Analyst: Verizon Well-Positioned for Incentive Auction

Says solid balance sheet, targeted licenses help
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Bernstein analyst Paul De Sa told investors Wednesday that given the success of the AWS-3 auction, the FCC could afford to pay broadcasters more for spectrum, in part as a way to get them to the incentive auction on his timetable, but in any event Verizon appears in good shape.

"The success of the AWS-3 auction [a record $44.9 billion ponied up by wireless carriers] may change the dynamics of the 600MHz auction, in that —free from the constraint of needing to fund the $7b public safety network— the FCC can, if it chooses, optimize for clearing as much spectrum as possible by allowing broadcasters to receive more of the auction revenues, which may also increase their support for holding the auction by the end of 2016 (as the current Chairman would like)," said De Sa in a note to investors following a Verizon conference call about its spectrum plans.

De Sa conceded that Verizon and AT&T may want to delay the auction to give themselves time to pay down debt. "Indeed, it was noticeable that on the call Verizon both described a network strategy that would take it through 2019 using current assets (without incremental 600MHz spectrum) and restated that it wanted to 'get back to our pre-Vodafone transaction credit rating in the 2018-19 timeframe,' which would presumably be difficult with another multi-billion dollar auction next year."

But if the FCC does stick with the 2016 timetable, De Sa says Verizon could have an advantage over its competitors given its relatively strong balance sheet and its ability to take a targeted approach to the bidding since the licenses in the incentive auction will be based on partial economic areas, smaller units than in the majority of the licenses in the AWS-3 auction.

Another of De Sa's takeaways from the call: "Verizon will be the first U.S. telco to complete the transition to an all-IP network" and it has "several possibilities to opportunistically increase its network capacity" through other means besides auctions— acquisitions and leases.

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