Dish, Comcast Strategies in Incentive Auction Remain Murky

"What are they going to do with it?" said consultant Jeff Kagan of Dish. "You have to assume [CEO Charlie Ergen] is not acquiring it just to resell it ... that he has got a plan." Results point to Ergen being "all in," Doug Brake, telecom policy analyst at the Information Technology and Innovation Foundation, emailed us. "Will be very interesting to see how that plays out."

Dish essentially "got stranded [by AT&T and Verizon not being more active in the auction] and couldn't get out," said satellite and wireless consultant Tim Farrar. AT&T bid $910 million for 23 licenses and Verizon sat the auction out. Ergen likely had anticipated being able to pick up low-band spectrum at low prices, with Verizon at some point running out of spectrum and coming to Dish to strike a deal, Farrar said. But he said that "it appears Verizon has the opposite view at this point; he will run out of time or money before they need his spectrum." The auction also leaves Dish with even less cash available to deploy an IoT network -- a plan Farrar said was more about buying more time with the FCC than actual deployment. Others have similarly questioned the IoT plans (see 1703100014).

It's not clear Comcast has any concrete plans to deploy the spectrum it bought, Farrar said. Comcast's bidding strategy looked to be about getting spectrum as cheaply as possible by bidding licenses it didn't necessarily want and using those to average down the licenses it did, he said. He said it's unclear if Comcast will use the spectrum licenses it acquired as part of its Xfinity Mobile deployment or use them as a hedge against Verizon increasing the prices on the MVNO agreement it has with Comcast. Farrar said the amount of spectrum now in the hands of speculators means Comcast could always find a spectrum source outside the MVNO.

Comcast

Comcast never was going to be a big bidder because the spectrum would have little strategic value other than as an investment, said Raymond James analyst Frank Louthan. If the operator decides to buy a wireless company, he said, having some spectrum assets “is interesting but it ultimately doesn't make a difference one way or another.” The participation was instead about picking up "a relatively low-risk" investment and learning more about how the auction worked, he said.

One option is using its new TV spectrum for "good basic coverage," like France's Iliad did in creating its Wi-Fi first mobile service Free mobile, emailed Michael Calabrese, director of the Wireless Future Program at New America. Dish may be "dressing itself up" through spectrum diversity in anticipation of a merger with a wireless carrier -- presumably Sprint or T-Mobile -- or a partnership or merger with a market entrant like a cable company, Calabrese said. Dish also always has a fallback position of selling or leasing the spectrum to a carrier, he said.

Comcast's new spectrum isn't for the company's Xfinity Mobile mobile offering, but it does provide optionally and leverage "in future negotiations with carriers (whether over an acquisition, network sharing, or a deep MVNO)," New Street Research Analyst Jonathan Chaplin wrote investors Thursday. "It may be valuable as underlay spectrum for a future 5G network, but that is a long way off." He said the spectrum could function just as "a tradeable asset." Comcast "made a 64% return on the last block of spectrum they bought at auction and, in addition to cash, it enabled them to secure the extremely strategically valuable MVNO they have with Verizon today," he said.

Other Surprises

While the size of Dish's activity and the relative lack of Comcast's were surprising, "the most stunning revelation was that Verizon and AT&T didn't plan," said Preston Padden, who advised broadcasters on the auction. Their relative absence kept the auction dollar results from being closer to what broadcasters had anticipated, he said, adding that given all the wireless industry lobbying and advocacy that results in the auction, "the notion Verizon and AT&T would sit out ... simply would not have occurred to anyone, and that includes Congress and the FCC."

AT&T "apparently decided to bet on FirstNet getting them more low-band spectrum, and they were successful," said Padden. He said the spectrum reserve -- motivated by concerns deep-pocketed AT&T and Verizon would foreclose small carriers from low-band spectrum -- ultimately was unnecessary. He said that could make Congress and the FCC "a little guarded the next time those companies come complaining to you they need more spectrum." Verizon and AT&T didn't comment.

Future auctions are questionable, anyway, aside from a possible new AWS-3 auction, and there won't be the same level of concerns about maximizing the proceeds in the future, Farrar said. He said it's possible AT&T and Verizon might chalk up their lack of participation to the spectrum reserve "just to ram home the point they don't like the idea of reserved spectrum." A Republican-controlled FCC likely is to be more skeptical about employing spectrum reserves, Farrar said.

Kagan said it's not surprising Comcast wasn't a major buyer in the auction because, through the Verizon MVNO agreement, "they don't need as much raw spectrum."

Comcast's auction result "is intriguing and makes sense -- even 5 megahertz in its footprint could be an effective supplement to its wifi network and gives it options to explore," Brake said. "It seems AT&T and Verizon are more or less satisfied with their LTE coverage, and are looking to higher bands to densify and add capacity, though some elements of the auction design were stacked against them."

Comcast's NBCUniversal-owned TV stations received $481.6 million selling spectrum in the New York, Philadelphia and Chicago areas -- each being a market where it sold one of two stations it owns, Comcast said in a statement. It said once the relinquishing stations give up their spectrum, WNBC New York will channel share WNJU Linden, New Jersey; WWSI Atlantic City will channel share with WCAU Philadelphia; and WSNS-TV Chicago will channel share with WMAQ-TV Chicago. It said it couldn't comment on forward auction resutls until the quiet period ends. Dish didn't comment.