01.28.14

H-block auction: nearly done…

Posted in DISH, Financials, Operators, Regulatory, Spectrum at 2:22 pm by timfarrar

Although some guesswork is still required, today’s activity pretty much confirmed my view about where we stand with the H-block auction. In particular, I’m still convinced that there have been no significant bidders other than DISH since Round 1 and now there is no-one else left in the auction with more than a few million bidding units of eligibility at most. As a result, the auction should be completed, with DISH paying the minimum amount of $1.564B, by the end of this week or very early next.

Tomorrow or so we might still see the odd competing bid here and there, if one or two bidders jump into the few remaining blocks that have not yet received any bids, in order to preserve their remaining eligibility. However, DISH has made it very obvious to rivals that it will simply keep pushing up the price of licenses that receive competing bids (even raising its own winning bid) until any other bidder gives up. Moreover, in Rounds 16 and 17 there were no longer any competing bids whatsoever in the auction.

The table below shows the decline in the number of competing bids and how the last few remaining competitors switched to low priced licenses in the earlier rounds today, prior to stopping further bids. As I noted yesterday, it looks like someone other than DISH (probably a financial speculator) put in bids for NY and LA in Round 1, but then seeing how little competition there was, gave up on any more bidding. That’s logical, because unless there is a critical mass of other bidders, DISH can simply target its firepower on any smaller bidder until that player stops bidding (or is prepared to pay $0.50/MHzPOP plus for its target licenses).

Thus, by sometime tomorrow morning, it looks like no other players will have any remaining eligibility and it will be left to DISH to raise the price step by step to the $1.564B minimum price and the auction will be done. Indeed that seems to already be happening, with DISH renewing its bidding on NY and LA in Round 17 as any potential competition ebbed away. Then we will be able to move on to renewed speculation about DISH’s plans, and whether a deal with Sprint will be announced soon. After all, leasing the H-block to Sprint as part of that deal would be an entirely logical path for DISH to take.

UPDATE (1/29): Today’s bidding threw up a few more medium-sized licenses that had been held by other bidders since the early rounds of the auction, notably in Minneapolis and Las Vegas, which DISH turned its attention to after bidding up NY & LA in Rounds 17 and 18 and Boston, DC, Chicago, Dallas and SF in Rounds 19 and 20. The sequence of bids in these licenses is not incompatible with DISH and one other player bidding actively against one another, as some other commentators have suggested is the case. However, that would not be aligned with DISH’s signaling strategy in other licenses (of overbidding its own winning bid, until competitors got the message and gave up, seen in the chart as a yellow cell followed by one or more green cells) and would also require the competing bidder to have won both NY and LA in the first round (only 25% probability, due to the random allocation of licenses between equal bids).

As a result, I conclude that it is more likely that DISH has been bidding against itself for most major licenses and has left a few winning bids from competitors alone until it has bid up the other desirable cities so far that it would be unappealing to switch to them. Now DISH is concentrating its firepower on a few smaller licenses, the increase in total bids (now at $781M) has actually been slower than yesterday, suggesting that it will take 3 or 4 more days before the auction finishes. The chart of licenses with multiple bids is as follows:

Many may now wonder if DISH’s spectrum (and that held by others such as LightSquared) should be revalued downwards, because of the low price of the H-block. That’s not unexpected (and indeed exactly what I predicted last month), but in my view DISH’s real asset value is in its potential “towers” (i.e. satellite TV antennas) not in the spectrum itself. DISH’s spectrum holdings may no longer be worth $10B, but if DISH can monetize its antennas (say 1M sites at $100/month) via a fixed broadband network deployment, then there is a very clear alternative source for $10B in incremental value.

3 Comments »

  1. FCC Airwaves Auction Ends After Reaching Minimum Price Set By Dish | Re/code said,

    February 27, 2014 at 11:02 am

    [...] is the presumed winner of the airwaves licenses, according to industry analysts who’ve been watching the bidding. The FCC wouldn’t release the name(s) of the winner(s) and said it would take a few days to [...]

  2. FCC Airwaves Auction Ends After Reaching Minimum Price Set by Dish | TechNewsDB said,

    February 27, 2014 at 11:28 am

    [...] is the presumed winner of the airwaves licenses, according to industry analysts who’ve been watching the bidding. The FCC wouldn’t release the name(s) of the winner(s) and said it would take a few days to [...]

  3. FCC Airwaves Auction Ends After Reaching Minimum Price Set by Dish | endlessness said,

    February 27, 2014 at 6:41 pm

    [...] is the presumed winner of the airwaves licenses, according to industry analysts who’ve been watching the bidding. The FCC wouldn’t release the name(s) of the winner(s) and said it would take a few days to [...]

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