Analysts: Bidding in NYC, LA and Chicago in AWS-3 auction is 94% above average prices

A new report from Wells Fargo analysts highlights just how important major U.S. metro markets are for wireless carriers. The report shows that AWS-3 spectrum license prices for the top three U.S. markets are 94 percent above the average prices in the auction.

"Using FCC data, we estimate the three largest U.S. cities are going for a price of $4.29 per MHz/POP (including paired and unpaired)--or 94% above the average price," Wells Fargo analysts Jennifer Fritzsche, Caleb Stein and Eric Luebchow wrote in a research note. "We note the bidding in these key markets has slowed in terms of activity. For example, in NYC, there has been no bidding since round number 64." The three largest markets are New York City, Los Angeles and Chicago.

Since the auction started Nov. 13, the vast majority of the bidding has taken place over different blocks of paired spectrum (1755-1780 MHz for uplink operations and 2155-2180 MHz for downlink), especially in major markets. The bidding for the unpaired uplink spectrum (1695-1710 MHz) has been much less intense.

Through 115 rounds of bidding, total provisional winning bids in the auction amounted to $44.3 billion, implying an average price per MHz-POP of $2.21. Through 115 rounds, the average price for paired was $2.78 per MHz-POP and just 41 cents per MHz-POP for the unpaired spectrum, according to Wells Fargo's analysis.

The report noted that through round 115, New York City received provisional winning bids totaling $6.58 billion, or about $3.95 per MHz-POP. "This represents roughly 15 percent of the total auction bids received, and a significant premium on a MHz-POP basis for what the total blocks were being bid at," the analysts noted. "We note for the paired blocks (J, I, H), the average was $5.18/MHz-POP and $0.79/MHz-POP for unpaired." The same pattern held true for Los Angeles and Chicago, the report said.

Since the bidding is confidential, it's impossible to know which companies have been bidding for what blocks of spectrums. Still, analysts speculate that Verizon Wireless (NYSE: VZ) and AT&T Mobility (NYSE: T) will likely spend anywhere from $15 billion to $20 billion each for licenses in the auction. Dish Network (NASDAQ: DISH) has been seen as an actor that has driven up prices in the auction, which are now nearly four times the aggregate reserve price of $10.587 billion. T-Mobile US (NYSE:TMUS) and smaller carriers are also likely to win smaller licenses.

Wells Fargo looked at the carriers' balance sheets and debt levels to assess Verizon, AT&T and T-Mobile's bidding strategy. "Assuming VZ does not choose to raise more debt, we expect VZ has about $15.17B available to bid," Wells Fargo noted.

The analysts think AT&T will issue new debt in the first half of 2015 to fund acquisitions (including Mexican carrier Iusacell) and the purchase of spectrum licenses.

The Wells Fargo analysts also noted T-Mobile has said it wants to keep $1.5 billion in cash on its balance sheet, which would imply the company has around $3.3 billion in maximum bidding capacity "if we assume it does want to keep this cash on the balance sheet."

On Dec. 16, the FCC moved to "stage three" of the auction, forcing bidders in the AWS-3 spectrum auction to place new bids on 98 percent of the licenses for which they are eligible or face the prospect of not being able to make any more bids. The Wells Fargo analysts expect the auction to come to a close in late January. The auction will continue until there are no new bids or waivers in a given round.

Once bidding has completed, the FCC will issue a public notice to announce the auction has closed, and what the aggregate auction proceeds were. Carriers are not allowed to discuss the auction even after that. Following that public notice, the FCC will issue a second public notice, typically five to 10 business days afterwards, which will include the licenses won, by whom, how much each were sold for and final payment requirements. Wells Fargo expects the licenses to be granted by Feb. 23 and for final payments to be due sometime before that date in January.


AWS-3 auction chart courtesy Stephen Wilkus at Spectrum Financial Partners. Click here for a larger version of this image.


AWS-3 auction chart courtesy Stephen Wilkus at Spectrum Financial PartnersClick here for a larger version of this image.

For more:
- see this Bloomberg Businessweek article
- see this WSJ article (sub. req.)

Special Report: AWS-3 spectrum auction primer: What you need to know

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Analysts: Dish will have leverage over Verizon, AT&T if it scores paired AWS-3 spectrum
FCC speeds up pace of AWS-3 auction, now with more than $41B in bids
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