DBS Calls It Quits as AWS Prices Soar in Latest Bidding Rounds
Wireless DBS, the deep-pocketed partnership between DirecTV and Echostar, has effectively dropped out of the bidding in the advanced wireless services (AWS), as the auction has progressed more quickly than many had expected. Bids top more than $8 billion total. The DBS partnership has used all its waivers and stopped bidding.
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“I think they're done,” said analyst Tim Farrar, referring to the DBS partnership: “It looks like it basically has come to a head in the last day or two. DirecTV looks like it has jumped ship and things are basically winding down… It’s an interesting set of developments.”
Verizon Wireless -- though subsidiary Cellco - Cingular and T-Mobile have emerged as the dominant bidders. SpectrumCo, the joint cable venture with Sprint Nextel, also appears to be in retreat and isn’t pursuing the major regional licenses.
To round 15 late Tues., T-Mobile had the highest bid for 7 of the 18 big regional licenses and was the top bidder for major small licenses in such areas as L.A. and Chicago. The carrier had a $1.1 billion bid for a regional license in the Northeast, the highest for any license. Cellco was the top bidder for 3 of the big regional licenses. Cingular was top bidder for 4 of the regional licenses and appears ready to buttress its already strong spectrum portfolio with smaller licenses across the U.S. Verizon Wireless made a strong challenge in round 14, bidding for 20 MHz of spectrum covering the entire continental U.S. But T-Mobile battled back the next round.
Wireless DBS, meanwhile, shed its bidding eligibility, from 648 million bidding units to 300,000. To round 15 it had the high bid, $317,000, for an Alaska license, for which it had become high bidder in round 2.
Farrar said in an interview he was surprised how quickly prices increased for the large regional licenses. “It’s also quite surprising how quickly Wireless DBS pulled back,” he said: “They pulled back at a relatively low price range” after licenses hit 40 cents/MHZ POP.
If DirecTV and EchoStar are out of AWS, they may be headed for an Ancillary Terrestrial Component (ATC) deal with one or more mobile satellite services (MSS) operators, analysts said Tues. Mobile satellite services spectrum in the L-band and S-band can be tapped terrestrially, nationwide under an ATC license from the FCC. Mobile Satellite Ventures (MSV) holds the only such license.
“This certainly reinvigorates activity in the ATC sector,” Farrar said. Motient, MSV’s parent firm, was trading up 18% at our deadline Tues. “I think there may be a push toward at ATC deal because of the national footprint that would give them. Clearly [Wireless DBS] was in it for a national footprint because they were bidding on the large, regional licenses,” Farrar said. MSV and L-band competitor Inmarsat hold around 30 MHz of spectrum each.
Some analysts expected a DBS-MSS deal to materialize before the AWS auction, but said parties involved were hung up on price. “MSS players presumably weren’t willing to settle” for existing offers, Farrar said: “They bet AWS would come up with higher prices than people expected. At least to some degree, that appears to be justified for the large national licenses.”
Craig Moffett, an analyst with Bernstein Research, told us the withdrawal of the DBS bidding group could mean one of several things: “Both DirecTV and Echostar have said in the past that their strategic position would be enhanced by the availability of more wireless networks regardless of who owns them… To some extent they could be signaling that they are sufficiently comfortable that a range of new wireless alternatives will emerge form the auction that they no longer feel like it’s incumbent on them to be the ones to build to… Alternatively, they could be signaling that the price-value equation for spectrum is in this auction looks like it will be less interesting.”
Moffett said DirecTV and Echostar may now focus on such alternatives as a partnership with MSV, Clearwire or another company. Moffett said SpectrumCo also appears to be retreating. “We could be seeing nothing more than SpectrumCo and Wireless DBS falling in the wake of the bigger, more committed players,” he said: “You would have had to be sort of circumspect from the beginning about whether SpectrumCo and Wireless DBS were going to be able to hold their own against Verizon and Cingular if Verizon and Cingular decided that they really want this spectrum.”
Cablevision’s controlling shareholders have bid more assertively even as the partnership’s eligibility has been more than halved. Dolan Family Holdings’ has remained focused on metropolitan N.Y., as analysts had expected (CD Aug 10 p9). Its winning bids shot up to $269.8 million from less than $100 million in the previous 4 rounds. That’s still less than the family’s highest tally of high offers of $665.1 million in round 11. Cablevision isn’t owned by Dolan Family Holdings, though analysts said the cable operator will probably use the family’s spectrum.
The Dolans made “vigorous, aggressive bids,” said Medley Global Advisors’ Jessica Zufolo. Competition from the likes of cable has led to more active bidding among wireless firms, Zufolo said: “Wireless carriers are doing everything they can to beat back strong, well financed bids from their chief rivals… We're in the eye of the storm, so to speak.”