08.25.08

Is the value of spectrum going up or down?

Posted in LightSquared, Spectrum at 10:10 am by timfarrar

Investors in MSS-ATC spectrum are hoping to see the value of spectrum assets increase over time, as wireless operators are forced to acquire additional spectrum to serve surging data demand. Some recent benchmarks, such as the Canadian AWS spectrum auction which raised four times what was expected, are encouraging. However, Nextwave has struggled to sell its spectrum assets (including holdings at both 2.3GHz and 2.5GHz), with the exception of a modest amount of AWS spectrum. This sale took place at an average price of $0.25 per MHzPOP, which although it represents a profit on NextWave’s investment, is much lower than the prices paid for AWS spectrum in many major metro areas during the 2006 auction.

Now Clearwire has announced that its investors will receive $1.62B of stock in New Clearwire in exchange for their existing equity. Clearwire owns 15.9B MHzPOP of 2.5GHz spectrum in the US and a further 8.7B MHzPOP internationally (which it values at $0.03 per MHzPOP). Given Clearwire’s existing cash and debt, this places a value of between $0.09 and $0.13 per MHzPOP on Clearwire’s US spectrum (the higher value assumes all of Clearwire’s enterprise value is attributed to spectrum, while the lower value includes its $633M of PP&E). This is also a relatively low value, given that Clearwire paid $300M for the 1.7B MHzPOP of spectrum it purchased from BellSouth in early 2007, equating to $0.18 per MHzPOP.

Thus it seems the current credit crunch may also be putting a damper on spectrum valuations, as NextWave highlighted when explaining its failure to sell spectrum assets. The impact seems to be particularly significant in spectrum bands that have yet to be exploited, which is unsurprising since these bands tend to be the most attractive to new entrants, who are worst affected by the market downturn. As a result, MSS-ATC operators may have to wait a while for the perceived value of their spectrum to increase.

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