Analysts Predicting $30 Billion to $60 Billion Auction Revenue
Analyst projections for incentive auction revenue range from $30 billion to $60 billion because of differing evaluations of participation in the forward auction from wireless carriers and new entrants, financial analysts and auction watchers told us. Almost as soon as the FCC issued a public notice Friday (see 1604290048) saying the auction would seek to clear the maximum amount of TV station spectrum the commission had been targeting, 126 MHz, stock and other analysts started emailing investors their estimates for the total auction proceeds. The wide range of estimates is due to multiple factors that are subject to change until bidding is done, said analysts in interviews Tuesday.
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Wireless carrier expenditure in the AWS-3 auction, the commitment of companies like Comcast to entering the wireless market and the importance of the spectrum on offer are being weighted differently by different observers, said SNL Kagan analyst Justin Nielson. “Nobody knows for sure what the demand will be.”
SNL Kagan is predicting about $45 billion revenue, Nielson said. UBS analyst John Hodulik projected $30 billion to $35 billion, which he said would lead to prices of 94 cents to $1.09 per MHz-POP, while Citigroup analyst Michael Rollins predicted a $1.28 per MHz-POP. Macquarie Securities analyst Amy Young projected up to $60 billion, while BIA/Kelsey Chief Economist Mark Fratrik expects a return of closer to $35 billion, which he said would be more than enough to pay off the costs of the auction and repacking broadcasters.
The analysts also differ on whether the auction will end up in multiple stages. “Given that we still are not certain of how much demand there will be on the FORWARD side, there is a high probability that this 126 MHz clearing target is not met in the first stage of the auction,” said Wells Fargo analyst Marci Ryvicker via email. Fratrik disagreed: “I don’t think there will be a stage 2.” There's a corollary between multiple auction stages and lower auction estimates, since more stages likely means lower clearing targets and less forward auction interest, Nielson said. Some analysts have said further stages could mean higher auction revenue, since there would be less of a supply of spectrum to meet the demand. The high initial clearing target and large amount of spectrum on offer could lead to lower prices for carriers, Rollins said.
Many analysts predicting both big and small returns based their theories on the AWS-3 auction. The large amount of money spent there informed Fratrik’s prediction, he told us, and Hodulik said carriers would spend less in the incentive auction than AWS-3. Fratrik said current low interest rates would make it easier for carriers to finance large bids in the incentive auction. Analysts told us it’s hard to know how much new entrants like Comcast will spend. “We believe cable will enter the wireless market, with tentative initial steps,” said Hodulik. Young said the progression to 5G will drive spending. “Now that this auction is underway, we expect the FCC could release an NPRM to set industry standards for 5G and accelerate the path to wide-scale adoption,” she said. “Verizon, AT&T, and T-Mobile all have plans -- still trials at this point -- for 5G deployment.”
Wall Street predictions for the auction should be taken with a grain of salt, said former Expanding Opportunities for Broadcasters Coalition Executive Director Preston Padden, a consultant for companies participating in the reverse auction. Analyst estimates predicted a very low incentive auction clearing target and much smaller revenue from AWS-3, he pointed out. “They were all wrong about the clearing target, and all wrong about AWS-3,” he said. “It’s an extremely complicated auction and it’s just not possible for even a very intelligent person sitting in a Wall Street office to understand it all.” Padden has consistently predicted high auction returns, and told us again he expects revenue above $60 billion and as high as $80 billion. “Nobody can know for sure,” he said.