Jefferies: Dish's spectrum undervalued as incentive auction drags on

Photo credit: Flickr user Ervins Strauhmanis

The FCC’s incentive auction of 600 MHz slogged on this morning, surpassing $17 billion in bids in its 16th round. And analysts continue to predict that the event will require multiple stages -- perhaps dragging into next year -- as the Commission works to match supply of TV broadcasters’ airwaves with demand from companies looking to use that spectrum to deploy wireless services.

But low demand for the low-band airwaves may be good news for Dish Network, according to analysts at Jefferies.

The auction, which began last week, is off to a slow start, Jefferies observed in a research note distributed to investors early this morning. Only 16 percent of markets with little or no spectrum impairment have seen bids to match supply, and roughly 10 percent of those markets had no increase in bidding compared to the prior round.

Indeed, the FCC recently increased the number of bidding rounds per day from two to three in an effort to spur activity. And the Commission said that it will up the asking price increase for spectrum starting Monday, doubling it from 5 percent to 10 percent per round.

The sluggish first week of bidding appears to indicate weak demand for spectrum, at least in markets other than major urban areas. That would indicate carriers already have sufficient “coverage spectrum,” Jefferies analysts wrote, and aren’t interested in investing billions more in the low-band airwaves.

That could mean they have more money to invest in mid-band spectrum, such as the 40 MHz of nationwide AWS-4 spectrum Dish currently holds, they wrote.

“We believe (AWS-4) represents the largest swath of available, unencumbered mid-band spectrum, making it attractive to a variety of potential suitors,” Jefferies analyst opined. “We assign a value of $2.25/MHz-POP, in line with AWS-3 paired pricing given the similarity of the spectrum and optionality to convert a portion of the holdings from uplink to downlink. Arguably, this spectrum should trade at a premium to AWS-3 given downlink optionality.”

An extended incentive auction would largely forestall any significant consolidation in the wireless industry for at least the next few months, likely preventing Dish from being acquired any time soon. But the satellite TV provider still should have opportunities to monetize its spectrum through a leasing arrangement.

“We believe the most likely outcome will be a leasing deal with one or more of the big carriers,” Jefferies predicted. “In our view, an acquisition of Dish is unlikely, given what we view as a significant bid-ask spread on valuation and an unfavorable regulatory environment…. We also would not rule out the possibility that Dish would be interested in an acquisition. However, in our view, the wireless industry is far too competitive for an outside party to acquire either of the smaller national carriers, unless there was a strong possibility of industry consolidation to a three-player market.”

For more:
- check the FCC’s auction dashboard
- read this Broadcasting & Cable report

Related articles:
Spectrum auction pushes past $13B in round 10
First two rounds of forward auction of 600 MHz airwaves draws over $9B in bids
The forward portion of the incentive auction starts tomorrow, and no one knows what to expect
Dish still confident it can effectively monetize its spectrum, Jefferies says