Analysts: Comcast, Charter, Dish and Google might bid in 600 MHz auction - but won't be building out networks

Next year's incentive auction of 600 MHz broadcast TV spectrum might attract bids from companies that are not wireless carriers, including Comcast (NASDAQ: CMCSA), Charter Communications (NASDAQ: CHTR), Dish Network (NASDAQ: DISH) and Google (NASDAQ: GOOG), financial and industry analysts said. However, the analysts also said that even if these wild card players do win spectrum, they likely will not be looking to build out wireless networks of their own.

Earlier this week at a conference in Washington, D.C., sponsored by investment banking advisory firm Evercore ISI, Ruth Milkman, the chief of staff to FCC Chairman Tom Wheeler, said that the agency is expecting a successful incentive auction. She noted that the FCC will repackage the airwaves broadcasters give up and auction them in the "forward auction" portion of the auction to both wireless carriers "and non-traditional bidders," which will "use the airwaves to build out better, faster connectivity for consumers."

Evercore analysts Jonathan Schildkraut, Justin Ages, Robert Gutman and Michael Hart said in a research note that they think these non-traditional bidders potentially could include "an Internet company, MSO, or other platform operator."

Top executives from Comcast and Charter said last month that they are considering participating as forward auction bidders. Dish has said it is evaluating its options and Google has declined to comment on whether it will participate.

The analysts said that "while an unexpected bidder may materialize, we do not see an economic argument for a new player to build a wireless network from the ground up." Their entrance into the auction and the winning of spectrum would imply that "such a spectrum acquisition would either be a (1) a precursor to a more aggressive acquisition in the wireless space, (2) an option on longer-term market entry (more likely leverage in negotiating a favorable network relationship), or (3) spectrum squatting."

"As we have noted in other research, we expect the 600 MHz auction prices to be lower than the AWS-3 results (on a MHz-POP basis)," the analysts added. "Notably, the FCC sees additional spectrum for mobile services through spectrum sharing with the government and, potentially, from millimeter wavelength technology (allowing for incorporation of higher-band spectrum into wireless networks)."

BTIG analyst Walter Piecyk noted that Wheeler has said he is interested in a successful auction that repurposes broadcast spectrum for wireless use, not in driving prices as high as possible. He also told FierceWireless that he did not think the spectrum would be of much use for a non-traditional player that does not have spectrum.

"I am not sure what a random 20-30 MHz of spectrum would provide a non-traditional player unless there are some new narrowband applications not yet developed like controlling drones or self-driving cars," he said.

Meanwhile, 556 Ventures analyst (and FierceWireless contributor) William Ho recalled that historically, non-carriers that have won spectrum at auction "haven't done anything to progress competition in terms of creating another national carrier."

Going back to the 700 MHz auction, he told FierceWireless, "Google was the dark horse and a lot of people were hopeful that they'd come in and give wireless carriers a run for the money. I don't remember how many bids came from them but they were a highly touted force going in but vanished in the end. Qualcomm is another non-carrier that comes to mind. It's true that they deployed MediaFLO from the acquired spectrum but in the end, that service shuttered and they sold off that spectrum to AT&T." 

In 2012 Comcast, Time Warner Cable (NYSE: TWC), Bright House Networks and Cox Communications sold their AWS-1 spectrum to Verizon Wireless (NYSE: VZ), Ho noted. Vulcan Venture won 700 MHz spectrum but never deployed it. And, of course, Dish has amassed more than 50 MHz of mid-band spectrum without a network to show for it as of yet.

"Being a wireless carrier is an expensive and complex proposition with specific core skill sets," Ho said. "If a non-carrier comes in, I believe it's tough and unlikely that they can build an alternative wireless carrier organically. Rather, it's probably going to network sharing that was discussed many years ago or being implemented in Europe. That is, have a facilities-based carrier host the spectrum. This was actually an element of Sprint's Network Vision that they were touting."

"If that happens, in the near term, the carrier beneficiary could be Sprint if you believed that they architected their network for it," Ho added. "However, we all know that there are several years of lag between spectrum payment, ecosystem development and deployment/service. A three- to four-year window could allow for carriers to try to architect their network (if the business case is there and the money is really good) for hosting. Still, that would take a lot of capital as well." 

New Street Research analyst Spencer Kurn said he thinks there is "a good likelihood that Comcast and Charter register to participate in the auction, among other 'non-traditional' bidders." Google may also show up, especially with its recent movement into wireless via its Project Fi MVNO with Sprint (NYSE: S) and T-Mobile US (NYSE:TMUS).

"Whether these nontraditional entities win any spectrum depends on the price," Kurn told FierceWireless. "We think they can be successful with just an MVNO with a carrier, but spectrum would be a nice complement to enhance quality of service. If they do acquire spectrum, the implication is that they are more likely to enter wireless. Owning spectrum may make the non-traditional operators less reliant on an MVNO with a carrier or enhance their leverage in negotiating one. 

New Street analyst Jonathan Chaplin added that Comcast and Charter "don't need spectrum, so they will participate opportunistically. If Comcast can secure a nationwide footprint of low band spectrum at a good price, it could be a great buy for them." 

Comcast CEO Brian Roberts said last month on the company's earnings conference call it will take around six months for Comcast to activate its MVNO deal with Verizon. He said Comcast is "going to trial some things and test some things after we activate and we'll update people as that progresses," but that he had "no news" about a wireless offer that would leverage Comcast's 10 million Wi-Fi hotspots and Verizon's wireless network. "We're in the test and learn mode" Comcast Cable CEO Neil Smit said.

Chaplin said he thinks Comcast is getting into wireless "irrespective of what they get in this auction, so their participation doesn't impact whether they enter or not. It would give them more options and improve their negotiating leverage. As such it could improve the terms on which they enter wireless." 

"I don't think Google will bid; their entire focus is on unlicensed. Owning spectrum would complicate their lobbying position," Chaplin added. "Dish will likely register, though I doubt they will be aggressive. They will be bargain hunting."  

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