As the FCC's s advanced wireless service spectrum auction got underway Wednesday, Merrill Lynch sees a big upside for tower companies.
The analyst predicts cash flow could be boosted by 14% by 2008 as wireless companies bid on spectrum for advanced services and need additional cell sites and amendments to current leases.
But add another 5% to that figure, they say, if DirecTV and EchoStar win spectrum and build out their own wireless broadband service. That victory could give DBS companies a competitive boost as they go up against cable and telco service with triple play--voice, video, and data--bundles.
A possible downside for equipment companies, Merrill Lynch said, would be winning bids spread across smaller companies without immediate plans to build networks--Merrill Lynch points out that there is a 15-year buildout, so "a buyer can inventory licenses for years," it counsels.
The government coffers will benefit as well, with some estimates of the auction proceeds going as high as $20 billion. There were 168 bidders who qualified for the auction.
Bidding began at 10 a.m. Wednesday on 1,122 licenses. High bids will be posted at the end of each two-hour round, with the auction for each license ending when there are no more bids. Bidding continues each business day, though the two-hour time periods may be expanded if the bidding becomes hot and heaby. The auction is likely to take several weeks.
Winners get 15 years to build out their service, then another 10 if they have met minimum service requirements.
There are also restrictions on how soon and to whom the licenses can be resold in an attempt to cut down on flipping and trading in licenses or the use of smaller companies, which get bidding credits, as surrogates for larger ones.