The FCC's AWS-3 spectrum auction is nearing the bitter end, with total provisional winning bids topping $44.68 billion and unlikely to go much higher. Now, attention is turning to what will happen once the auction officially closes--and how carriers will come up with the money to cover their bids.
The auction will continue until there are no new bids or waivers in a given round. However, in the latest auction round, round 244, there were only five new bids. In fact, the amount of provisional winning bids actually declined by $21.09 million in round 244. As Stephen Wilkus at Spectrum Financial Partners noted on Twitter, some bids have recently been withdrawn. He noted that a bidder withdrew their $108.88 million bid for Boston's BEA003-B1 license in round 238.
As the FCC spelled out in a public notice it issued in July, shortly after bidding in the auction ends, the commission will issue a new public notice declaring the auction has closed. The FCC will also identify the winning bidders (bidding is currently anonymous), and will establish the deadlines for winning bidders to submit their down payments, their final payments, their long-form applications and their ownership disclosure reports. Currently, it is looking like final payments will be due in mid-to-late February.
Verizon Wireless (NYSE: VZ) and AT&T Mobility (NYSE: T) likely will be handing over hefty amounts of money to the FCC. Some financial analysts have speculated those two companies could wind up spending anywhere from $15 billion to $20 billion each in the auction.
"It could mean some rather large financing needs," MoffettNathanson analyst Craig Moffett wrote in a research note. "For example, our models have assumed Verizon and AT&T spent equally in the auction, with each contributing about 40% of the total--today (Jan. 15), the auction stands at $44.7B, so in that scenario Verizon and AT&T would each have spent $18B in the auction."
Moffett noted that "speculation has lately been that AT&T may have spent even more than that (and Verizon less). As we have extensively documented, AT&T has an extraordinarily tight free cash flow position (see our discussion here), and they have only $~4.5B cash on hand ($2.5B as of the end of Q3 plus $1.9B raised in November). If the estimates of $20B or more are right, then AT&T will have to raise a significant amount of debt in a very short period of time."
Moffett wrote that when factoring in AT&T's pending acquisition of DirecTV (NASDAQ: DTV), AT&T may have to issue an additional $14.5 billion in debt.
Shortly after the auction ends, the FCC will identify the AWS-3 auction bidders--including whether Dish Network (NASDAQ: DISH) won any spectrum.
"The key actor here is Dish Network. Everyone wants to know whether Dish was bidding to win or just bidding to raise prices (or even not bidding at all)," Moffett noted. "Even if they were only a fly in the ointment, so to speak, pushing the prices paid by AT&T and Verizon higher, that will soon be known."
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