Pointing to the eye-popping $46 billion raked in when Germany auctioned a chunk of its airwaves last month, Lowell "Bud" Paxson says he's sitting on a gold mine.
But several analysts say Paxson is being overly optimistic if he thinks the extravagant prices will be duplicated when the U.S. government holds a similar round of bidding next year and permits winners to offer lucrative buyouts to broadcasters now using the spectrum.
Fueled by Germany's bonanza and an earlier $35 billion auction in the UK, anticipation of big buyouts led to mid-August upticks in the stock prices of several station groups operating on channels the U.S. is reallocating for mobile wireless services.
Paxson Communications, Sinclair Broad-casting, Entravision and Shop At Home all enjoyed at least a small vote of confidence from Wall Street last month for being among the most likely beneficiaries among 138 stations operating on channels 60-69, which the government will put on the block in March.
Broadcasters are entitled to stay on the band, located at the 700 MHz portion of the spectrum, at least until 2006, when stations are slated to begin all-digital transmission on lower channels. But the FCC is eager for the U.S. to keep up with the European rollout of "third-generation" wireless services, such as mobile Internet and video. To prevent delay, regulators are encouraging the winners to negotiate buyouts that will free up the spectrum quickly.
Paxson predicts that wireless providers will pay the same amount per person for each megahertz of spectrum as Germany's winners. That means a total price of $35 billion, because the U.S. deal covers more people than the either of the European auctions but a much smaller swath of frequencies.
"Interest is just beginning to develop, but I think it will heat up dramatically," he said. Paxson won't predict how much of that cash broadcasters will get, but whatever the amount, he says, it's a just reward for developing the once barren upper tier of the UHF band.
But analysts say the burden of freeing up the band is too unpredictable and telecom companies won't be willing to pay the same prices fetched in Europe. Also, the spectrum is more valuable there, some say, because Europe's densely packed population guarantees a better return on investment.
"I don't think the combined auction price and buyout fees will come close," says David Friedman, analyst with Bear Stearns. "Germany is part of a pan-European strategy, and the auctioned spectrum was allocated commonly across Europe. It's critical for wireless providers to be there."
Paxson, convinced of a forthcoming windfall, is gearing up to protect his stake. He says he already has appointments with more than 20 members of Capitol Hill this month to press them to see things his way. Paxson's message: Broadcasters are entitled to a healthy price for giving up their old analog homes and to strong cable carriage rights for the digital replacements.
The Golden Spike
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Paxson's stock price rose dramatically in the final days of the German spectrum auction