WASHINGTON-Today's FCC auction of Advance Wireless Services (AWS) spectrum could prove to be a windfall for tower stocks, depending up how high new spectrum entrants such as Echostar and DirecTV are willing to go, according to a Merrill Lynch study.

The study, released this morning by the financial firm, says high bids by participants in the $6 billion to $8 billion range could mean bigger profits by tower leasing companies. Lower bids, spread across a number of smaller wireless and wireline companies that don't have immediate build-out plans, however, could mean a slowdown for the tower providers, the study says.

Auction 66 begins today at the FCC. The commission opens up bidding on 90 MHz of nationwide spectrum between 1710-1755 MHz and 2110-2155 MHz.

"We estimate that Auction 66 could contribute an incremental 14 percent to annualized tower revenue industry free cash flow in 2008," on top of its current tower estimates, the study says. The auction could drive new leasing agreements and force amendments to existing leases, according to the study, particularly leases involving T-Mobile USA for its 3G deployment, as well as expansion by Leap Wireless International and MetroPCS if they're successful in the auction.
New entrants, such as satellite players Echostar and DirecTV, are wild cards that could present an incrementally positive impact on the tower industry. If those companies are successful bidders, their buildout of a wireless broadband network to cover half of the households in the United States could translate into a 5-percent increase in 2008 tower industry cash flows, according to the analysts.