHz, thoughts on the impact of individual state moves on the wireless merger, the ruling by the trial judge on Trump’s taxes, and some Tunney Act filings. We also provide quick thoughts on the continuing rumors on a DISH/DirecTV tie up and the “family” lunch between President Trump and Chairman Pai.
This week we published on our evolving and more upbeat thesis on Asian consumer 5G (HERE), having visited the telcos in China (see HERE for feedback), Korea (HERE) and Japan (HERE) as well as Huawei (HERE).
Despite downbeat expectations we now see the potential for 5G to drive meaningful revenue growth improvements in those countries in Asia that are able to monetise as they have the capacity in place. The 5G handset price premium is dropping rapidly suggesting limited barriers to uptake. Operators are expected to see a c. 20% 5G ARPU uplift in the region, and we think the core use cases (including interactive TV and cloud gaming) could lead to a step up in high end data volumes from c. 20GB/month to potentially 50-100GB/month or even higher.
Earlier this week, Mississippi dropped out of the litigation against the proposed TMUS/S deal. Fox Business News reporter Charles Gasparino tweeted “@TMobile @sprint lawyers say more state AGs will join @MississippiAGO and drop from suit to block merger.” Are those lawyers right?We can’t help but note that Mr. Gasparino’s business model apparently is to tweet out whatever the T-Mobile lawyers tell him. We respect that as a business model that might work for him (and he does look terrific on television) but if we followed that business model, we would have reported last December that the deal was about to wrap up at the FCC and DOJ with no further material conditions and with no risk of a state lawsuit and Mr. Legere would have said nice things about us on his February investor call. And we would have been wildly wrong. To be clear, we are not accusing any members of the T-Mobile team, who we deeply respect and who have done a great job, of misleading anyone. We simply wish to reiterate what we said when Mr. Legere criticized us in February for suggesting the deal had material obstacles to closing, that he and his team have their job—create an environment in which deal approval seems inevitable—and we have ours, which is to analyze public information to determine the probabilities of various outcomes. (LINK) Maybe, but we doubt it, for four related reasons.
Press reporting suggests that the C-Band Order will come at the December 12th FCC Open meeting (with a draft made available 3 weeks earlier). The report suggests that the Order would allow for 280MHz of C-Band spectrum to be sold via a private auction in 1H20 (though this could potentially come in two auctions). In addition, the auction is unlikely to include combinatorial bidding. Overall, we find the report supportive of our Intelsat Buy thesis (see initiation report HERE) as well as our policy reporting on the likely timing, amount of spectrum and likely party holding the auction.
The most important data point is that the spectrum will be sold via private auction; this increases the likelihood of a low government cut of the overall proceeds (our base case is 20%). In addition, a private auction lowers the odds of rules that would artificially undermine bidding tension (such as overly proscriptive bidding caps). Our Intelsat Buy case rests on the view that 1) an auction of the C-Band will raise $50BN in proceeds, and 2) that the government cut will be around or below our base case of 20%. On the heels of press reporting on the details of the Order, we continue to believe in both drivers of our thesis.
Advance/Newhouse (A/N) filed its latest Charter ownership disclosure this week, and our analysis suggests that share repurchases in September were $0.9BN, bringing total repurchases for Q3 to $3.1BN ($0.6BN higher than our prior estimate). This would be a material acceleration from the $1.0BN they repurchased in each of the first two quarters of the year. We now believe they will end the quarter levered at 4.47x, up from 4.40x in Q2 and 4.43x in Q1. Charter’s target leverage range is 4.0-4.5x – if they remain at 4.47x, we estimate they could repurchase up to $2.7BN in Q4, bringing total share repurchases for the year to $7.9BN. We are taking a slightly more measured approach and increasing our FY buyback estimate from $7.0BN to $7.7BN, implying $2.5BN in buybacks in Q4.