U.S. wireless carriers along with Dish Network (NASDAQ: DISH) sit on wireless spectrum worth around $368 billion collectively, according to a report from a financial analyst at Goldman Sachs.
That sky-high valuation is a result of the AWS-3 spectrum auction, according to Goldman Sachs analyst Brett Feldman. The auction raised a record $41.329 billion in net winning bids, and was for mid-band spectrum, which the wireless carriers already had quite a bit of going into the auction. As a result of the bidding, the carriers' existing holdings and the spectrum they acquired in the AWS-3 auction are now worth more than they were before the auction, which ended in late January.
Dish's designated entity (DE) partners bid $13.3 billion for 702 licenses, winning 25 MHz of total spectrum including 13 MHz of paired spectrum. AT&T (NYSE: T) spent $18.2 billion for AWS-3 licenses it says cover 96 percent of the U.S. population. Verizon Wireless (NYSE: VZ) spent $10.4 billion for 181 AWS-3 licenses in markets covering 192 million POPs, or 61 percent of the United States. T-Mobile US (NYSE:TMUS) paid $1.77 billion for 151 licenses in the AWS-3 auction to fill out its mid-band spectrum portfolio. Sprint (NYSE: S) did not participate in the AWS-3 auction, but the value of its holdings likely increased in the aftermath of the auction.
According to an Investor's Business Daily report on Feldman's research note, AT&T now holds spectrum licenses worth more than $91 billion. Verizon's spectrum is now valued at $79.4 billion. Goldman Sachs values Dish's spectrum at around $50 billion. The report did not indicate Goldman's valuations of Sprint and T-Mobile's spectrum, but based on a chart from Goldman Sachs, it appears Sprint's spectrum is valued at close to $70 billion and T-Mobile's spectrum is valued at around $56 billion.
There could be more deals ahead in the industry, especially involving Dish, which has not yet built out any of its spectrum. "We believe that AT&T and Verizon remain in a very strong spectrum position for the next five years. ... We believe lack of interest for Dish's spectrum may compel Dish to acquire T-Mobile or partner with Sprint," Oppenheimer analyst Tim Horan wrote in a recent research note, according to Investor's Business Daily. "Otherwise, it risks losing its spectrum."
Each carrier has its own unique portfolio of spectrum, and it's difficult to objectively discern the intrinsic value of the spectrum each carrier holds. That's especially true because certain spectrum bands are theoretically worth more--depending on who the buyer is. Lower-band spectrum has better propagation characteristics and mid-band and high-band spectrum is better equipped to support network capacity--though mid- and high-band spectrum generally requires more cell sites to cover geographic areas than low-band spectrum. However, if a carrier already has a great deal of low-band spectrum, low-band spectrum might not be worth as much to that carrier.
In a research note earlier this month, MoffettNathanson analyst Craig Moffett wrote that coming up with accurate spectrum valuations is actually quite difficult. "Unfortunately, the problem of spectrum valuation simply doesn't yield to simple supply and demand commodity frameworks. There just aren't enough buyers for that," he wrote. "Then layer on the additional, and equally unanswerable, questions as to the motivation and intent of a small number of individuals (does Charlie Ergen want to build or sell? Is Marcelo Claure inclined to sell or hold? Is Lowell McAdam a buyer or not?) and the problem gets worse. Add regulation, spectrum caps, build-out timelines that create use-it-or-lose-it cliffs, and engineering uncertainty (what will happen with Wi-Fi offload? Will small cell deployment finally take off or not?), and one is left with a mind-boggling tree of imponderables."
Seeming to anticipate the Goldman Sachs report, he wrote that "we admire those analysts who have tried to make it all sound simple. Perhaps they are simply smarter than we are. But Occam's Razor doesn't assume that things are simple…only that the simplest explanation that works is preferred."
Moffett added: "Tying all this together in a single valuation framework is perhaps best likened to superstring theory; there are a few people who are smart enough to tantalizingly claim that we may be on the brink of a single, unifying model… but even they haven't figured it out yet. And for the rest of us it is simply beyond all reasonable expectation. What we clearly are left with, however, is tremendous risk. Surely, the valuations of Sprint and Dish Network must ultimately reflect the enormous risk associated with assuming not just the answer to any of these unknowables…but all of them at once."
- see this Investor's Business Daily article
- see this MoffettNathanson blog post (reg. req.)
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