(31 billion) Verizon Validates Clearwire's Spectrum Value
It was announced today that Verizon (VZ) is acquiring a big chunk of wireless spectrum from SpectrumCo., a consortium of cable companies (including Comcast (CMCSA) and Time Warner Cable (TXC)), for $3.6 billion (here). The spectrum that Verizon is acquiring has only a fraction (roughly 11.5%) of the bandwidth capacity that Clearwire (CLWR) owns.
Verizon is paying approximately $0.68 per MHz-Pop, which is roughly 50% more than SpectrumCo. paid at auction during the go-go days of 2006 (as reported by Arlington Economics, SpectrumCo.’s auction consultant: details here. This demonstrates that spectrum continues to grow in value, as it has consistently over the past 25 years.
Applying this new data point to CLWR’s spectrum position (approximately 46 billion MHz-Pops) yields an enterprise value of over $31 billion and an implied equity value of approximately $30 per share. CLWR is currently trading at roughly $2 per share, or about $0.13 per MHz-Pop.
again read entire article for context
The key is with debt of $5B and only 250 mil shares of stock and mkt cap of $500mil, there is a lot of room to move up and down depending on small changes in spectrum value.
Spectrum worth $5 bil- stock -$0
Spectrum worth $6 bil- Stock- $4
That is oversimplified, but you get the idea.
"In the end, SpectrumCo’s coverage objectives were met and the prices paid were excellent. As reported by Optical Networks Daily, SpectrumCo paid just $0.45 per megahertz-pop for licenses yielding 20 MHz of spectrum covering more than 260 million people, "the lowest average price paid by all the major bidders in the auction." This was substantially below the average overall price in the auction, 53¢ per MHz-pop. T-Mobile, winner of the most MHz-pops, paid 63¢ per MHz-pop; Verizon, the third largest winner, paid 73¢. If Cox, the second largest winner, had paid T-Mobile prices, Cox’ licenses would have cost not $2.38 billion, as they did, but $3.33 billion – $.95 billion more. At Verizon’s prices, Cox would have spent $3.86 billion – an extra $1.48 billion.
AWS Auction Results (Sept. 2006)
(billions) Total Paid
($ billions) $/MHz/pop
T Mobile 6.64 4.18 0.63
VZ 3.85 2.81 0.73
SpectrumCo 5.28 2.38 0.45"
So SpectrumCo paid 45 cents per MHz-pop in 2006 and sold for 54% more in 2011 (69 cents per MHz-pop). Although AWS spectrum is more valuable than CLWR spectrum this should demonstrate that CLWR spectrum has increased significantly in value over the same time period.
20 billion conservative(50 billion closer) original valuation
Spectrum Bandwidth value estamates 22-Nov-11 02:52 pm
CLWR price ESTIMATED $50 billion (closer to) than 20billion (commonly used)
For value of spectrum bandwidth determinations from ORIGINAL ANALYSIS still relevant
(more so now, considering current value disconnect )
"(Clearwire's $20 billion valuation of its spectrum may prove to be conservative; J.H. Snider, president of policy think-tank iSolon.org and former research director at the New America Foundation's Wireless Future Program, puts the number closer to $50 billion.)"
AT&T and Verizon bought their spectrum that can be used for 4G at government auction in 2008, paying a combined $16 billion.
However the 4G race shakes out, Clearwire can count on its "oceanfront" spectrum holdings to remain valuable even if the company's retail efforts fizzle. For example, consumer electronics companies have recently been expressing interest in including Clearwire's service with Internet-enabled devices like computer tablets, Morrow says.
"A lot of spectrum is extremely valuable when you think about the exponential growth of mobile broadband data needs," says Sriram Viswanathan, an Intel vice-president and general manager of its WiMAX program.
"Anyone that has more spectrum is going to be in a much better position."
Or, as Belk puts it: "You can never be too rich, too thin, or have too much spectrum."
The bottom line: Even if Clearwire's retail business sours, it will be able to resell 4G services to other carriers and device manufacturers.
With additional reporting by Peter Robison.
The below link is from a year ago, and my comments on spectrum from not long ago. How quickly things change in this industry.
First, the link to the blog correctly identifies the $20B number as being based on the $ paid for 700 Mhz ($.50/mhz/pop). I could get detailed here and go into why CLWR spectrum and 700 mhz are apples and oranges, but I've done that b4. Lets just say if you consistently see land on the beach selling for $1 million an acre and land around you selling for $200K/acre, you are foolish to argue that your property is worth $1mil/acre. For this reason, a much better approximation is the value paid by Dish in recent BR proceedings (around $.21 I think). From that you have to back out NPV of lease pmts, which I think is around $2B.
Second, CLWR owns a lot of spectrum. So much that all of it can't be used in the near future. If you are buying land you aren't going to use for years, you need to discount the price for tying up your money. Some would argue that CLWR only needs to sell some to fund their OPEX, and I agree. But you can't value all of the spectrum at optimum prices and be realistic.
Third, any big spectrum deal would need S appvl., so some of the value will be diverted to S and this could be substantial. That is why minority positions in partnerships always are valued less than majority positions.
Fourth, if you are trying to sell your land based on its value for development, but there are just a few huge developers who control the mkt, you will not be able to get your price. You will accept their price and only when they are ready.
So, based on all the above, you can probably start to calculate the true value of CLWR spectrum. I can guarantee it is nowhere near $20B. You can review the European auctions to see the range of pricing and try and discern the differences. The biggest differences is wether the mkt is competitive, or controlled by a duopoly/monopoly and can have an order of magnitude difference.
Even w/ a wide range, the biggest number I come up w/ is $8 bil. Most if not all here would take that. Unfortunately, the range goes below $5Bill which would wipe out equity.
The wild card is one of the big tech cos. MSFT is not creative enough. Apple and Google could be players (not as owners, but strategic partners), but I would think that especially Apple is sitting out until ATT/TM deal is resolved. CLWR probably can't wait for that unless ATT decides to suddenly abandon merger (not out of the question).