The auction of the 1900 MHz PCS H Block is starting to wind down, and Dish Network (NASDAQ: DISH) still appears poised to walk away with the spectrum, according to a financial analyst. Based on current activity, the auction will likely end sometime in the next few days.
The auction, which started Jan. 22, today entered round 34, and so far there have been $1.054 billion worth of provisional winning bids. There were 40 new bids during today's most recent round of bidding, a number of that has been steadily declining as the auction has progressed. When that number reaches zero, the auction will end. There are 176 licenses up for auction.
Dish has agreed to bid the reserve price of $0.50/MHz-POP for the entire auction, or $1.56 billion.
"The H-Block auction has seen more selective, but slowing, activity over the last several rounds. Aggregate auction prices are now at $0.33/MHz-POP, 35% below Dish's reserve bid of $0.50/MHz-POP; however, select urban markets are showing accelerating price increases and bids that are above prices paid in Auction 66 (the last AWS spectrum auction)," New Street Research analyst Jonathan Chaplin wrote in a research note. "While select markets are showing high competition, at this point we still think Dish will most likely win the license across all EAs with its reserve price of $1.56BN."
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.
None of the nation's top wireless carriers are participating in the auction, and Dish appears to be the only major bidder. Chaplin noted that of the 23 total H Block bidders, New Street has tracked down 10 bidders that had less than $40 million in annual revenues over the last three years. Of the remainder, there are nine rural telecommunications companies which also likely have far fewer financial resources Dish. There are also three financial buyers, whose financial capabilities New Street is unsure of.
In recent rounds, Chaplin noted, certain urban markets, such as Las Vegas and Minneapolis, have seen four or five times as many bids per round as the rest of the licenses. "It is possible that the competition is attempting to drive up prices in major markets, before switching bids to the markets they really want in later rounds; however, bid increases are slowing on an aggregate basis, and are still well below the reserve bid," Chaplin wrote. "As such, it appears that Dish's bid is best positioned to win a national footprint with a bid that is likely at or close to the reserve bid."
There has been little movement in the prices in the major markets since the earlier rounds, Chaplin noted, with only San Francisco and Philadelphia (a combined 17.5 million POPs) seeing above-average bidding activity in the last 10 rounds.
Chaplin wrote that he thinks the first stage of the auction could end early this week. "Once the auction transitions to Stage 2, we expect to see an uptick in overall competition due to auction rules that penalizes bidders that do not increase their bid," he wrote.
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