July 1, 2016 — As the reverse auction came to a close this week, it revealed it will take at least $86.4B to get the broadcasters to voluntarily give up access to 126 megahertz (100 megahertz totally cleared) of their 600 MHz spectrum. Jennifer Fritzsche, Wells Fargo senior analyst, noted that the high number is almost two times the amount that was paid at AWS-3 auction, which sold 65 megahertz of spectrum at 2 GHz for $44.9 billion.
“While the ‘shock value’ of this number is indeed high – we remind investors this number does NOT necessarily reflect what bidders in the forward auction (T, VZ and TMUS) will bid to get this spectrum,” wrote Fritzsche.
The reverse auction is the first step of the Commission’s the broadcast incentive auction. The second step is a forward auction, which will determine how much companies are willing to pay for the same frequencies. If the bidding fails to reach these types of numbers set in the reverse auction, additional stages will be run with lower spectrum targets in the reverse auction and less spectrum available in the forward auction.
“We continue to remain very skeptical that the wireless companies have the balance sheets to spend this amount. We believe it is highly likely that the FCC will likely have to step to a lower clearing target, which would be 114 megahertz (86 megahertz truly cleared) at the next stage,” Fritzsche wrote. “An important point to not forget: the auction does allow for multiple reverse rounds if lower clearing targets are indeed needed.”
Previously, Wells Fargo Securities has estimated the forward auction will eventually raise $30-35 billion to clear 60 megahertz of spectrum, which works out to $1.75/MHz/POP).
Connecting the reverse and the forward auctions is the repacking process, which involves reorganizing and assigning channels to the remaining broadcast TV stations in contiguous blocks of cleared spectrum, according to the FCC. This process may cost upwards of $1.75 billion.
“The auction system will establish a band of wireless spectrum that is generally uniform in size across all markets,” according to the FCC.