We are thinking about spectrum again, as we head into the weekend. We thought about it last weekend because we were putting the finishing touches on a report on the C-Band in the US (LINK). It is the first in a series that will endeavor to quantify the threats and opportunities presented to Wireless, Cable and Satellite companies as this new band comes to market.
Our conclusion in the first installment is that we don’t have enough information yet to have a conclusion. We know that unleashing the band could disrupt the mobile and fixed broadband markets, and it could deliver enormous windfalls to satellite companies that use the band today. We don’t know who wins and who loses and to what degree, but we will soon.
The first new data will be delivered in two weeks with the closing of the final comment period. The key thing we will be looking for is a consensus between the large wireless companies and the satellite companies (collectively the CBA), on the quantum of spectrum to be cleared and sold. The quantum will have the biggest impact on competitive dynamics in the affected industries. More spectrum is good for wireless carriers, it is a mixed bag for cable companies and it is not so good for the CBA.
The next delivery of new data will come with the FCC order in which we will learn the license sizes and auction rules. These too will could have a dramatic impact on the cost of the spectrum to the buyers and the proceeds to the CBA. We show in the report that three auctions for similar spectrum in Europe generated wildly different values all because of license structure. Italy, with two prized blocks and four bidders, generated $0.42 / MHz-POP. Spain, with 40 licenses of 5MHz, generated $0.11 / MHz-POP. And Finland with three 100MHz blocks and three bidders generated just $0.04 / MHz-POP.
The final installment of new data will come with the auction itself, which could come as early as the second half of next year. The spectrum won’t be available to the carriers until it is cleared, two to three years after the FCC order, but there is nothing preventing the auction from happening much sooner.
Intelsat owners seem to agree with our view that the value of the C-Band in uncertain. BC Partners and Silver Lake, the two sponsors who collectively own 56% of the equity, are selling a portion of their stake in a secondary auction (see press release). They are keeping most of their stake, selling roughly 15% of the shares they own. The sales seem to acknowledge that, after a 400% run in the stock from recent lows, and with a good deal of uncertainty around what the CBA could receive, this is not a bad time to take some money off the table.
We have been watching the 28GHz auction with interest (see our brief note on 28 & 24GHz auctions HERE). The bidding is up to $450MM. If it follows the trajectory of the AWS-3 auction, it might reach $600MM. That would be just $0.01 / MHz-POP. We don’t think anything can be gleaned from this auction with respect to the value of other bands though. Verizon already owns most of the band. The pieces being auctioned have limited utility to anyone but Verizon. The 24GHz auction that kicks off next could be more interesting.
This week in Germany released its rules for their 3.5GHz auction and it illustrated how important the auction rules can be for shaping winners and losers (see report HERE). They cut the reserve price by 90% and relaxed buildout requirements for new entrants. This sharply increases the likelihood that United / Drillisch acquires spectrum and becomes an MNO. This could be extremely negative for O2D, if they lost the high-margin MVNO revenue (see more detailed thoughts on European 3.5GHz auctions HERE and thoughts on the risk of 3.5GHz as a wireline replacement in the UK HERE).
Comments on spectrum were one of the more interesting things to come out of the AT&T analyst event (see informal notes HERE). AT&T reminded investors that by next year they will have deployed 50MHz of new spectrum across AWS, WCS and 700MHz bands. This will increase their deployed spectrum by 50% and give them close to a 50% capacity advantage over Verizon. It calls into question whether Verizon can really get by with millimeter wave spectrum, with its limited utility, until the C-Band is deployable sometime in 2022 (at the earliest). Their position will be particularly precarious if T-Mobile is allowed to acquire Sprint.
For the full weekly review and updated comp sheets, see HERE.
Full 12-month historical recommendation changes are available on request
Reports produced by New Street Research LLP. 52 Cornhill, London EC3V 3PD Tel: +44 20 7375 9111.
New Street Research LLP is authorised and regulated in the UK by the Financial Conduct Authority and is registered in the United States with the Securities and Exchange Commission as a foreign investment adviser.
Regulatory Disclosures: This research is directed only at persons classified as Professional Clients under the rules of the Financial Conduct Authority (‘FCA’), and must not be re-distributed to Retail Clients as defined in the rules of the FCA.
This research is for our clients only. It is based on current public information which we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Most of our reports are published at irregular intervals as appropriate in the analyst's judgment. This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients.
All our research reports are disseminated and available to all clients simultaneously through electronic publication to our website.
New Street Research LLC is neither a registered investment advisor nor a broker/dealer. Subscribers and/or readers are advised that the information contained in this report is not to be construed or relied upon as investment, tax planning, accounting and/or legal advice, nor is it to be construed in any way as a recommendation to buy or sell any security or any other form of investment. All opinions, analyses and information contained herein is based upon sources believed to be reliable and is written in good faith, but no representation or warranty of any kind, express or implied, is made herein concerning any investment, tax, accounting and/or legal matter or the accuracy, completeness, correctness, timeliness and/or appropriateness of any of the information contained herein. Subscribers and/or readers are further advised that the Company does not necessarily update the information and/or opinions set forth in this and/or any subsequent version of this report. Readers are urged to consult with their own independent professional advisors with respect to any matter herein. All information contained herein and/or this website should be independently verified.
All research is issued under the regulatory oversight of New Street Research LLP.
© Copyright 2021 New Street Research LLP
No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of New Street Research LLP.