Guys, the Monday train is pulling back in to the speculation station.
With a majority of third quarter earnings on the books, analysts have finally had a chance to dig through the carrier balance sheets to get a better picture of who’s playing hardball in the FCC’s ongoing spectrum auction. But just as important as the numbers the analysts found are the ones they didn’t…and where.
According to a recent notes from MoffettNathanson’s Craig Moffett and BTIG’s Walter Piecyk, AT&T and T-Mobile both plunked down what appear to be sizable deposits for the auction by the FCC’s July 1 deadline. In the second quarter, T-Mobile reported $2.2 billion in outgoing cash for “purchases of spectrum licenses and other intangible assets, including deposits.” AT&T’s outlay came in the most recent quarter, when it posted a cash use of $2.4 billion for “acquisitions.”
While onlookers would expect a deposit to be absent from Sprint’s expense sheet – since the carrier did not apply to participate in the auction – there’s another carrier notably missing a significant deposit: Verizon.
In the third quarter, Verizon appears to have put out only $154 million for “other” expenses. And while that may be enough to make them a bidder, it doesn’t put them anywhere near the level of competitiveness most expected.
“Verizon could tell investors that it made a deposit, but that means little,” Piecyk wrote. “That is what defines them as a qualified bidder. The question is the size of that deposit. If it was $150 million, as the cash flow statement would suggest, it wouldn’t qualify them to buy more than 10 MHz of spectrum beyond New York, Chicago and LA.”
But why would Verizon choose to sit on the sidelines of what FCC Chairman Tom Wheeler has billed as the last chance to grab “beachfront” spectrum? Moffett took a crack at it.
“By one reading, Verizon is skipping this auction – again, assuming that this is the correct interpretation, since under the FCC’s anti-collusion rules, Verizon is not at liberty to comment, although they did confirm our interpretation of the accounting – in order to keep its powder dry for mid-band spectrum (like Dish’s),” he wrote. “By an alternate reading, their skipping the auction is simply an affirmation of what they have said all along; they’ve got all the spectrum they need, thank you very much.”
Though it appears Verizon may be closer to the sidelines of the auction than expected, another player is picking up the slack.
Moffett and Piecyk both pointed out that cable giant Comcast made a presumed auction deposit of $1.8 billion, securing it eligibility to bid for up to 30 MHz of spectrum nationally where most were expecting it to aim for 10 MHz or less.
On the surface this might raise questions as to what Comcast is getting at trying to pick up all that spectrum – are they making a play for wireless beyond MVNO?! – but as Piecyk said it will take years to clear and deploy the airwaves currently at stake.
Since auction deposits are refundable, Moffett said a more probable scenario is that Comcast et al. just submitted oversized deposits to make sure they could grab whatever spectrum they wanted.
“Add up the eligibility of the big three remaining bidders (AT&T, T-Mobile, and Comcast, but excluding Dish Network for a moment) and one reaches only 110 MHz of eligibility,” Moffett wrote. “The third round of the auction, which begins next Tuesday, is for 108 MHz. A more likely scenario is that each of the three has over-deposited, and that their demand will be closer to 20 MHz, 30 MHz, and 30 MHz, respectively. That would total only 80 MHz, which is close to what we have always projected for the auction as a whole.”