What's new: This morning, DT issued dividend guidance that was well below expectations, saving the company nearly ~$1BN in annual dividend commitments, noting that there was “greater clarity with respect to several spectrum auctions coming up in the US”. In addition, the company’s re-iterated leverage target suggests ~$10-20BN in capacity at T-Mobile for upcoming auctions. We believe this commentary is supportive of our thesis that a C-Band auction will raise $50BN (LINK), and positive for Intelsat and the other C-Band Alliance members.
Details: DT issued dividend guidance of €0.60 / sh., versus expectations for €0.75 / sh., saving nearly $1BN in annual dividend commitments. In addition, the company re-iterated its leverage target of 2.25x-2.75x; absent the Sprint deal, this would give the company ~$10-20BN in leverage capacity for an auction (depending on whether target YE20, YE21, or YE22 to reach 2.75x leverage). Just as importantly, DT has just gone through the experience of bidding for hotly-contested 5G spectrum in Germany, where they represented ~33% of aggregate proceeds (see HERE for why the German auction bodes well for a US C-Band auction proceeds). This likely informs their thinking about the US spectrum auction, and TMUS’s need to participate aggressively.
Thesis Impact: We have been well above consensus in our view that a US C-Band auction could raise $50BN in gross proceeds; our view rests on the fact that the key drivers of spectrum value are more favorable for the C-Band auction than prior auctions: the underlying amount of wireless capacity available at auction is higher, the value of the wireless industry that rides over that capacity is the highest it has ever been, the number of nationwide competitors attempting to capture that value is above where it historically has been, and bidders’ balance sheets remain relatively under-utilized. The latest data point from DT suggests that they see the US C-Band auction in a similar light, and they are gearing up to fiercely contest it.