FCC draws $86B line in landmark spectrum auction
Though the final compensation could drop substantially, shares of broadcasters jumped Wednesday.
Shares of Nexstar Communications Inc. (NXST), Entravision Communications Corp. (EVC), Tribune Media Co. (TRCO), Sinclair Broadcast Group Inc. (SBGI), Gray Television Inc. (GNT), and other broadcasters jumped higher Wednesday, after the Federal Communications Commission disclosed that it could pay TV station owners as much as $86.4 billion for spectrum that carries their broadcasts.
The FCC is undertaking a complex auction allows TV station owners to sell their spectrum to wireless carriers, with the government acting as a go-between.
Auction rules bar the FCC from disclosing participants in the auction, but a broad portfolio of TV stocks rose Wednesday.
Nexstar gained $3.26, or nearly 7.2%, to $48.63.
Entravision rose 39 cents, or 6.2%, to $6.64.
Sinclair rose $1.30, or 4.5%, to $30.26.
Tribune jumped $1.50, or 4%, to $39.30.
Gray rose 34 cents, or 3.2%, to $10.89.
In the first phase of the auction, the FCC made offers to station owners. The government lowered its bids in subsequent rounds of the so-called reverse auction, to find the lowest price at which station owners would sell, arriving at $86.4 billion.
In a subsequent auction, which could start in July, the government will shop the licenses to wireless carriers.
By Wall Street estimates, $86.4 billion is likely too rich for Verizon Communications Inc. (VZ), AT&T Inc. (T), T-Mobile USA Inc. (TMUS) and other potential buyers. If that is so, the government will go back to broadcasters and offer to buy fewer frequencies.
The FCC will proceed to go back and forth between the broadcasters and the wireless carriers until the bid and the ask prices meet.
Wireless broadband, online video and other drivers of traffic have put a premium on wireless spectrum values.
A group of broadcasters submitted reports to the FCC suggesting that the auction could raise $80 billion, though most estimates are substantially lower.
"At $86 billion, it's reasonable," said Moody's Investors Service analyst Carl Salas of the FCC's starting point.
"It's all going to come down to how much the wireless companies want to spend," Salas said. "If that's really only $35 billion to $45 billion, then we may see more rounds till we get to where the bid meets the ask."
Wireless carriers and others spent $41 billion at a spectrum auction last year, and their belts may be tightened.
AT&T is also digesting the purchase of DirecTV Group Inc. for $67.1 billion, including assumed debt, last summer.
"This is way, way, way above what we had been expecting ($35 billion) and also way, way, way above what consultants had been saying ($50 billion-$60 billion)," Wells Fargo Securities LLC TV analyst Marci Ryvicker wrote in a report. "This creates a challenge for the forward auction as we have struggled to see more than $30 billion being spent by the wireless companies," she added.
Jennifer Fritzsche, who follows telecoms for Wells Fargo, estimated that the carriers have about $30 billion to $35 billion to spend, in a report.
More rounds, and a reduced payout to broadcasters, are likely, Fritzsche suggested.
"Remember the way it works is the FCC wanted to clear as much spectrum in the reverse auction as possible and then let the market decide through the forward auction what this spectrum is worth to carriers," she wrote. "An important point to not forget: the auction does allow for multiple reverse rounds if lower clearing targets are indeed needed."
UBS analyst John Hodulik said he expects the wireless carriers to bid $40 billion for licenses. AT&T is the top spender in Hodulik's forecasts, paying $10 billion for wireless licenses. The analyst expects that T-Mobile will spend $8 billion, Verizon will pay $6 billion and Comcast Corp. (CMCSA) will dish out $5 billion to $6 billion.
