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FCC's 600 MHz Spectrum Auction Witness Surprise Winners

Zacks Equity Research

Recently, the U.S. telecom regulator, Federal Communications Commission (FCC) has declared the names of the winning bidders for its latest 600 MHz low-band wireless spectrum auction, popularly known as "Incentive Auction."

The much-hyped Incentive Auction turned out to be a massive disappointment with just $19.8 billion in total proceeds, way below the initially settled clearing bench mark of $88.4 billion for a substantial 126 MHz of wireless spectrums.  The airwaves were freed by TV broadcasters that no longer have any productive use of the same.  

Surprisingly, T-Mobile US Inc. TMUS has acquired the largest pie (nearly 45%) of the available spectrums by offering a sum of nearly $8 billion. The company won 1,525 licenses and bought around 31 MHz of spectrums in the 600 MHz low-band frequencies. The second lace holder was the satellite TV operator DISH Network Corp. DISH. The company bought 18 MHz of spectrum spending a little over $6.2 billion and acquired 486 licenses.

Comcast Corp. CMCSA, the largest cable TV operator and media giant, came in third by spending $1.7 billion and acquiring 73 licenses. Notably, Comcast will enter the U.S. wireless market in mid-2017 and recently revealed its wireless unlimited data plan. The U.S. telecom giant AT&T Inc. T took the fourth place after acquiring 23 licenses for a total bid price of over $910 million. Small-sized wireless operator United States Cellular Corp. USM also spent nearly $328.7 million.

Another surprising fact was that Verizon Communications Inc. VZ, the largest U.S. telecom operator, did not bid for 600 MHz low-band spectrum despite registering itself for the bidding process. All of the above mentioned stocks currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Factors that Led to the Disappointment

In Jan 2016, the then FCC Chairman Tom Wheeler asserted that Incentive Auction will be the “world's largest spectrum auction that has ever taken place.” However, the optimism soon died out. Notably, the regulator collected a substantial amount of nearly $44.9 billion from the AWS-3 spectrum auction that was concluded in Jan 2015.

Low-band spectrum is essential for wireless operators as the signals can be transmitted over longer distances and through brick-and-mortar walls in cities. However, several industry experts believe that telecom operators may be unwilling to shell out such a hefty sum for low-band airwaves.

Further, wireless operators are of the opinion that high-band spectrums can boost capacity. The U.S. wireless industry is currently suffering from cut-throat pricing competition. Two large national carriers, namely, Verizon and AT&T are facing significant competitive threats from the low-cost pricing plan of T-Mobile US and Sprint Corp. Recently, all four major wireless operators have introduced their new unlimited data plan.

Additionally, leading cable MSOs, Comcast and Charter Communications Inc., are likely to enter the field in 2017. Consequently, it will be easier for incumbent operators to merge with a suitable company to enhance spectrum portfolio rather than spending huge sums on new spectrum buying.

However, during the Obama regime, the FCC was very strict regarding consolidation in the wireless industry. Nevertheless, general consensus so far is that the new Trump administration may be more liberal about merger and acquisition proposals in the U.S. wireless market. Thus, the incumbent wireless operators may not be interested to in spending huge sums of money on the FCC conducted Incentive Auction.

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AT&T Inc. (T): Free Stock Analysis Report
Verizon Communications Inc. (VZ): Free Stock Analysis Report
DISH Network Corporation (DISH): Free Stock Analysis Report
Comcast Corporation (CMCSA): Free Stock Analysis Report
T-Mobile US, Inc. (TMUS): Free Stock Analysis Report
United States Cellular Corporation (USM): Free Stock Analysis Report
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