Analyst: 'No discernable patterns' in the long-term value of spectrum

HOLLYWOOD, Fla.--Despite the massive $44.9 billion collectively spent on spectrum licenses during the FCC's recent AWS-3 auction, one Wall Street analyst believes that the value of spectrum is not necessarily increasing. Instead, Craig Moffett said that the value of spectrum continues to remain a moving target, making it virtually impossible to predict what will happen during next year's incentive auction of TV broadcasters' 600 MHz licenses.

Spectrum "is not a simple commodity," said Craig Moffett, senior analyst of investment research firm MoffettNathanson, during a keynote presentation here at PCIA's recent Wireless Infrastructure Show. Moffett said that spectrum buyers have paid a wide range of prices for spectrum during the past decade, making it difficult to forecast what spectrum licenses will sell for in the future.

In one graphic that covered both auctions and secondary-market transactions, Moffett showed that per MHz-POP prices for mid-band spectrum peaked at $4.18 in 2000, fell, and then rose again to $2.53 in 2014. Meanwhile, prices for low-band spectrum hit $3.22 in 2001 and then jumped to $4.64 in 2013. "There are no discernable patterns," Moffett noted.

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In another graphic, Moffett showed how prices for the same spectrum licenses have in some cases declined. During the FCC's Auction 35 for the 1900 MHz PCS C and F Blocks in 2001, prices per MHz-POP hit $4.35, he said. Then, during Auction 58 in 2005 (a re-auction of that same spectrum), prices only reached $2.65. Similarly, Moffett said PCS C and F Block prices reached $0.88 per MHz-POP during the FCC's Auction 58 in 2005, and then they fell to $0.58 in 2010 when those licenses were subsequently sold.

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Moffett said that in some cases spectrum licenses have returned lower values than government bonds, over the long term.

But some analysts have a different view of the issue. "Based on our calculations, we have seen a clear rising tide in the value of spectrum licenses over the course of the past few years," said Spencer Kurn, an analyst with New Street Research, in comments after Moffett's presentation.

Moffett explained that the price paid for spectrum licenses often depends on who is buying. For example, he said Dish Network's (NASDAQ: DISH) participation in the AWS-3 auction helped increase overall bids during the event. Similarly, cable providers like Cox Communications and Comcast (NASDAQ: CMCSA) participated in the FCC's AWS-1 spectrum auction in 2006, helping to increase prices during that auction.

Moffett said the presence of such "dark horse" bidders is impossible to predict, which he said makes forecasting the upcoming 600 MHz auction difficult at best. The FCC is scheduled to conduct the 600 MHz incentive auction next year, which is contingent on TV broadcasters giving up some of their spectrum in a "reverse auction" so that wireless carriers and others can then bid on it in a "forward auction."

"I think we have no real shot at making cogent forecasts this far in advance," Moffett said of the FCC's planned 600 MHz auction.

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