Analysts: Dish likely to waltz away with H Block soon, with bids only topping $698M so far

The auction of the 1900 MHz PCS H Block is one week old but it's already becoming apparent to analysts that Dish Network (NASDAQ: DISH) is set to capture the spectrum in short order, an outcome that many saw as inevitable. The question now is, if and when Dish wins control of the airwaves, what it might do with another 10 MHz chunk of spectrum.

According to the FCC, there have been 19 rounds of bidding so far in the auction. Only $698.1 million in posted winning bids for licenses have been submitted so far, far below the $1.56 billion reserve price for the auction, an indication that there is not much, if any, competition for most licenses, according to analysts.

Dish has pledged to bid, at minimum, the reserve price, or $0.50/MHz-POP, for the entire auction (though it does not have to bid that for each license). Of the 176 licenses up for auction, 144 have posted winning bids so far and 32 have not, as of the end of Round 19 of bidding. That means that there needs to be around $862 million worth of winning bids for the remaining 32 licenses for the auction to meet the reserve price.

"[On Wednesday] or so we might still see the odd competing bid here and there, if one or two bidders jump into the few remaining blocks that have not yet received any bids, in order to preserve their remaining eligibility," TMF Associates analyst Tim Farrar wrote in a blog post. "However, Dish has made it very obvious to rivals that it will simply keep pushing up the price of licenses that receive competing bids (even raising its own winning bid) until any other bidder gives up. Moreover, in Rounds 16 and 17 there were no longer any competing bids whatsoever in the auction."

Farrar told FierceWireless that he expects the auction to be finished by Friday or Monday. The main issue is that there are no major competing players bidding against Dish. Sprint (NYSE:S) had been considered a likely bidder for the H Block since it controls spectrum adjacent to the H Block, but Sprint and T-Mobile US (NYSE:TMUS) indicated in November they would not participate in the auction. Verizon Wireless (NYSE:VZ) and AT&T Mobility (NYSE:T) too are not bidding.

The list of current H Block bidders includes smaller carriers such as nTelos, Piedmont Rural and James Valley Cooperative Telecom, alongside Dish.

Dish can outbid any company for any individual licenses, Farrar said, because it knows it will not get outbid and can make up for bidding heavily on one license by bidding a lower amount on another.
"There may be a few people who thought, 'I'll pick up the odd licenses here or there,' but it's very clear Dish has got to bid $1.5 billion and there's no one else in there that is going to invest $500 million or $1 billion," he said. "You'd have to have multiple alternative bidders with deep pockets to make an auction of it."

The H Block is a 10 MHz block of paired airwaves that runs from 1915-1920 MHz (for the uplink) and from 1995-2000 MHz (for the downlink). Dish controls spectrum adjacent to a portion of the H Block, called AWS-4; Dish's 40 MHz of AWS-4 spectrum specifically runs from 2000-2020 MHz (for the uplink) and 2180-2200 MHz (for the downlink). However, Dish asked the FCC to let it use the 2000-2020 MHz band for downlink operations instead of uplink as a condition for agreeing to bid the reserve price.

Some saw this as inevitable. The FCC should not have split the H Block away from other auctions, such as the auction for AWS-3 spectrum, BTIG analyst Walter Piecyk argued a far back as last August. He was echoing Democratic FCC Commissioner Jessica Rosenworcel, who said in a statement last June that "holding a single auction of all 65 MHz at once is bound to yield more interest, more bidders, and more revenue than dividing this spectrum up and holding an auction of the 10 MHz H block alone. As Wall Street analysts have noted, splitting this spectrum up for auction will likely limit interest in the H Block to only one, or possibly two bidders. If that is true, we will have a retail sale--not an auction. Moreover, it will mean reduced revenue from this spectrum--and less support for our nation's first responders."

"The more bidders you have, the higher prices you'll get," Piecyk told FierceWireless, adding that "It seems like Dish will walk away with what was effectively a negotiated price."

As for what Dish might do if it wins the H Block, that's a matter of speculation. Farrar suggested that Dish might lease it to Sprint. Or, he suggested, Dish could deploy fixed wireless broadband on its AWS-4 spectrum and then use its satellite antennas to host Sprint's 2.5 GHz spectrum, which Sprint is using for LTE, and backhaul the service over AWS-4. Dish could also resell Sprint's service, he said. Farrar said under these scenarios not much revenue would change hands between Sprint and Dish, but the relationship could be mutually beneficial. 

Piecyk said it is unlikely that Dish Chairman Charlie Ergen, who tried to buy Sprint last year, wants to become an MVNO on another carrier's network. However, Sprint and Dish are testing fixed wireless broadband service in Corpus Christi, Texas.

For more:
- see this TMF Associates blog post
- see this FCC page

Related Articles:
FCC kicks off H Block auction, with Dish as lead bidder
Dish Network appears set to secure H Block spectrum at FCC auction next year
Analyst: Dish could spend up to $10.7B on LightSquared, H Block, AWS-3 and 600 MHz spectrum
H Block auction moving ahead as scheduled
Analysts: Sprint, T-Mobile ditched H Block to focus on other spectrum, avoid Dish complications

Article updated with updated auction bidding results.

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