Ryvicker: Spectrum Auction Likely to See Multiple Stages

Doesn't see initial cost being covered in forward auction

In response to the just-announced $86,422,558,704 clearing cost for broadcasters to exit spectrum—at least in the first round of the FCC's auction and at the highest spectrum clearing target of 126 MHz—Wells Fargo senior analyst Marci Ryvicker said, "This is way, way, way above what we had been expecting ($35B) and also way, way, way above what consultants had been saying ($50-60B)."

"Our quick take is that the broadcasters showed discipline - investors were fearful that this would be a race to the bottom and it clearly was not; rather this was an orderly auction that came out with prices much higher than expected. That said, this creates a challenge for the forward auction as we have struggled to see more than $30B being spent by the wireless companies. This clearly means, to us, that the entire incentive auction will run through multiple stages and could go into 2017 unless the FCC will pursue a quick forward process; i.e. allowing multiple (and when I say multiple, I mean multiple) rounds per day."

But, as she also points out, it will not be until the forward part of the auction—where wireless carriers and others bid on the reclaimed spectrum—that the marketplace decides how much broadcasters will ultimately get.

The forward auction is likely to launch in late July or early August. Upfront payments are due July 1.

The FCC has nine separate targets in an auction that was always planned for multiple rounds, depending on how the marketplace decided to value it.

Consultant Tim Farrar of TMF Associates took one look at that $86 billion figure and tweeted that he thought the strategy for forward bidders like Comcast, Dish and private equity firms would be to stay on the sidelines and wait for the clearing cost to drop to $30 billion or so at a 60-70 MHz clearing target.

"By any measure, the reverse auction over-delivered on expectations," said Adonis Hoffman, chairman of Business in the Public Interest and former chief of staff to FCC Commissioner Mignon Clyburn, who suggested wireless bidders would step up. "[N]ow the finessing begins. I suspect investors in the forward auction will have to dig a little deeper in their pockets than they wanted, but dig they will.  

"This kind of opportunity only comes around like Halleys Comet, so we are going to see higher prices on a net expenditure basis.

"Unfortunately, the dark cloud in all of this is appears to be the near shut-out of several small broadcasters, some class As and all low powers. If there is a subsequent stage, this should be addressed."